Category Archives: Foreclosures

4 Major Reasons Households in Forbearance Won’t Lose Their Homes to Foreclosure

4 Major Reasons Households in Forbearance Won’t Lose Their Homes to Foreclosure | Simplifying The Market

There has been a lot of discussion as to what will happen once the 2.3 million households currently in forbearance no longer have the protection of the program. Some assume there could potentially be millions of foreclosures ready to hit the market. However, there are four reasons that won’t happen.

1. Almost 50% Leave Forbearance Already Caught Up on Payments

According to the Mortgage Bankers Association (MBA), data through March 28 show that 48.9% of homeowners who have already left the program were current on their mortgage payments when they exited.

  • 6% made their monthly payments during their forbearance period
  • 7% brought past due payments current
  • 6% paid off their loan in full

This doesn’t mean that the over two million still in the plan will exit exactly the same way. It does, however, give us some insight into the possibilities.

2. The Banks Don’t Want the Houses Back

Banks have learned lessons from the crash of 2008. Lending institutions don’t want the headaches of managing foreclosed properties. This time, they’re working with homeowners to help them stay in their homes.

As an example, about 50% of all mortgages are backed by the Federal Housing Finance Agency (FHFA). In 2008, the FHFA offered 208,000 homeowners some form of Home Retention Action, which are options offered to a borrower who has the financial ability to enter a workout option and wants to stay in their home. Home retention options include temporary forbearances, repayment plans, loan modifications, or partial loan deferrals. These helped delinquent borrowers stay in their homes. Over the past year, the FHFA has offered that same protection to over one million homeowners.

Today, almost all lending institutions are working with their borrowers. The report from the MBA reveals that of those homeowners who have left forbearance,

  • 5% have worked out a repayment plan with their lender
  • 5% were granted a loan deferral where a borrower does not have to pay the lender interest or principal on a loan for an agreed-to period of time
  • 9% were given a loan modification

3. There Is No Political Will to Foreclose on These Households

The government also seems determined not to let individuals or families lose their homes. Bloomberg recently reported:

“Mortgage companies could face penalties if they don’t take steps to prevent a deluge of foreclosures that threatens to hit the housing market later this year, a U.S. regulator said. The Consumer Financial Protection Bureau (CFPB) warning is tied to forbearance relief that’s allowed millions of borrowers to delay their mortgage payments due to the pandemic…mortgage servicers should start reaching out to affected homeowners now to advise them on ways they can modify their loans.”

The CFPB is proposing a new set of guidelines to ensure people will be able to retain their homes. Here are the major points in the proposal:

  • The proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021.
  • The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application.
  • The proposal rule wants temporary changes to certain required servicer communications to make sure borrowers receive key information about their options at the appropriate time.

A final decision is yet to be made, and some do question whether the CFPB has the power to delay foreclosures. The entire report can be found here: Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.

4. If All Else Fails, Homeowners Will Sell Their Homes Before a Foreclosure

Homeowners have record levels of equity today. According to the latest CoreLogic Home Equity Report, the average equity of mortgaged homes is currently $204,000. In addition, 38% of homes do not have a mortgage, so the level of equity available to today’s homeowners is significant.

Just like the banks, homeowners learned a lesson from the housing crash too.

“In the same way that grandparents and great grandparents were shaped by the Great Depression, much of the public today remembers the 2006 mortgage meltdown and the foreclosures, unemployment, and bank failures it created. No one with any sense wants to repeat that experience…and it may explain why so much real estate equity remains mortgage-free.”

What does that mean to the forbearance situation? According to Black Knight:

“Just one in ten homeowners in forbearance has less than 10% equity in their home, typically the minimum necessary to be able to sell through traditional real estate channels to avoid foreclosure.”

Bottom Line

The reports of massive foreclosures about to come to the market are highly exaggerated. As Ivy Zelman, Chief Executive Officer of Zelman & Associates with roughly 30 years of experience covering housing and housing-related industries, recently proclaimed:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

Are There Going to Be More Homes to Buy This Year?

Are There Going to Be More Homes to Buy This Year? | Simplifying The Market

If you’re looking for a home to purchase right now and having trouble finding one, you’re not alone. At a time like this when there are so few houses for sale, it’s normal to wonder if you’ll actually find one to buy. According to the National Association of Realtors (NAR), across the country, inventory of available homes for sale is at an all-time low – the lowest point recorded since NAR began tracking this metric in 1982. There are, however, more homes expected to hit the market later this year. Let’s break down the three key places they’ll likely come from as 2021 continues on.

1. Homeowners Who Didn’t Sell Last Year

In 2020, many sellers decided to pause their moving plans for a number of different reasons. From health concerns about the pandemic to financial uncertainty, plenty of homeowners decided not to move last year.

Now that vaccines are being distributed and there’s a light at the end of the COVID-19 tunnel, it should bring some peace of mind to many potential sellers. As Danielle Hale, Chief Economist at realtor.com, notes:

“Fortunately for would-be homebuyers, we expect sellers to return to the market as we see improvement in the economy and progress against the coronavirus.”

Many of the homeowners who decided not to sell in 2020 will enter the market later this year as they begin to feel more comfortable showing their house in person, understanding their financial situation, and simply having more security in life.

2. More New Homes Will Be Built

Last year was a strong year for home builders, and according to the National Association of Home Builders (NAHB), 2021 is expected to be even better:

“For 2021, NAHB expects ongoing growth for single-family construction. It will be the first year for which total single-family construction will exceed 1 million starts since the Great Recession.”

With more houses being built in many markets around the country, homeowners looking for new houses that meet their changing needs will be able to move into their dream homes. When they sell their current houses, this will create opportunities for those looking to find a home that’s already built to do so. It sets a simple chain reaction in motion for hopeful buyers.

3. Those Impacted Financially by the Economic Crisis

Many experts don’t anticipate a large wave of foreclosures coming to the market, given the forbearance options afforded to current homeowners throughout the pandemic. Some homeowners who have been impacted economically will, however, need to move this year. There are also homeowners who didn’t take advantage of the forbearance option or were already in a foreclosure situation before the pandemic began. In those cases, homeowners may decide to sell their houses instead of going into the foreclosure process, especially given the equity in homes today. Lawrence Yun, Chief Economist at NAR, explains:

“Given the huge price gains recently, I don’t think many homes will have to go to foreclosure…I think homes will just be sold, and there will be cash left over for the seller, even in a distressed situation. So that’s a bit of a silver lining in that we don’t expect a massive sale of distressed properties.”

As we can see, it looks like we’re going to have an increase in the number of homes for sale in 2021. With fears of the pandemic starting to ease, new homes being built, and more listings coming to the market prior to foreclosure, there’s hope if you’re planning to buy this year. And if you’re thinking of selling and making a move, doing so while demand for your house is high might create an outstanding move-up option for you.

Bottom Line

Housing demand is high and supply is low, so if you’re thinking of moving, it’s a great time to do so. There are likely many buyers who are looking for a home just like yours, and there are options coming for you to find a new house too. Let’s connect today to see how you can benefit from the opportunities available in our local market.

3 Ways Home Equity Can Have a Major Impact on Your Life

3 Ways Home Equity Can Have a Major Impact on Your Life | Simplifying The Market

There have been a lot of headlines reporting on how homeowner equity (the difference between the current market value of your home and the amount you owe on your mortgage) has dramatically increased over the past few years. CoreLogic indicated that equity increased for the average homeowner by $17,000 in the last year alone. ATTOM Data Solutions, in their latest U.S. Home Equity Report, revealed that 30.2% of the 59 million mortgaged homes in the United States have at least 50% equity. That doesn’t even include the 38% of homes that are owned free and clear, meaning they don’t have a mortgage at all.

How can equity help a household?

Having equity in your home can dramatically impact your life. Equity is like a savings account you can tap into when you need cash. Like any other savings, you should be sensible in how you use it, though. Here are three good reasons to consider using your equity.

1. You’re experiencing financial hardship (job loss, medical expenses, etc.)

Equity gives you options during difficult financial times. With equity, you could refinance your house to get cash which may ease the burden. It also puts you in a better position to talk to the bank about restructuring your home loan until you can get back on your feet.

Today, there are 2.7 million Americans who are currently in a forbearance program because of the pandemic. Ninety percent of those in the program have at least 10% equity. That puts them in a better position to get a loan modification instead of facing foreclosure because many banks will see the equity as a form of collateral in a new deal. If you’re in this position, even if you can’t get a modification, the equity allows you the option to sell your house and walk away with your equity instead of losing the house and your investment in it.

2. You need money to start a new business

We’ve all heard the stories about how many great American companies started in the founder’s garage (i.e., Disney, Hewlett Packard, Apple, Yankee Candle, Keeping Current Matters). What we might not realize, however, is the garage (along with the rest of the home) supplied the start-up money for many of these companies in the form of a refinance.

If you’re passionate about an idea you have for a new product or service, the equity in your home may enable you to make that dream a reality.

3. You want to invest in a loved one’s future

It’s been a long-standing tradition in this country for many households to help pay college expenses for their children. Some have tapped into the equity in their homes to do that.

Additionally, George Ratiu, Senior Economist for realtor.com, notes:

52% of Americans who bought their first home in 2020 said they got help with their down payment from friends or family. The number one lender? Their parents.

It’s safe to assume a percentage of that down payment money likely came from home equity.

Bottom Line

Savings in any form is a good thing. The forced savings you can earn from making a mortgage payment enables you to build wealth through home equity. That equity can come in handy in both good and more challenging times.

3 Reasons We’re Definitely Not in a Housing Bubble

3 Reasons We’re Definitely Not in a Housing Bubble | Simplifying The Market

Home values appreciated by about ten percent in 2020, and they’re forecast to appreciate by about five percent this year. This has some voicing concern that we may be in another housing bubble like the one we experienced a little over a decade ago. Here are three reasons why this market is totally different.

1. This time, housing supply is extremely limited

The price of any market item is determined by supply and demand. If supply is high and demand is low, prices normally decrease. If supply is low and demand is high, prices naturally increase.

In real estate, supply and demand are measured in “months’ supply of inventory,” which is based on the number of current homes for sale compared to the number of buyers in the market. The normal months’ supply of inventory for the market is about 6 months. Anything above that defines a buyers’ market, indicating prices will soften. Anything below that defines a sellers’ market in which prices normally appreciate.

Between 2006 and 2008, the months’ supply of inventory increased from just over 5 months to 11 months. The months’ supply was over 7 months in twenty-seven of those thirty-six months, yet home values continued to rise.

Months’ inventory has been under 5 months for the last 3 years, under 4 for thirteen of the last fourteen months, under 3 for the last six months, and currently stands at 1.9 months – a historic low.

Remember, if supply is low and demand is high, prices naturally increase.

2. This time, housing demand is real

During the housing boom in the mid-2000s, there was what Robert Schiller, a fellow at the Yale School of Management’s International Center for Finance, called “irrational exuberance.” The definition of the term is, “unfounded market optimism that lacks a real foundation of fundamental valuation, but instead rests on psychological factors.” Without considering historic market trends, people got caught up in the frenzy and bought houses based on an unrealistic belief that housing values would continue to escalate.

The mortgage industry fed into this craziness by making mortgage money available to just about anyone, as shown in the Mortgage Credit Availability Index (MCAI) published by the Mortgage Bankers Association. The higher the index, the easier it is to get a mortgage; the lower the index, the more difficult it is to obtain one. Prior to the housing boom, the index stood just below 400. In 2006, the index hit an all-time high of over 868. Again, just about anyone could get a mortgage. Today, the index stands at 122.5, which is well below even the pre-boom level.

In the current real estate market, demand is real, not fabricated. Millennials, the largest generation in the country, have come of age to marry and have children, which are two major drivers for homeownership. The health crisis is also challenging every household to redefine the meaning of “home” and to re-evaluate whether their current home meets that new definition. This desire to own, coupled with historically low mortgage rates, makes purchasing a home today a strong, sound financial decision. Therefore, today’s demand is very real.

Remember, if supply is low and demand is high, prices naturally increase.

3. This time, households have plenty of equity

Again, during the housing boom, it wasn’t just purchasers who got caught up in the frenzy. Existing homeowners started using their homes like ATM machines. There was a wave of cash-out refinances, which enabled homeowners to leverage the equity in their homes. From 2005 through 2007, Americans pulled out $824 billion dollars in equity. That left many homeowners with little or no equity in their homes at a critical time. As prices began to drop, some homeowners found themselves in a negative equity situation where the mortgage was higher than the value of their home. Many defaulted on their payments, which led to an avalanche of foreclosures.

Today, the banks and the American people have shown they learned a valuable lesson from the housing crisis a little over a decade ago. Cash-out refinance volume over the last three years was less than a third of what it was compared to the 3 years leading up to the crash.

This conservative approach has created levels of equity never seen before. According to Census Bureau data, over 38% of owner-occupied housing units are owned ‘free and clear’ (without any mortgage). Also, ATTOM Data Solutions just released their fourth quarter 2020 U.S. Home Equity Report, which revealed:

“17.8 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value…The count of equity-rich properties in the fourth quarter of 2020 represented 30.2 percent, or about one in three, of the 59 million mortgaged homes in the United States.”

If we combine the 38% of homes that are owned free and clear with the 18.7% of all homes that have at least 50% equity (30.2% of the remaining 62% with a mortgage), we realize that 56.7% of all homes in this country have a minimum of 50% equity. That’s significantly better than the equity situation in 2008.

Bottom Line

This time, housing supply is at a historic low. Demand is real and rightly motivated. Even if there were to be a drop in prices, homeowners have enough equity to be able to weather a dip in home values. This is nothing like 2008. In fact, it’s the exact opposite.

What Happens When Homeowners Leave Their Forbearance Plans?

What Happens When Homeowners Leave Their Forbearance Plans? | Simplifying The Market

According to the latest report from Black Knight, Inc., a well-respected provider of data and analytics for mortgage companies, 6.48 million households have entered a forbearance plan as a result of financial concerns brought on by the COVID-19 pandemic. Here’s where these homeowners stand right now:

  • 2,543,000 (39%) are current on their payments and have left the program
  • 625,000 (9%) have paid off their mortgages
  • 434,000 (7%) have negotiated a repayment plan and have left the program
  • 2,254,000 (35%) have extended their original forbearance plan
  • 512,000 (8%) are still in their original forbearance plan
  • 116,000 (2%) have left the program and are still behind on payments

This shows that of the almost 3.72 million homeowners who have left the program, only 116,000 (2%) exited while they were still behind on their payments. There are still 2.77 million borrowers in a forbearance program. No one knows for sure how many of those will become foreclosures. There are, however, three major reasons why most experts believe there will not be a tsunami of foreclosures as we saw during the housing crash over a decade ago:

  1. Almost 30% of borrowers in forbearance are still current on their mortgage payments.
  2. Banks likely don’t want to repeat the mistakes of 2008-2012 when they put large numbers of foreclosures on their books. This time, many will instead negotiate a modification plan with the borrower, which will enable households to maintain ownership of the home.
  3. With the significant equity homeowners have today, many will be able to sell instead of going into foreclosure.

Will there be foreclosures coming to the market? Yes. There are hundreds of thousands of foreclosures in this country each year. People experience economic hardships, and in some cases, are not able to meet their mortgage obligations.

Here’s the breakdown of new foreclosures over the last three years, prior to the pandemic:

  • 2017: 314,220
  • 2018: 279,040
  • 2019: 277,520

Through the first three quarters of 2020 (the latest data available), there were only 114,780 new foreclosures. If 10% of those currently in forbearance go to foreclosure, 275,000 foreclosures would be added to the market in 2021. That would be an average year as the numbers above show.

What happens if the number is more than 10%?

If we do experience a higher foreclosure rate from those in forbearance, most experts believe the current housing market will easily absorb the excess inventory. We entered 2020 with 1,210,000 single-family homes available for purchase. At the time, that was low and problematic. The market was experiencing high buyer demand, and we needed more houses to meet that demand. We’re now entering 2021 with 320,000 fewer homes for sale, while buyer demand remains extremely strong. This means the housing market has the capacity to soak up a lot of inventory.

Bottom Line

There will be more foreclosures entering the market later this year, especially compared to the record-low numbers in 2020. However, the market will be able to handle the increase as buyer demand remains strong.

What Experts Are Saying about the 2021 Job Market

What Experts Are Saying about the 2021 Job Market | Simplifying The Market

Earlier this month, the Bureau of Labor Statistics (BLS) released their most recent Jobs Report. The report revealed that the economy lost 140,000 jobs in December. That’s a devastating number and dramatically impacts those households that lost a source of income. However, we need to give it some context. Greg Ip, Chief Economics Commentator at the Wall Street Journal (WSJ), explains:

“The economy is probably not slipping back into recession. The drop was induced by new restrictions on activity as the pandemic raged out of control. Leisure and hospitality, which includes restaurants, hotels, and amusement parks, tumbled 498,000.”

In the same report, Michael Pearce, Senior U.S. Economist of Capital Economics, agreed:

“The 140,000 drop in non-farm payrolls was entirely due to a massive plunge in leisure and hospitality employment, as bars and restaurants across the country have been forced to close in response to the surge in coronavirus infections. With employment in most other sectors rising strongly, the economy appears to be carrying more momentum into 2021 than we had thought.”

Once the vaccine is distributed throughout the country and the pandemic is successfully under control, the vast majority of those 480,000 jobs will come back.

Here are two additional comments from other experts, also reported by the WSJ that day:

Nick Bunker, Head of Research in North America for Indeed:

“These numbers are distressing, but they are reflective of the time when coronavirus vaccines were not rolled out and federal fiscal policy was still deadlocked. Hopefully, the recent legislation can help build a bridge to a time when vaccines are fully rolled out and the labor market can sustainably heal.”

Michael Feroli, Chief U.S. Economist for JPMorgan Chase:

“The good news in today’s report is that outside the hopefully temporary hit to the food service industry, the rest of the labor market appears to be holding in despite the latest public health challenges.”

What impact will this have on the real estate market in 2021?

Some are concerned that with millions of Americans unemployed, we may see distressed properties (foreclosures and short sales) dominate the housing market once again. Rick Sharga, Executive Vice President at RealtyTrac, along with most other experts, doesn’t believe that will be the case:

“There are reasons to be cautiously optimistic despite massive unemployment levels and uncertainty about government policies under the new Administration. But while anything is possible, it’s highly unlikely that we’ll see another foreclosure tsunami or housing market crash.”

Bottom Line

For the households that lost a wage earner, these are extremely difficult times. Hopefully, the new stimulus package will lessen some of their pain. The health crisis, however, should vastly improve by mid-year with expectations that the jobs market will also progress significantly.

Will Forbearance Plans Lead to a Tsunami of Foreclosures?

Will Forbearance Plans Lead to a Tsunami of Foreclosures? | Simplifying The Market

At the onset of the economic disruptions caused by the COVID pandemic, the government quickly put into place forbearance plans to allow homeowners to remain in their homes without making their monthly mortgage payments. Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not.

Yanling Mayer, Principal Economist at CoreLogic, recently revealed:

“A distributional analysis of forborne loans’ payment status reveals that more than one third (39.1%) of all forborne loans are now 150+ days behind payment, while as many as 1-in-4 (25.5%) are 180+ days past due.”

These homeowners have been given permission to not make their payments, but the question now is: how many of them will be able to catch up after their forbearance program ends? There’s speculation that a forthcoming wave of foreclosures could be the result, and that could lead to another crash in home values like we saw a decade ago.

However, today’s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of equity in their homes.

What are the experts saying?

Over the last 30 days, several industry experts have weighed in on this subject.

Michael Sklarz, President at Collateral Analytics:

“We may very well see a meaningful increase in the number of homes listed for sale as these borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure.”

Odeta Kushi, Deputy Chief Economist at First American:

“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock. It is a lack of sufficient equity, the second component of the dual trigger, that causes a serious delinquency to become a foreclosure.”

Don Layton, Senior Industry Fellow at the Joint Center for Housing Studies of Harvard University:

“With a greater cushion of equity, troubled homeowners have dramatically improved options: a greater ability to access funding (e.g. home equity lines) to keep paying monthly expenses until family finances might recover, improved ability to qualify for and support a loan modification, and, if push comes to shove, the ability to sell the home and monetize their increased net worth while reducing monthly payment obligations. So, what should lenders and servicers expect: a large number of foreclosures or only a modest increase? I believe the latter.”

With today’s positive equity situation, many homeowners will be able to use a loan modification or refinance to stay in their homes. If not, some will go to foreclosure, but most will be able to sell and walk away with their equity.

Won’t the additional homes on the market impact prices?

Distressed properties (foreclosures and short sales) sell at a significant discount. If homeowners sell instead of going into foreclosure, the impact on the housing market will be much less severe.

We must also realize there is currently an unprecedented lack of inventory on the market. Just last week, realtor.com explained:

“Nationally, the number of homes for sale was down 39.6%, amounting to 449,000 fewer homes for sale than last December.”

It’s important to remember that there weren’t enough homes for sale even then, and inventory has only continued to decline.

The market has the potential to absorb half a million homes this year without it causing home values to depreciate.

Bottom Line

The pandemic has led to both personal and economic hardships for many American households. The overall residential real estate market, however, has weathered the storm and will continue to do so in 2021.

5 Steps to Follow When Applying for Forbearance

5 Steps to Follow When Applying for Forbearance | Simplifying The Market

If you’re currently feeling the stress of affording your mortgage payment, or if you know someone who is, there’s still time to get help. For homeowners experiencing financial hardship this year, the CARES Act provides mortgage payment deferral options, creating much-needed relief in these challenging times.

It’s important, however, to understand how forbearance works. It’s not automatic. You need to take action now and apply for the program before these options expire.

A study by the Urban Institute determined:

Approximately 400,000 homeowners who became delinquent after the pandemic began have forgone forbearance and become delinquent. These borrowers may not know they are eligible for forbearance.”

Thankfully, there’s still time to apply for forbearance, even if you’re just learning about it now. Doing so may be the game-changer you need to stay in your home, just when you need it most. Mike Fratantoni, Senior Vice President and Chief Economist at the Mortgage Bankers Association (MBA), explained:

“The increase in new forbearance requests may be the result of additional outreach to homeowners who had previously not taken advantage of forbearance opportunities.”

If you need to apply for forbearance but aren’t sure how to begin the process, the Consumer Financial Protection Bureau (CFPB) published 5 steps to follow when requesting mortgage forbearance:

1. Find the contact information for your servicer

Look at your mortgage statement to find the phone number for your servicer (the company you send your mortgage payment to every month). The Consumer Financial Protection Bureau encourages you to use the number on your statement to avoid scams.

2. Call your servicer

Explain your situation so your servicer can determine your best course of action. Be sure to ask any questions you have about the process.

3. Ask if you’re eligible for protection under the CARES Act

The CARES Act protects homeowners with federally backed loans (FHA, VA, USDA, Fannie Mae, and Freddie Mac). In addition, some private servicers are also providing forbearance programs.

4. Ask what happens when your forbearance period ends

Depending on the plan available to you, there are different options you may be able to consider. Your servicer will help you get a better understanding of what’s available.

The CFPB also recommends asking questions like:

  • What happens to the payments I miss?
  • What are my repayment options?
  • When will repayment be due?
  • Are there any fees?

5. Ask your servicer to provide the agreement in writing

A written agreement allows you to see exactly what type of program you’re agreeing to. It also helps you make sure it matches what you discuss with your provider over the phone.

Bottom Line

Help is out there for homeowners in need, but it’s important to apply now while this benefit is still available. The Consumer Financial Protection Bureau says: don’t wait, forbearance is not automatic. It must be requested. Reach out to your mortgage provider today so you can get the assistance you need to protect the hard-earned investment you’ve made in your home.

Chances of Another Foreclosure Crisis? “About Zero Percent.”

Chances of Another Foreclosure Crisis? “About Zero Percent.” | Simplifying The Market

There seems to be some concern that the 2020 economic downturn will lead to another foreclosure crisis like the one we experienced after the housing crash a little over a decade ago. However, there’s one major difference this time: a robust forbearance program.

During the housing crash of 2006-2008, many felt homeowners should be forced to pay their mortgages despite the economic hardships they were experiencing. There was no empathy for the challenges those households were facing. In a 2009 Wall Street Journal article titled Is Walking Away From Your Mortgage Immoral?, John Courson, Chief Executive of the Mortgage Bankers Association, was asked to comment on those not paying their mortgage. He famously said:

“What about the message they will send to their family and their kids?”

Courson suggested that people unable to pay their mortgage were bad parents.

What resulted from that lack of empathy? Foreclosures mounted.

This time is different. There was an immediate understanding that homeowners were faced with a challenge not of their own making. The government quickly jumped in with a mortgage forbearance program that relieved the financial burden placed on many households. The program allowed many borrowers to suspend their monthly mortgage payments until their economic condition improved. It was the right thing to do.

What happens when forbearance programs expire?

Some analysts are concerned many homeowners will not be able to make up the back payments once their forbearance plans expire. They’re concerned the situation will lead to an onslaught of foreclosures.

The banks and the government learned from the challenges the country experienced during the housing crash. They don’t want a surge of foreclosures again. For that reason, they’ve put in place alternative ways homeowners can pay back the money owed over an extended period of time.

Another major difference is that, unlike 2006-2008, today’s homeowners are sitting on a record amount of equity. That equity will enable them to sell their houses and walk away with cash instead of going through foreclosure.

Bottom Line

The differences mentioned above will be the reason we’ll avert a surge of foreclosures. As Ivy Zelman, a highly respected thought leader for housing and CEO of Zelman & Associates, said:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

Why the 2021 Forecast Doesn’t Call for a Foreclosure Crisis

Why the 2021 Forecast Doesn’t Call for a Foreclosure Crisis | Simplifying The Market

As the current forbearance mortgage relief options come to an end, many are wondering if we’ll face a foreclosure crisis next year. This is understandable, especially for those who remember the housing crisis that began in 2008. The reality is, plans have been put in place through forbearance to ensure history doesn’t repeat itself.

This year, homeowners are able to request 180 days of mortgage relief through forbearance. Upon expiration of that timeframe, they’re also entitled to request 180 additional days, bringing the total to 360 days of deferred payment eligibility. As forbearance expires, homeowners should stay in touch with their lender, because creating a plan for the deferred payments is a critical next step to avoiding foreclosure. There are multiple options for homeowners to pursue at this point, and with the right planning and communication with the lender, foreclosure doesn’t have to be one of them.

Many homeowners are concerned that they’ll have to pay the deferred payments back in a lump sum payment at the end of forbearance. Thankfully, that’s not the case. Fannie Mae explains:

You don’t have to repay the forbearance amount all at once upon completion of your forbearance plan…Here’s the important thing to remember: If you receive a forbearance plan, you will have options when it comes to repaying the missed amount. You don’t have to pay the forbearance amount at once unless you are able to do so.”

When looking at the percentage of people in forbearance, we can also see that this number has been decreasing steadily throughout the year. Fewer people than initially expected are still in forbearance, so the number of homeowners who will need to work out alternative payment options is declining (See graph below):Why the 2021 Forecast Doesn’t Call for a Foreclosure Crisis | Simplifying The MarketThis means there are fewer and fewer homeowners at risk of foreclosure, and many who initially applied for forbearance didn’t end up needing it. Mike Fratantoni, Senior Vice President and Chief Economist at the Mortgage Bankers Association (MBA), explains:

Nearly two-thirds of borrowers who exited forbearance remained current on their payments, repaid their forborne payments, or moved into a payment deferral plan. All of these borrowers have been able to resume – or continue – their pre-pandemic monthly payments.”

For those who are still in forbearance and unable to make their payments, foreclosure isn’t the only option left. In their Homeowner Equity Insights Report, CoreLogic indicates:

“In the second quarter of 2020, the average homeowner gained approximately $9,800 in equity during the past year.”

Many homeowners have enough equity in their homes today to be able to sell their houses instead of foreclosing. Selling and protecting the overall financial investment may be a very solid option for many homeowners. As Ivy Zelman, Founder of Zelman & Associates, mentioned in a recent podcast:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

Bottom Line

If you’re currently in forbearance or think you should be because you’re concerned about being able to make your mortgage payments, reach out to your lender to discuss your options and next steps. Having a trusted and knowledgeable professional on your side to guide you is essential in this process and might be the driving factor that helps you stay in your home.