Originally, some housing industry analysts were concerned
that the mortgage forbearance program (which allows families to delay payments
to a later date) could lead to an increase in foreclosures when forbearances
end. Some even worried that we might relive the 2006-2008 housing crash all
over again. Once you examine the data, however, that seems unlikely.
As reported by Odeta Kushi, Deputy Chief Economist for First
“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.”
According to the most current data from Black Knight, 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, the options available to homeowners 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 the 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.
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.