Nearly 2 million homeowners are still on mortgage forbearance as the national moratorium on foreclosures comes to an end on July 31. While this may alarm borrowers who are still in arrears, industry experts are optimistic about the likelihood of a wave of foreclosures happening. .
âOur economy is recovering,â says Marina Walsh, vice president of industry analysis for the Mortgage Bankers Association (MBA) research and economics department. âThere is an improving labor market right now and a robust housing market. We’re not in a situation we were in ten years ago with the Great Recession, where houses were considerably underwater across the country. “
While there are still homeowners struggling financially because of the pandemic, Walsh says the MBA has seen signs of a rebound, especially in forbearance loans. According to the latest MBA survey on July 12, the total number of forborne loans fell two basis points, continuing a 19-week decline.
The delinquency rate for mortgages on residential properties one to four units has also shown positive signs, according to the latest National MBA delinquency survey.
The default rate for the first quarter of 2020 decreased by 35 basis points compared to the fourth quarter of 2020. However, the rate is up 202 basis points compared to the same period the previous year.
âI would say we’re cautiously optimistic,â Walsh says.
Risk of increased seizures
Despite improvements among borrowers and an additional 31 days added to the moratorium deadlines, concerns about homeowners losing their homes have not completely dissipated.
âAs the country moves from the COVID-19 emergency to economic recovery, we cannot be content with the dangers we still face,â said Dave Uejio, acting director of the Consumer Financial Protection Bureau (CFPB), in a June press release.
The agency tried to tighten protections for borrowers ahead of the moratorium deadline to allow homeowners to explore their options to avoid foreclosure.
According to the CFPB, more than 3% of all borrowers are four months or more behind on their mortgage, which is when a foreclosure can be initiated.
This equates to around 1.8 million, according to recent research from the National Association of REALTORSÂ®.
At the end of the moratorium, the agency said homeowners could run the risk of having the foreclosure begin as soon as they come out of forbearance, with at least 900,000 homeowners expected to leave the forbearance by the end. of the year.
“An uncontrolled wave of foreclosures would also risk destabilizing the housing market for all consumers,” Uejio said. âWe give homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether it’s applying for a loan modification or selling their home. “
Mortgage banks and lenders say they are ready to end the moratorium as they seek to work with borrowers and follow investor guidelines provided by the CFPB.
A written statement from Bank of America stated that it is “Determined to help our customers, we are currently revising our processes to incorporate these additional opportunities and requirements.. “
“Although the moratoriums currently expire on July 31, 2021, in accordance with the recently released CFPB final rules for servicing mortgages, many borrowers will be offered additional opportunities to be considered for post-forbearance assistance,” Bank of America said.
A Wells Fargo spokesperson shared a similar sentiment, adding that the bank / lender supports CFPB’s efforts to help successfully transition from a suspension of payments to a resumption of monthly mortgage payments.
“The new guidelines for agency loans do not impact our previous decision for portfolio loans, for which we halted all foreclosure-related activities on occupied properties until the end of 2021. , except in very specific cases, and have stopped all evictions until the end of the year as well, âthe statement read.
Contrary to previous predictions, real estate brokers are expressing optimism that the market will not experience a flood of new foreclosures.
This is mainly due to the backlog of inventory, coupled with high demand and low interest rates, according to Rei Mesa, president and CEO of Berkshire Hathaway HomeServices Florida Realty.
âI think anyone who is behind on their payments and wants to sell their home will have a willing and able buyer to potentially buy more than they think their home is currently worth and enough to cover the mortgage and late payments. Mesa said.
While the market will likely experience spikes in late payments, Mesa says the market today is much better than in the last crash.
According to Anthony Lamacchia, CEO of Lamacchia Realty, positive equity is the main difference from ten years ago.
âThe last time the market collapsed, a lot of people fell behind and couldn’t sell,â says Lamacchia. âThere were a lot of good, honest people who tried to sell and come out from below, but they couldn’t because they were upside down. This time around, people who need to sell are going to be able to sell because they are not upside down.
Recent CoreLogic Data found that US homeowners with mortgages have seen their home equity increase by nearly 20% year over year since the first quarter of 2020. Their home equity has increased by almost 1.9 trillion dollars in total.
The tightening of the loan market following the latest recession is another positive indicator of the current market, according to Eric Spotswood, regional director of mortgages at Prosperity Home Mortgage.
“I think part of the major problem with the last crisis was that there were a lot of unqualified buyers,” Spotswood said, indicating that the past deluge of foreclosures was due to excessive lending with qualifying requirements. lower.
âThere were a lot of variable rate mortgages where borrowers just had to qualify for the principal payment,â Spotswoods continues. “But, the reality was they were going to become the main interest, and all of a sudden it became a problem because they couldn’t afford it.”
Spotswood suggested this is not the case in today’s market, adding that approving a mortgage is more difficult than it has been in recent years.
Although large-scale foreclosures appear unlikely, Lamacchia said there could still be a slight increase in foreclosures.
âThe larger area, you will see a slight increase in multi-family space because a lot of these landlords are being killed with moratoriums on evictions, and they can’t evict anyone if they don’t pay their rent,â he says. .
Jordan Grice is the Associate Content Editor of RISMedia. Send him your real estate news by email at [email protected].