Freddie Mac has published research examining the characteristics of borrowers who took advantage of the availability of forbearance plans in the early part of the COVID-19 pandemic. Mortgage forbearance temporarily removes the obligation for borrowers to make their monthly mortgage payment. Forbearance plans are typically used by borrowers who experienced a sudden loss of employment, a reduction in income or damage from a natural disaster.

Freddie Mac looked at internal loan-level servicing information on forbearance of its mortgages during three different periods, comparing COVID forbearance rates from March to June 2020 against a baseline period running from January 2019 to February 2020 and the 2017 storms and recovery from August to December 2017. For that later period only loans eligible for disaster related forbearance programs were included. The analysis is restricted to 30-year fixed-rate mortgages, which were current and not in forbearance the month prior to the start of the observation period.

The analysis found the forbearance rates in the COVID period were similar in level to those experienced in areas impacted by the 2017 storms, 5.6 percent, and 5.8 percent, respectively. The forbearance rate in the Baseline period was only 0.09 percent despite the much longer time horizon.

While loans with high loan-to-value (LTV) ratios are more likely to be in forbearance, almost all loans in forbearance have positive equity. However, there was a significant difference in the rates using both credit scores and debt-to-income (DTI) ratios.

Forbearance rates consistently declined for borrowers with higher FICO scores. During the COVID-19 period, the forbearance rate for borrowers with the highest FICO scores (800+) was 2.0 percent while the rate for those with scores below 620 was higher by a factor of 5.6, 11.1 percent. For the Storm period the increase factor was 13, from 1.3 percent at the high end to 17.4 percent at the low end. A factor of 18 prevailed in the Baseline period with the rate going from 0.02 percent to 0.36 percent.

Rates were generally higher among borrowers with high DTI. COVID era forborne borrowers with DTI above 46 percent had a rate three times higher at 8.3 percent than those with DTIs below 25 percent. In the Storm period the low DTI scorers had a rate of 3.5 percent compared to 7.2 percent for the higher group. The increase factor in the baseline period was 2.2, from 0.05 to 0.11 percent.

Freddie Mac also found that borrowers with a higher monthly payment were more likely to enter forbearance during the both the COVID-19 and 2017 Storm periods.

The company says the availability of forbearance lessened mortgage defaults. Without forbearance, many households may have faced foreclosure or been forced to sell their homes. Such forced sales could have depressed the housing market, leading to further defaults.

"Mortgage forbearance provides liquidity to households and plays a vital role in mitigating the damage to homeowners during times of crisis whether it be a hurricane, wild fire, or health epidemic," said Sam Khater, Freddie Mac's Chief Economist. "Research on this topic is important because it will help us prepare for the next several months as we continue to navigate the COVID-19 pandemic, and beyond."