Covid mortgage bailout set to end, but foreclosure crisis unlikely

Covid mortgage bailout set to end, but foreclosure crisis unlikely

George Peters | Getty Images

The number of borrowers in both the public and private sectors is dropping sharply, but for those who are still struggling, the future is not as bleak as initially thought.

Exceptionally high levels of home equity, thanks to the recent rise in house prices, have left struggling borrowers in a much better position than they were at the start of the pandemic.

Active mortgage forbearance plans, in which borrowers were allowed to delay their monthly payments, fell more than 5% from last week, according to a new report from mortgage data and analysis firm Black Knight .

The decline was driven at the end of August. Borrowers had up to 18 months from entering the programs, so termination is pending. September is expected to see an outlier of 400,000 terminations, with the wave of borrower registrations highest in March and April 2020.

There are still 1.618 million borrowers in forbearance programs (up from around 5 million at the May 2020 peak), or 3.1% of all outstanding mortgages, representing an outstanding balance of $ 313 billion. dollars. But 98% of those troubled borrowers now have at least 10% equity in their home, not counting their missed payments. Including these payments, 93% still have more than 10% equity. With today’s tight real estate market, the majority can easily sell while making a profit.

Ben Graboschke, Chairman of Data, said: “Such equity positions should help limit the amount of distress inflows into the real estate market and encourage homeowners to make mortgage payments, even if they don’t. should only be reduced by amendments. and analysis for Black Knight.

$ 1 trillion in “available equity”

So-called workable equity – the amount of money available for homeowners with mortgages to get out of their homes while maintaining at least 20% equity – has increased by $ 1,000 billion over the past year. second quarter of 2021 alone. Rapidly rising home prices have pushed home equity levels above $ 9 trillion, just over $ 6 trillion at the start of the pandemic.

CoreLogic’s latest reading in July shows domestic prices have risen a record 18% nationwide since July 2020. Some states, such as Idaho and Arizona, have seen even bigger gains , at 33% and 28%, respectively.

Frank Martel, President and CEO of CoreLogic, said, “Home prices continue to rise as millennials enter their first few years of home buying, tenants seek to escape soaring homes. rents and demand from deep-pocketed investors is increasing. has been.”

According to Atom, a lockdown and data company, even with prices and shares soaring, foreclosure debuts (the start of the lockdown process) increased in August, up 27% from July and 60% higher. % from August 2020. Although these jumps may seem significant. , they are on a very small basis. The start of seizures in August 2019 more than tripled before the pandemic.

“As expected, foreclosure activity has increased with the end of the government’s foreclosure moratorium, but that doesn’t mean we should expect to see an influx of distressed properties hit the market,” said Rick Sharga, vice -executive chairman of RealtyTrack. , an Atom company that lists foreclosed properties for sale.

Sharga expects to see an increase in foreclosure activity over the next three months, as loans that were in the foreclosure pipeline defaulted before the pandemic-related foreclosure moratorium, and states begin to hold onto months of unresolved foreclosure cases. it was done. global pandemic.

“But it is likely that foreclosures will remain below normal levels by the end of the year,” he said.

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