Foreclosures Soar 94% From 1 Year Ago

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More borrowers are losing their homes now than they were earlier in the pandemic.

Key points

  • Foreclosure activity has risen now that mortgage forbearance protection has come to an end for many borrowers.
  • That could create opportunity for new home buyers.
  • If you're coming out of forbearance and are worried about making payments, you might have options, like selling and refinancing.

When the COVID-19 pandemic first hit and unemployment became rampant, it became clear that many homeowners would risk losing their homes if aid wasn't doled out immediately. The government responded with mortgage forbearance -- an option that predates the pandemic, but one that wasn't universally guaranteed.

Under forbearance, mortgage borrowers can hit pause on their home loan payments without penalty. Normally, loan servicers can approve or deny forbearance requests at will, but during the pandemic, any borrower who requested it had to be approved. And all borrowers had to do was attest to a financial hardship to be granted forbearance, making it pretty much a sure thing.

Those who sought relief under forbearance during the pandemic were allowed to pause their mortgage payments for up to 18 months. But that means borrowers who entered forbearance early on in the pandemic saw that protection run out this past fall. And not shockingly, foreclosure activity has picked up since.

In November, there were nearly 19,500 U.S. properties with foreclosure filings, according to ATTOM Data. That represents a 94% uptick from a year prior. And as the forbearance clock runs out on more borrowers, the number of homes under foreclosure could increase.

Good news for the housing market?

The U.S. housing market has been starved for inventory since mid-2020. That's made buying homes a challenge. If foreclosure activity continues to pick up, it could result in more available inventory for prospective buyers. So that's one potential silver lining.

That said, buying a foreclosed home can be a riskier prospect than buying a regular one. Often, homes in foreclosure have been neglected and aren't in the best of shape. But for buyers willing to take on that risk, foreclosed properties could spell an opportunity to purchase a home on the relative cheap.

How to avoid foreclosure

Many borrowers whose mortgages are coming out of forbearance still can't afford their monthly payments. But that doesn't automatically mean that foreclosure is in their future.

Right now, home values are way up on a national level. So borrowers who can't make their mortgage payments may have the option to sell their properties for enough money to pay off their home loans and walk away clean.

What's more, many loan servicers these days are taking steps to help struggling borrowers stay in their homes after forbearance runs out. Those who exit forbearance and can't pay can ask about loan modification, where the terms of their mortgages are altered to make those loans more affordable. Refinancing may also be an option for some borrowers post-forbearance, and it, too, could result in lower monthly mortgage payments.

The fact that foreclosure numbers have climbed significantly since late 2020 isn't surprising. Back then, borrowers who couldn't pay had forbearance to fall back on. But those who are exiting forbearance now and can't pay aren't necessarily doomed to foreclosure. Struggling homeowners can contact their loan servicers and see what options are available to them, and that might prevent them from falling behind on payments and facing severe repercussions.

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