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