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As of May 7, nearly 4.1 million homeowners are in forbearance plans, representing 7.7% of all active mortgages, according to the latest forbearance data from Black Knight.

They account for $890 billion in unpaid principal and includes 6.4% of all GSE-backed loans and 11% of all FHA/VA loans. At today’s level, mortgage servicers need to advance a combined $4.5 billion/month to holders of government-backed mortgage securities on COVID-19-related forbearances. Another $2.1 billion in lost funds will be faced each month by those with portfolio-held or privately securitized mortgages (some 7.2% of these loans are in forbearance as well).

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Reminder: FHFA has said that P&I advance payments will be capped at four months for servicers of GSE-backed mortgages. Given today’s number of loans in forbearance, servicers of GSE-backed loans face $8 billion in advances over that four-month period. There is no such cap on the additional $800 million in monthly T&I advances.

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With dramatic increases in unemployment, delinquencies and defaults can be expected to increase for the foreseeable future, even during forbearance, Black Knight notes.

In short, this means that we may see a housing crisis worse than the subprime collapse of '07. Experts estimate that 15 million mortgages will be in default at some point within in the next 2 years. Default does not mean all of them will make it to foreclosure because there are some programs out there to assist that didn't exist in 2007.

For comparison, though, from September 2008 to September 2012, there were approximately 4 million completed foreclosures as a result of the subprime crisis.

Article

For those that are unaware of how forbearance truly works, I found this on Reddit from a mortgage banker.

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So, here are the three outcomes of forbearance after the bank quickly agrees to it:

1.) BY DEFAULT - From the borrower's perspective, I don't hear anything for three months. Then, in month 4, The banks calls and says I have 4 payments, three of which are "delinquent." I now learn there are 4 payments - all due in month 4. Well, hold on I just returned to work I don't have $8k - what can I do besides YOLO FDs? Well, probably not much.

2.) Payment Plan - the next option is to resolve that past due $6k on a payment plan, if the lender agrees to this. So instead of a $2k payment, I might have a $2500 payment for a year. Now I just returned to my service industry job - I was already paycheck to paycheck, I have all sorts of other past due credit card/auto/student loan bills from being laid off, and now my mortgage is 25% higher. That's not going to work for me.

3.) Loan Modification - A loan modification is the option that everyone thinks they are getting through CARES Act by default - it extends the term of the mortgage and adds the missed payments to the end. This is not a scenario that will be provided over the phone as an immediate solution if I call the bank and ask. It has to be applied for, I would have to qualify, and it has to be approved by the lender. It is not a trivial request, and it will not be approved lightly given the current lending environment and amount of credit risk. Plus, considering the lender has already made 3+ payments to the GSEs without one from me - they are going to want to quickly determine whether this is going to be a performing loan or a non-performing loan (more to come on this). They will want to flush out the good loans from the bad as soon as they can get past the time periods required in the CARES Act.

So even in forbearance, the bank is still paying on the money they borrowed to loan on that mortgage. They are getting some relief of this right now but they still are not going to put payments on the back end (loan modification) for everyone that asks out of fear it could leave to insolvency issues for them. They are going to try to push for #1 and #2 obviously and not everyone will be in a position to afford those options.