As a response to the devastating economic impact of the COVID-19 pandemic, the U.S. government rolled out the forbearance program as part of the CARES Act. Through this program, lenders are to reduce or suspend payments for borrowers that have been significantly impacted by the pandemic. To be clear, forbearance does not erase what you owe. Instead, you’ll have to repay any missed or reduced payments in the future. With this said, federal regulators have made it clear that if you receive a forbearance under the CARES Act, your mortgage servicer cannot require you to repay your skipped payments in a lump sum once the forbearance period ends.
Will forbearance result in a wave of foreclosures?
This is a common question from clients and many assume that forbearance is merely a way of delaying the inevitable result of foreclosures. While this may be a logical assumption, it may not be particularly accurate. As a matter of fact, about 25% of all homeowners who demanded forbearance are still current on their mortgages as of September 6th, according to the latest Mortgage Bankers Association (MBA) data. Of 3.4 million households currently in forbearance, roughly 820,000 haven’t missed a payment. In addition, we are seeing more people exiting the program due to a lack of need. Of course, it is also assumed that many homeowners took part in this program as a safety net.
If forbearance works as intended, homeowners will simply re-start payments when jobs return, and their homes will never go into foreclosure. Of course, the COVID-19 pandemic is the wild card in this equation.
The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey found that the number of loans in forbearance decreased by 49 basis points from 6.81% of servicers’ portfolio volume week-to-week to 6.32% as of Oct. 4, 2020. According to MBA’s estimate, 3.2 million homeowners are in forbearance plans.
Of course, nobody has a crystal ball as to what the future will look like for the pandemic, economy, or the real estate market. With this said, there are signs that the economy is improving and the real estate market continues to remain strong. With the expectation that mortgage interest rates will continue to remain low, it is likely that the real estate market will remain strong or stabilize. If you are potential home buyer or investor that is banking on a wave of foreclosures hitting the market, it is certainly not likely to happen in 2021.
The upcoming election certainly adds to the uncertainty and markets will react accordingly. The more relevant question would be whether an uptick in foreclosures will be seen in 2022? At this time, it is much too early to predict.