Mortgage experts fear wave of foreclosures as protections end


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With the forbearance closing, some homeowners may not be able to make their mortgage payments.

When the COVID-19 epidemic first struck, it became clear that Americans would need all kinds of relief to stay afloat. This relief has taken various forms – stimulus checks, increased unemployment benefits and the possibility of suspending mortgage payments by forbearance.

Forbearance is something that has been available outside of the pandemic. But due to the COVID-19 crisis, anyone who wanted to forbear a home loan was allowed to do so during the pandemic, when normally loan departments can deny forbearance requests.

Those who suspended their mortgage repayments during the crisis were granted 18 months of abstention. But at this point, this protection comes to an end for many borrowers. The fear is that homeowners whose finances have not improved may lose their homes in the coming months if they are unable to make housing payments again.

A potential crisis

Black Knight reports that more than half of the 7.7 million mortgage borrowers who have applied for forbearance protection are now up to date on their home loan payments and are re-making those payments. Meanwhile, about 23% of borrowers whose loans have been suspended either sold their home or refinanced their mortgage to lower their monthly payments.

But 3% of borrowers, or about 264,000 homeowners, whose loans have been suspended, are now behind on their mortgage payments. And 38,000 are in active foreclosure.

Of course, this is not necessarily the level of crisis. But the worry is that as more borrowers come out of forbearance, they will land in a similar boat.

Homeowners who requested forbearance later in the pandemic may not be losing that protection until now. And so, it’s still unclear how many borrowers will end up falling behind on their mortgage payments once they’re back on the table.

A silver lining

Loan officers were encouraged to work with forbearance borrowers to help them stay in their homes. Currently, about 7% of those who have requested for forbearance are now developing a loan modification plan to achieve this goal.

But for some homeowners, that won’t work for a big reason – they just can’t pay. Many people are still unemployed at this point in the pandemic, although more jobs are available. And those whose income cannot support a modified or reduced mortgage payment may end up losing their home.

Yet borrowers in this situation may not need to come to terms with losing their home to foreclosure, which can cause significant damage to their credit score. Because home values ​​are so high right now, 87% of homeowners in foreclosure have positive home equity, according to RealtyTrac. For these people, selling their home to pay off their lenders is an option. While selling means having to leave their home, it means being able to do so without ruining their credit in the process.

Of course, this raises the question of where the owners will live next in this situation. If house values ​​are high, so are rents. While selling a home might be a good option for some borrowers who can’t pay their mortgage after the loan is forbidden, for many it’s not that simple.

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