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Will Forbearance Plans Lead to a Tsunami of Foreclosures?

Will Forbearance Plans Lead to a Tsunami of Foreclosures?

At the onset of the economic disruptions caused by the COVID pandemic, the government quickly put in place forbearance plans to allow homeowners to remain in their homes without making their monthly mortgage payments. Today, almost three million households across the nation, including homes in Jacksonville and Pensacola, are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not. 

Yanling Mayer, Principal Economist at CoreLogic, recently revealed:

A distributional analysis of forborne loans’ payment status reveals that more than one-third (39.1%) of all forborne loans are now 150+ days behind payment, while as many as 1-in-4 (25.5%) are 180+ days past due.”

These homeowners have been permitted not to make their payments, but the question now is: how many of them will be able to catch up after their forbearance program ends? There’s speculation that a forthcoming wave of foreclosures could be the result, which could lead to another crash in home values like we saw a decade ago.

However, today’s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of equity in their homes. Rising home prices in Jacksonville and Pensacola almost guarantee that homeowners are sitting on a significant financial cushion in their homes.

What are the experts saying?

Over the last 30 days, several industry experts have weighed in on this subject.

Michael Sklarz, President at Collateral Analytics:

“We may very well see a meaningful increase in the number of homes listed for sale as these borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure.”

Odeta Kushi, Deputy Chief Economist at First American:

“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home or tapping into their equity through a refinance to help weather the economic shock. It is a lack of sufficient equity, the second component of the dual trigger, which causes a serious delinquency to become a foreclosure.”

Don Layton, Senior Industry Fellow at the Joint Center for Housing Studies of Harvard University:

“With a greater cushion of equity, troubled homeowners have dramatically improved options: a greater ability to access funding (e.g., home equity lines) to keep paying monthly expenses until family finances might recover, improved ability to qualify for and support a loan modification, and, if push comes to shove, the ability to sell the home and monetize their increased net worthwhile reducing monthly payment obligations. So, what should lenders and servicers expect: a large number of foreclosures or only a modest increase? I believe the latter.”

With today’s favorable equity situation, many homeowners will be able to use a loan modification or refinance to stay in their homes. If not, some will go to foreclosure, but most will be able to sell and walk away with their equity.

At Navy to Navy Homes, we are dedicated to looking at all possibilities for anyone struggling with their mortgage. Check out this link for a free INSTANT home evaluation - http://BeatZillow.smarthomeprice.com.  Knowing the value of your home is an essential first step in implementing a plan.

If you took advantage of a forbearance plan and are concerned about the impact, contact one of our Navy to Navy agents. We may have a solution for you. Possible solutions may include a refinance or selling and downsizing your home. 

Don’t forget, if you BUY or SELL a home with us, we give you 25% cashback from our commission if you are Military, Veteran, First Responder, Medical Field Worker, Teacher, or Clergy? Register at www.904Heroes.com for details.

Won’t the additional homes on the market impact prices?

Distressed properties (foreclosures and short sales) sell at a significant discount. If homeowners sell instead of going into foreclosure, the impact on the housing market will be much less severe.

We must also realize there is currently an unprecedented lack of inventory on the market. Just last week, realtor.com explained:

“Nationally, the number of homes for sale was down 39.6%, amounting to 449,000 fewer homes for sale than last December.”

It’s important to remember that there weren’t enough homes for sale even then, and inventory has only continued to decline.

The market has the potential to absorb half a million homes this year without it causing home values to depreciate. Here in Jacksonville and Pensacola, you can rest easy about the prospect of selling your home at a fair market price or utilizing your equity for another solution.

Bottom Line

The pandemic has led to both personal and economic hardships for many American households. However, the overall residential real estate market has weathered the storm and will continue to do so in 2021.

We are here to help. If you are feeling overwhelmed by the economic impact of the pandemic and concerned about getting caught up on your mortgage here in the Jacksonville or Pensacola area, email us at info@navytonavy.com for a list of recommendations and strategies that will put you at ease.

Navy to Navy Homes

4540 Southside Blvd, Suite 702

Jacksonville, FL 32216


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