Experts Are Saying 'There Won’t Be a Wave of Foreclosures in the Housing Market'

The Mortgage Forbearance Plans Were Designed To Prevent Foreclosure And Increase Access To Credit
The pandemic that swept through America in 2020 brought with it fears of a housing bubble like those seen 15 years ago. But when the country's homeowners were given an opportunity to pause their mortgage payments, many analysts predicted disaster waiting just around the corner because they thought fewer people would take advantage and there'd be more foreclosures than necessary without these plans implemented . The reality turned out differently though - as you can see from this article about how one organization helped prevent thousands upon thousands of homes being taken away by providing relief via loan modifications or other means.

1. There Are Fewer Homeowners in Trouble This Time

After the last housing crash, over nine million households lost their homes to a foreclosure, short sale, or because they gave it back to the bank. Many believed millions of homeowners would face the same fate again this time.

However, today’s data shows that most homeowners exited their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The latest data from the Mortgage Bankers Association (MBA) studies how people exited the forbearance program from June 2020 to November 2021.

Here are those findings:

38.6% left the program paid in full
  • 19.9% made their monthly payments during the forbearance period
  • 11.8% made up all past-due payments
  • 6.9% paid off the loan in full
44% negotiated work-out repayment plans
  • 29.1% received a loan deferral
  • 14.1% received a loan modification
  • 0.8% arranged a different repayment plan
0.6% sold as a short sale or did a deed-in-lieu

16.8% left the program still in trouble and without a loss mitigation plan in place

2. Those Left in the Program Can Still Negotiate a Repayment Plan

As of last Friday, the total number of mortgages still in forbearance stood at 890,000. Those who remain in forbearance still have the chance to work out a suitable plan with the servicing company that represents their lender. And the servicing companies are under pressure to do just that by both federal and state agencies.

Rick Sharga, Executive Vice President at RealtyTrac, says in a recent tweet:

“The [Consumer Financial Protection Bureau] and state [Attorneys General] look like they’re adopting a ‘zero tolerance’ approach to mortgage servicing enforcement. Likely that this will limit #foreclosure activity for a good part of 2022, while servicers explore all possible loss [mitigation] options.”

3. Most Homeowners Have More Than Enough Equity To Sell Their Homes

With 16% of homeownership seekers leaving forbearance programs without a work out and an additional 8.8 percent who couldn't negotiate solutions on their own, many will have enough equity to sell homes if they want cash instead of facing foreclosures - thanks in large part due recent price hikes over the last two years which has put record amounts into people's hands as they exit these sixteen months late on mortgages!

4. There Have Been Far Fewer Foreclosures Over the Last Two Years

One of the seldom-reported benefits of the forbearance program was that it allowed households experiencing financial difficulties prior to the pandemic to enter the program. It gave those homeowners an extra two years to get their finances in order and work out a plan with their lender. That prevented over 400,000 foreclosures that normally would have come to the market had the new forbearance program not been available. Otherwise, the real estate market would have had to absorb those foreclosures. Here’s a graph depicting this data:

5. The Current Market Can Easily Absorb Over a Million New Listings

The housing crisis of 2008 was one that hit home owners hard. With an oversupply and many homes on the market - especially those foreclosures- prices began to decline right away in late 2006 when it became clear how bad things would get for America's homeownership dreams.. The National Association Of Realtors' recent report shows this isn't happening now however; instead we have seen recently submitted data showing nine months worth or sales which has lead some experts predict a strong possible future turnaround due largely thanks to these two major factors.

“Total housing inventory at the end of November amounted to 1.11 million units, down 9.8% from October and down 13.3% from one year ago (1.28 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago.”

A balanced market would have approximately a six-month supply of inventory. At 2.1 months, the market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand.

The end of the forbearance plan will not cause any upheaval in the housing market. Sharga puts it best:

“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect. . . .”

Lamont "Ben" Orr - The Orr Team eXp Realty 720-425-3365

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