{"id":1386,"date":"2021-01-13T15:34:15","date_gmt":"2021-01-13T15:34:15","guid":{"rendered":"https:\/\/phphouses.com\/blog\/?p=1386"},"modified":"2021-02-16T14:44:41","modified_gmt":"2021-02-16T14:44:41","slug":"will-forbearance-plans-lead-tsunami-foreclosures","status":"publish","type":"post","link":"https:\/\/phphouses.com\/blog\/will-forbearance-plans-lead-tsunami-foreclosures\/","title":{"rendered":"Will Forbearance Plans Lead to a Tsunami of Foreclosures?"},"content":{"rendered":"
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Will Forbearance Plans Lead to a Tsunami of Foreclosures?<\/p><\/div>\n

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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\u00a029.4%<\/a>\u00a0of those in forbearance have continued to stay current on their payments, many have not.<\/p>\n

Yanling Mayer,\u00a0Principal Economist<\/em>\u00a0at\u00a0CoreLogic<\/em>, recently\u00a0revealed<\/a>:<\/p>\n

\u201cA distributional analysis of forborne loans\u2019 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.\u201d<\/em><\/p><\/blockquote>\n

These homeowners have been given permission to not make their payments, but the question now is:\u00a0how many of them will be able to catch up after their forbearance program ends?<\/strong>\u00a0There\u2019s 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.<\/p>\n

However, today\u2019s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of\u00a0equity<\/a>\u00a0in their homes.<\/p>\n

What are the experts saying?<\/strong><\/h4>\n

Over the last 30 days, several industry experts have weighed in on this subject.<\/p>\n

Michael Sklarz,\u00a0President<\/em>\u00a0at\u00a0Collateral Analytics<\/em><\/a>:<\/strong><\/p>\n

\u201cWe may very well see a meaningful increase in the number of homes listed for sale as these\u00a0borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure<\/strong>.\u201d<\/em><\/p><\/blockquote>\n

Odeta Kushi,\u00a0Deputy Chief Economist\u00a0<\/em>at\u00a0First American<\/em><\/a>:<\/strong><\/p>\n

\u201cThe foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock\u2026leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure.\u00a0With 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<\/strong>. It is a lack of sufficient equity, the second component of the dual trigger, that causes a serious delinquency to become a foreclosure.\u201d<\/em><\/p><\/blockquote>\n

Don Layton,\u00a0Senior Industry Fellow<\/em>\u00a0at the\u00a0Joint Center for Housing Studies of Harvard University<\/em><\/a>:<\/strong><\/p>\n

\u201cWith 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,\u00a0and, if push comes to shove, the ability to sell the home<\/strong>\u00a0and monetize their increased net worth while reducing monthly payment obligations.\u00a0So, what should lenders and servicers expect: a large number of foreclosures or only a modest increase? I believe the latter.\u201d<\/strong><\/em><\/p><\/blockquote>\n

With today\u2019s 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.<\/p>\n

Won\u2019t the additional homes on the market impact prices?<\/strong><\/h4>\n

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.<\/p>\n

We must also realize there is currently an unprecedented lack of inventory on the market. Just last week,\u00a0realtor.com<\/em>\u00a0explained<\/a>:<\/p>\n

\u201cNationally, the number of homes for sale was down 39.6%, amounting to 449,000 fewer homes for sale than last December.\u201d<\/em><\/p><\/blockquote>\n

It\u2019s important to remember that there weren\u2019t enough homes for sale even then, and inventory has only continued to decline.<\/p>\n

The market has the potential to absorb half a million homes this year without it causing home values to depreciate.<\/p>\n

Bottom Line<\/strong><\/h3>\n

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.<\/p>\n<\/div>\n<\/div>\n<\/article>\n

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