September 19, 2021

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Mortgage News

Covid mortgage bailouts set to expire, but foreclosure crisis unlikely

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The number of borrowers in the state and private Covid mortgage rescue programs is rapidly declining, but for those still in trouble, the future does not look as bleak as originally thought.

Exceptionally high home equity, thanks to the recent surge in home prices, has ailing borrowers in a much better position than they did at the start of the pandemic.

The number of active mortgage forbearance plans that allowed borrowers to defer their monthly payments is down more than 5% from the previous week, according to a new report from Black Knight, a mortgage data and analytics company.

The decline was driven by the expiration date in August. Borrowers have been given up to 18 months to enter the programs, so the taps are now rolling. An oversized group of 400,000 maturities is expected to be recorded in September as the borrower surge was highest in March and April 2020.

There are still 1.618 million borrowers in forbearance programs (up from around 5 million at the peak in May 2020), or 3.1% of all outstanding mortgages, an unpaid balance of $ 313 billion. But 98% of these troubled borrowers now have at least 10% equity in their homes, not counting their missed payments. Including these payments, 93% still have more than 10% equity. Given today’s tight real estate market, the majority could easily sell and still reap some profit.

“Such strong equity positions should help limit the volume of distressed inflows into the real estate market and provide a strong incentive for homeowners to start making mortgage payments again – even if they need to be reduced through modifications,” said Ben Graboske, President of data and Analyzes for Black Knight.

$ 1 trillion “Vulnerable Equity”

Tangible equity – the amount of cash available to homeowners with mortgages to take out of their homes while maintaining at least 20% equity – rose a total of $ 1 trillion in the second quarter of 2021 alone. Rapidly rising home prices have raised home equity from just over $ 6 trillion at the start of the pandemic to just over $ 9 trillion.

CoreLogic’s last reading in July showed that house prices were up a record 18% nationwide compared to July 2020. Some states, such as Idaho and Arizona, saw even larger increases at 33% and 28%, respectively.

“Home appreciation continues to escalate as millennials enter their prime, renters eager to escape skyrocketing rents, and capital investors drive demand,” said Frank Martell, President and CEO of CoreLogic.

Despite sky-high prices and equity, the start of foreclosure (the start of the foreclosure process) rose 27% from July and 60% from August 2020, according to Attom, a foreclosure and data company. Although these jumps may seem large, they are from a very low base. In August 2019, before the pandemic, the beginnings of foreclosures were more than three times as high.

“As expected, foreclosure activity increased as the government’s foreclosure moratorium expired, but that doesn’t mean we should expect a flood of distressed properties to hit the market,” said Rick Sharga, executive vice president of RealtyTrac, an attom – Company listing foreclosed properties for sale.

Sharga expects foreclosure activity to spike over the next three months as loans defaulted prior to the pandemic-induced foreclosure moratorium return to the foreclosure pipeline and states begin to catch up on month-long foreclosure requests that were made during the pandemic.

“But it is likely that foreclosures will remain below normal levels at least until the end of the year,” he added.