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In 2020, fewer homeowners were foreclosed on. In fact, according to recent data from The Ascent, there has been a significant decrease in the number of people who've lost their homes through foreclosure this year. In November 2019, for example, there were around 50,000 foreclosures while there were only around 10,000 in September 2020.
It should be great news that mortgage lenders aren't foreclosing as often, but sadly that's not really the case. Here's why.
Foreclosures are likely to rise sharply in 2021
Foreclosure rates are down. But that's unlikely to be because fewer homeowners are behind on payments. On the contrary, COVID-19 has caused very high unemployment and many have experienced a reduction in hours. As such, a number of people have paused payments through a process called forbearance.
Coronavirus relief legislation enabled many borrowers to take advantage of forbearance opportunities. Federal laws guaranteed many homeowners the right to pause payments for an initial period of 180 days and extend forbearance for an additional 180 days if needed. Many borrowers took advantage of forbearance. As a result, there are fewer foreclosures. People aren't making payments, but they aren't falling into default either.
Coronavirus relief legislation has imposed a moratorium on foreclosures and evictions applicable to most homeowners as well. Sadly, this means the other reason foreclosure rates are down is that lenders aren't allowed to foreclose -- even if borrowers are behind.
But both the foreclosure moratorium and the laws allowing forbearance are eventually going to expire. And when that happens -- likely at some point next year -- most experts predict a sharp increase in foreclosure actions.
How to protect your home from foreclosure
If you are currently worried about your ability to make payments on your home, you should take advantage of the protections that are in place right now. You may be able to apply for forbearance to pause your payments. If you qualify, your lender will need to work out a plan for repayment once your forbearance period ends.
If you're able to keep making payments, aim to do so -- even while your loan is in forbearance. Forbearance can be helpful in alleviating your short-term cash flow issues, but you will eventually have to catch up on the payments you missed. If you can swing those payments now without falling behind on other bills, it will make life easier further down the road.
Saving up money for when your forbearance period ends is also a good idea, especially if you're worried you'll have to start making payments again before your earnings recover. Even setting aside a little bit of money over time could give you enough to make several payments after forbearance expires.
Refinancing might also help to lower your monthly payment, as mortgage rates are currently near record lows. Millions of Americans could cut their mortgage costs substantially through refinancing, which could make your payment much more affordable. You will need good credit and proof of income to qualify for a refinance loan at a competitive rate, though.
If refinancing isn't an option and you don't think you'll have the money to cover your payments going forward, consider reaching out to your lender ASAP. They may be willing to work with you to find a solution, such as loan modification.
The important thing is to be proactive. Foreclosure moratoriums and forbearance rules may have lowered the overall foreclosure rate and may protect you now. But they won't be in place forever. If you know you'll struggle to make payments, you need a plan in place to protect your home before that happens.