Wave of Foreclosures Coming?
Back in March of 2020, as the Covid pandemic was beginning to impact the US in a serious way, and most people were unable to work (whether by law or fear of the disease), the US Department of Housing and Urban Development (HUD) issued the Stand Alone guidance in Mortgage Letter 2020-06, informing mortgagees of special loss mitigation options available to single-family mortgage loan borrowers affected by the COVID-19 National Emergency. Additionally, the Fair Housing Administration (FHA) developed the Stand Alone Partial Claim Program to mitigate the wave of foreclosures that were bound to come, as millions homeowners were unable to meet their mortgage requirements.
Simply stated, the rescue plan offered homeowners the chance for a mortgage holiday for a specified period of time. In essence, if you were current or less than 30 days delinquent as of March 1, 2020, you may be entitled to this option. But as the pandemic continued ravaging the economy (and the opportunity to work) the plan was extended a few more times. The final mortgage forbearance benefit will expire July 31, 2021. It should be noted that the programs did not erase mortgage debt; it delayed the time periods when mortgage payments were due.
According to CNBC, an estimated 7.25 million borrowers (about 14% of all homeowners) have participated in forbearance programs throughout the course of the pandemic. However, about 72% of all participants have since left the program, leaving 28% or just over two million still partaking of the programs. These homeowners are still in active forbearance.
What does this all mean? The financial institutions offering home mortgages are preparing for the most significant wave of delinquent loans since the Financial Crisis of 2007-2008. In short, when the relief ends, homeowners will either have to start paying their mortgages, sell their homes, or enter foreclosure. Mortgage lenders are gearing up with new hires to deal with the expected upcoming flood of foreclosures.
Fannie Mae, Freddie Mac, and the FHA issued new guidelines to help borrowers whose plans are expiring. This includes interest rate reductions for those who can demonstrate that their Covid related financial woes have not abated. However, the mortgage debt will have to start being paid when the program (and its extensions) ends. Some folks will be helped with the lower interest rate guidelines, but for others, the help won’t be enough to keep them in their homes.
Mortgage servicers, in general, have a vested interest in keeping as many borrowers in their homes as possible, since the foreclosure process is very expensive. Additionally, lenders prefer not to be in the real estate business; they much prefer to keep receiving the monthly mortgage payments, since this is the core of their business, and the primary source of their profits.
In the last paragraph I used the words, “in general.” But this time there are forces at work which are tempting the banks to alter their traditional mindsets. Since home values across much of the country have been rising sharply, this gives the banks an incentive to seek foreclosures, which could result in healthy profits for the lenders.
Regardless, some experts are warning about a wave of foreclosures which will flood the courts. Margery Golant, a Broward based mortgage lawyer said, “I believe we’re looking at the probability of overwhelmed courthouses.”
A likely scenario is that many thousands of delinquent homeowners could see cases filed when the moratorium expires.
While the number of foreclosures will not equal that of the Financial Crisis of 2007-2008, it is likely to be a blow to the economy, and, of course, devastating to the homeowners who are affected.