The health crisis we are facing as a country has led businesses to reduce or close their business. This brief pause in the economy has significantly impacted the workforce and as a result, many people have lost their jobs. Naturally, this might cause many people to expect a flood of foreclosures to happen like we saw in 2008. However, the market today is very different from 2008.
The concern of more foreclosures based on the number of people who are currently out of work is one that we need to understand fully. There are two main reasons we won’t see a flood of foreclosures this fall: forbearance extension options and strong homeowner equity.
Forbearance, according to the Consumer Financial Protection Bureau (CFPB), is “when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage.” Forbearance Extension is an option for those who need immediate relief. In today’s economy, the CFPB has given homeowners a way to extend their forbearance, which will greatly assist those families who need it at this critical time.
Under the CARES Act, the CFPB notes:
“If you experience financial hardship due to the coronavirus pandemic, you have a right to request and obtain a forbearance for up to 180 days. You also have the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days).”
Equity is also working in favor of today’s homeowners. Today’s homeowners who are in forbearance actually have more equity in their homes than what the market experienced in 2008.
The Mortgage Monitor report from Black Knight indicates that of all active forbearances which are past due on their mortgage payment, 77% have at least 20% equity in their homes (See graph below):
Black Knight notes:
“The high level of equity provides options for homeowners, policymakers, mortgage investors and servicers in helping to avoid downstream foreclosure activity and default-related losses.”
Many people think we may see a flood of foreclosures this fall, but the facts are not leading to that conclusion. Today’s real estate market is very different from 2008 when we saw many homeowners walk away when they owed more than their homes were worth. This time, equity is stronger, forbearance extension may be an option, and other plans are in place to help those affected by COVID-19.