Mortgage Experts Fear a Foreclosure Wave as Protections Come to an End
With forbearance wrapping up, some homeowners may not be able to keep up with their mortgage payments.
- During the pandemic, homeowners were allowed to pause their mortgage payments for up to 18 months.
- As that protection runs out, some people could end up at risk of losing their homes.
When the COVID-19 outbreak first hit, it became clear that Americans would need all sorts of relief to stay afloat. That relief came in different forms -- stimulus checks, boosted unemployment benefits, and the option to pause mortgage payments through forbearance.
Mortgage forbearance is something that's been available outside of the pandemic. But due to the COVID-19 crisis, anyone who wanted to put a home loan into forbearance was allowed to do so during the pandemic, whereas normally, loan servicers can deny forbearance requests.
Those who paused their home loan payments during the crisis were granted 18 months of forbearance. But at this point, that protection is coming to an end for a lot of borrowers. The fear is that homeowners whose finances haven't improved could risk losing their homes in the coming months in the absence of being able to make housing payments again.
A potential crisis
Black Knight reports that over half of the 7.7 million mortgage borrowers who sought protection under forbearance are now current on their home loan payments and making those payments again. Meanwhile, about 23% of borrowers whose loans went into forbearance either sold their homes or refinanced their mortgages to lower their monthly payments.
But 3% of borrowers, or roughly 264,000 homeowners, whose loans went into forbearance are now behind on their mortgage payments. And 38,000 are in active foreclosure.
Granted, that's not necessarily crisis level. But the concern is that as more borrowers exit forbearance, they'll land in a similar boat.
Homeowners who applied for forbearance later on in the pandemic may only first be losing that protection now. And so, it's still unclear as to how many borrowers will ultimately become delinquent on their mortgage payments once they're back on the table.
A silver lining
Loan servicers have been encouraged to work with borrowers coming out of forbearance to help them stay in their homes. Currently, about 7% of those who sought out forbearance are now working out a loan modification plan to achieve that goal.
But for some homeowners, that won't work for one big reason -- they simply can't pay. Many people are still unemployed at this stage of the pandemic, despite more jobs being available. And those whose income can't support a modified or reduced mortgage payment may ultimately lose their homes.
Still, borrowers in that situation may not need to resign themselves to losing their homes to foreclosure, which can cause extensive credit score damage. Because home values are so high right now, 87% of homeowners in foreclosure have positive home equity, according to RealtyTrac. For those people, selling their homes to pay off their lenders is an option. While selling means having to leave their homes, it means getting to do so without wrecking their credit in the process.
Of course, that begs the question of where homeowners in that situation will live next. While home values are high, so are rents. While selling a home may be a good solution for some borrowers who can't pay their mortgage post-forbearance, for many, it's not that simple.
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