What Happens When Homeowners Leave Their Forbearance Plans?

 


According to the latest report from Black Knight, Inc., a well-respected provider of data and analytics for mortgage companies, 6.48 million households have entered a forbearance plan as a result of financial concerns brought on by the COVID-19 pandemic. Here’s where these homeowners stand right now:

  • 2,543,000 (39%) are current on their payments and have left the program
  • 625,000 (9%) have paid off their mortgages
  • 434,000 (7%) have negotiated a repayment plan and have left the program
  • 2,254,000 (35%) have extended their original forbearance plan
  • 512,000 (8%) are still in their original forbearance plan
  • 116,000 (2%) have left the program and are still behind on payments

This shows that of the almost 3.72 million homeowners who have left the program, only 116,000 (2%) exited while they were still behind on their payments. There are still 2.77 million borrowers in a forbearance program. No one knows for sure how many of those will become foreclosures. There are, however, three major reasons why most experts believe there will not be a tsunami of foreclosures as we saw during the housing crash over a decade ago:

  1. Almost 30% of borrowers in forbearance are still current on their mortgage payments.
  2. Banks likely don’t want to repeat the mistakes of 2008-2012 when they put large numbers of foreclosures on their books. This time, many will instead negotiate a modification plan with the borrower, which will enable households to maintain ownership of the home.
  3. With the significant equity homeowners have today, many will be able to sell instead of going into foreclosure.

Will there be foreclosures coming to the market? Yes. There are hundreds of thousands of foreclosures in this country each year. People experience economic hardships, and in some cases, are not able to meet their mortgage obligations.

Here’s the breakdown of new foreclosures over the last three years, prior to the pandemic:

  • 2017: 314,220
  • 2018: 279,040
  • 2019: 277,520

Through the first three quarters of 2020 (the latest data available), there were only 114,780 new foreclosures. If 10% of those currently in forbearance go to foreclosure, 275,000 foreclosures would be added to the market in 2021. That would be an average year as the numbers above show.

So if the number is more than 10%?

If we experience a high foreclosure rate because of the forbearance,  the current housing market will easily absorb the excess inventory.  We’re now entering 2021 with 320,000 fewer homes for sale, and the buyer demand remains extremely strong. 

Bottom Line

There will be more foreclosures entering the market later this year, especially compared to the record-low numbers in 2020. However, the market will be able to handle the increase as buyer demand remains strong.

Search for home on my website, and see a complete list of homes currently on the market including the types of homes, locations, and price points. Call me, or send me an email / text, to discuss any thoughts about your next home, the buying process, and the most important next step. When in doubt, just call me and I will help you with each step of your journey.

Search here for your next home,

Find out the current market value of your home. It is important to choose a REALTOR® who can develop an effective marketing strategy for your property, negotiate well on your behalf, and has the knowledge to provide an accurate market comparison so you can determine the right asking price.

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from:Keeping Current Matters
Asifa Zia
REALTOR® MRP. PSA, Pearson Smith Realty LLC
Address: 43777 Central Station Drive #390, Ashburn VA 20147
Offices in Ashburn, Leesburg, Sterling, Fairfax and Woodbridge VA. 
Languages spoken: Spanish. Hindi. Urdu. English 

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