January 20, 2021 update: The new administration has issued an executive order extending the federal foreclosure and eviction moratoriums, as well as the deadline to enter into a COVID-19 forbearance program, to March 31, 2021.
As an end to the temporary halt on foreclosures quickly approaches, some of your clients may be getting nervous — and the coming wave of foreclosures ought to catch the attention of real estate professionals, too.
At the federal level, the foreclosure moratorium is currently set to expire on:
- January 31, 2021 for Fannie Mae and Freddie Mac mortgages; and
- February 28, 2021 for Federal Housing Administration (FHA)-insured mortgages and Department of Veterans Affairs (VA)-guaranteed mortgages.
However, the foreclosure moratoriums have been extended several times already, so these dates are not set in stone. Further, these types of mortgages allow homeowners experiencing a COVID-19-related income loss to request mortgage forbearance for up to 180 days. Under a forbearance program, servicers agree to temporarily forgo their right to pursue foreclosure while the homeowner takes steps to bring their mortgage current. Homeowners may submit their request for mortgage forbearance through February 28, 2020.
While at the national level only government-backed mortgages are required to offer forbearance programs, here in California, any homeowner experiencing a COVID-19 hardship may apply for a forbearance program, regardless of mortgage type. [Calif. Civil Code §3273.11(c)]
Nationwide, 5.5% of all mortgaged homeowners are in a forbearance program as of the second week of December 2020, representing 2.7 million homeowners.
Further, 7.7% of mortgages are in some stage of delinquency as of the third quarter (Q3) of 202, according to the Mortgage Bankers Association (MBA). Most of these are 90+ days delinquent, a leading indicator of future foreclosures. For a principal residence, a notice of default (NOD), which initiates the foreclosure process, is recorded when the mortgage is at least 120 days past due. [12 Code of Federal Regulations §1024.41(f)(1)]
How will the end of the federal foreclosure moratorium affect real estate sales volume?
- Sales volume will rise. (78%, 136 Votes)
- Sales volume will fall. (13%, 22 Votes)
- The moratorium has had no effect on sales volume. (10%, 17 Votes)
Total Voters: 175
Millions will be heading for foreclosure
What happens when the foreclosure moratorium ends?
For homeowners who are not in good standing in a forbearance program, servicers may begin or resume the foreclosure process.
Homeowners in a forbearance program have through the end of the program to begin making payments again. Once their program ends, they may also apply for an extension. Further, when they begin to make payments again, homeowners will need to talk to their servicers about their options for repaying the mortgage payments missed during their forbearance period.
But many homeowners will be unable to qualify for forbearance or unable to make payments once their forbearance program expires. In fact, in California alone there are still roughly 1.4 million people out of work compared to pre-pandemic levels, encompassing renters and homeowners. Still others continue to work but have seen their incomes reduced.
firsttuesday forecasts foreclosures will begin impacting the market in the second half of 2021. These distressed sales will pull down home values and cause homebuyers to pause their plans to purchase. Home sales volume and prices will decline through 2022, bottoming in 2023.
Do you have clients in forbearance, or seeking to enter a forbearance program before the deadline? You may wish to direct them to a HUD-approved housing counselor. They may find a counselor by visiting https://www.consumerfinance.gov/mortgagehelp/ or calling the Consumer Financial Protection Bureau (CFPB) at (855) 411-CFPB (2372)
It’s true there are still a lot of homeowners in forbearance, and suffering economic hardship, but the majority are not underwater. People with equity don’t go into foreclosure. They simply sell their house to pay off the bank. So we may see increased selling, and that can only help this inventory-starved market, but it’s highly unlikely we’re going to see a wave of foreclosures dragging down the market.