Less Forbearance Than Expected

The forbearance program allows families to delay their mortgage payments to a later date, and some housing industry analysts were concerned that these requests could lead to an increase of foreclosures if the families could not come up with the payments at the end of the program. Some even thought that we were going to see the same housing crash we saw in 2006-2008 again. However, looking at the data, we see a different picture.

A report by Odeta Kushi, Deputy Chief Economist for First American states:

“Despite the federal foreclosure moratorium, there were fears that up to 30% of homeowners would require forbearance, ultimately leading to a foreclosure tsunami. Forbearance did not hit 30%, but rather peaked at 8.6% and has been steadily falling since.”

Another report, from Black Knight, in its most current data shows that the percentage of homes in forbearance has fallen to 7.4%. The report also gives the decrease in raw numbers:

“The overall trend of incremental improvement in the number of mortgages in active forbearance continues. According to the latest data from Black Knight’s McDash Flash Forbearance Tracker, the number of mortgages in active forbearance fell by another 71,000 over the past week, pushing the total under 4 million for the first time since early May.”

Here’s a graph showing the decline in forbearances over the last several months:

The report also explains that across the board, overall forbearance activity fell with 10% fewer new forbearance requests and nearly 40% fewer renewals.

What about potential foreclosures once forbearances end?

Kushi also addresses this question:

“There are two main reasons why this crisis is unlikely to produce a wave of foreclosures similar to the 2008 recession. First, the housing market is in a much stronger position compared with a decade ago. Accompanied by more rigorous lending standards, the household debt-to-income ratio is at a four-decade low and household equity near a three-decade high. Indeed, thus far, MBA data indicates that the majority of homeowners who took advantage of forbearance programs are either staying current on their mortgage or paying off the loan through a home sale or a refinance. Second, this service sector-driven recession is disproportionately impacting renters.”

There is one potential challenge

Today, homeowners have many options that will prevent a large spike in foreclosures. That’s good not just for those families impacted, but for the overall housing market. A recent study by Fannie Mae, however, reveals that many Americans are not aware of these options they have.

It’s imperative for potentially impacted families to better understand the mortgage relief programs available to them, for their personal housing situation and for the overall real estate market.

BOTTOM LINE

If Americans fully understand their options and make good choices regarding those options, the current economic slowdown does not need to lead to mass foreclosures.

 

Do you want to know more?
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