This article predicts an increase in mortgage modifications with the impending expiration of foreclosure moratoria – which in turn will lead to an increase in defaulted borrowers.
After several extensions, the Foreclosure moratorium for federal mortgage loans expires on July 31, 2021. This means that homeowners are currently behind with their mortgage payments – made by the Law on Help, Assistance and Economic Security (CARES) against Corona passed in March 2020 – you either have to pay or apply for additional mortgage relief.
Under the CARES lawhomeowners have been able to significantly reduce or skip their mortgage payments for up to twelve months. While homeowners are still on the hook for any payments they did not make, they have missed payments under this aspect Forbearance program were not reported as overdue and had no impact on homeowners’ credit reports.
Homeowner Not subject to a mortgage forbearance in the wake of the recession, in fact have until September 30th to apply for an additional deferral of up to six months. Anyone currently on a forbearance program and not making mortgage payments is also in luck – they can apply for a three-month extension to theirs indulgence.
However, for those who are more than 90 days behind with their mortgage payments, there is another option – Mortgage modification.
Changes on the horizon
The Federal Housing Administration (FHA) offers COVID-19 Advance Loan Modification (COVID-19 ALM) for seriously behind homeowners.
Instead of preventing mortgage payments for a period of time, Mortgage modification changes the basic terms of a mortgage and gives homeowners who are in default or threatened with payment the chance to catch up on manageable terms.
The Federal Housing Finance Agency (FHFA) reported that nominally fewer mortgage payments were behind schedule in 2020 than they were in 2019. At first glance, this may sound like fewer homeowners actually need the relief of mortgage adjustments. However, the data is misleading. Because late payments on late mortgages were not reported as overdue under the CARES Act, the FHFA estimates that overdue rates could be more than 3% higher than actually reported – a sharp increase over previous years.
As a result, it is likely that we could fend off a wave of homeowners requesting mortgage adjustment relief. What makes this alarming is that the imminent surge in mortgage adjustments coincides with the reality that employment in California is still declining 1.4 million jobs compared to before the 2020 recession.
Without access to a reliable source of income, many homeowners currently dependent on the CARES Act mortgage relief are on their way once those reliefs dry up – which for those who choose the FHA’s COVID-19 ALM program, unite imminent increase means Change specifications.
History repeats itself
It’s easy to forget that we are I’ve been here before – In the years following the Great Recession, a similar federal mortgage modification program brought in a whopping 60% national default setting only one year after the changes come into effect.
Modifications were canceled in the first half of 2010 by the thousands due to defaulting homeowners who were unable to keep up with the changed payments despite changed mortgage terms.
At that time the modification was one a short term solution for the underlying bad mortgage problem, and there’s a slim chance the coming spike in defaults will match the extremes of the aftermath of the Great Recession – today’s real estate market is not the 2009 market. House prices have still risenwhich means that with enough equity built up, homeowners can easily make the decision to sell to avoid foreclosure.
However, for many others struggling to repay defaulting mortgages, change will be the most prudent choice, and since California is its Recovering scanty jobs, more homeowners can afford mortgage payments that may have been lagging in recent months.
Ultimately, it’s hard to say exactly how many homeowners are heading into late payments or foreclosures. Even if overdue rates remain low, the proportion of homeowners with forbearance is predictable increased sharply since the onset of the recession – suggesting an increase in forbearance extensions and mortgage modifications once the federal foreclosure moratorium is over.
While the re-default rate is unlikely to be this high this time around, the current sluggish employment growth means homeowners are still suffering the effects of the recession and pandemic, and will continue to do so for years to come. Mortgage modification is still only a short term solution that is only as effective as that of homeowners Solvency.
Without work, wage earners have no financial opportunities to make mortgage payments – which means that the state is responsible for Job creation is the best real long term solution to keep homeowners in their homes. And make no mistake – for those who accept the FHA’s offer to modify their federal mortgages, a deluge of borrowers has defaulted.