The health crisis we face as a country has led businesses all over the world to either reduce or discontinue their services altogether. This pause in the economy has greatly impacted the workforce and as a result, many people have been laid off or furloughed. Naturally, that would lead many people to believe we might see a rush of foreclosures like what we saw in 2008. The market today, however, is much different from what we saw in 2008.
The concern of more foreclosures based on those that are out of work is one that we need to understand fully. There are two main reasons we won’t see a rush of foreclosures this fall: forbearance extension options and strong homeowner equity. Let’s discuss…
1. Forbearance Extension
Forbearance, according to the Consumer Financial Protection Bureau (CFPB), is “when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage.” This is an option for those homeowners who need immediate relief. In today’s economy, the CFPB has given homeowners a way to extend their forbearance, which will greatly assist those families who need it at this critical time.
Under the CARES Act, the CFPB notes:
“If you experience financial hardship due to the coronavirus pandemic, you have a right to request and obtain a forbearance for up to 180 days. You also have the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days).”
2. Strong Homeowner Equity
Equity is also working in favor positively for today’s homeowners. This savings is another reason why we won’t see substantial foreclosures in the near future. Homeowners today who are in forbearance actually have more equity in their homes than what the market experienced back in 2008.
The Mortgage Monitor report from Black Knight indicates that of all active forbearances which are past due on their mortgage payment, 77% have at least 20% equity in their homes (See graph below):Black Knight notes:
“The high level of equity provides options for homeowners, policymakers, mortgage investors and servicers in helping to avoid downstream foreclosure activity and default-related losses.”
The Bottom Line
Many think we may see a rush of foreclosures this fall, but the facts just don’t add up in this case. What we’re seeing in the real estate market today is very different from what we saw in 2008 when many homeowners walked away when they owed more than their homes were worth. This time, equity is stronger and plans are in place to help those affected weather the storm.