Search Listings

Will the End of Forbearance Lead to a Wave of Foreclosures? 

Jul 29th, 2021 | jfinney@talktotucker.com

The forbearance plans are about to come to an end and many are wondering if that will lead to an increase of “more than normal” foreclosures like what happened in the 2008-2012 housing bubble…we aren’t likely to see that and here are 4 reasons why:

1. There are fewer homeowners in trouble this time – in the last housing crash, about 9.3 million lost their homes to a foreclosure, short sale or they just simply gave it back to the bank. With the stay-at-home orders in place early last year due to the pandemic, many were afraid that we were on our way back to 2008 status of the housing market. It was projected that 30% of all mortgage holders would enter the forbearance program…only 8.5% actually did and now that number is down to 3.5%. As of last week, the number of mortgages that are still in forbearance stood at just under 1.9 million…don’t get me wrong, that’s still a very large number, however nowhere near the 9.3 million from the last housing crash. 

2. Most of the 1.9 million in forbearance have enough equity to sell their home – at least 87% of those homeowners have at least 10% equity in their homes. That’s important as it allows homeowners to sell their homes and pay the related expenses instead of facing a hit on their credit that a foreclosure or a short sale would create. 

Of the remaining 13% in the current forbearance plan may not have the option to sell…IF they all went into foreclosure, it would total 241,800 mortgages. The put that number into context of “normal” years, below are the foreclosure numbers for the 3 years leading up to the pandemic:
      2017: 314,220
      2018: 279,040
      2019: 277,520

** All in all, the foreclosure numbers are actually lower this year than they have been the past few years!

3. The current market can absorb any listings coming on the market – During the foreclosure crisis in 2008, there was an abundance of houses on the market for sale. That is complete opposite of where we are today with us being such a strong sellers market currently. That means that your home is most likely able to sell for more and in a shorter amount of time than in past years. 

4. Those in power will do whatever is necessary to keep the number of foreclosures down – the White House released a fact sheet explaining how homeowners with government backed mortgages will be given further options to enable them to keep their homes when exiting forbearance. Here are 2 examples mentioned in the fact sheet:
    – “For homeowners who can resume their pre-pandemic monthly mortgage payment and where agencies have the authority, agencies will continue to require mortgage servicers to offer options that allow borrowers to moved missed payments to the end of the mortgage at no additional cost to the borrower“.

My hope is that these 4 reasons will calm fears that I’ve heard here and there recently from people when they ask about the housing market and where do we see it going…if you have any questions or want to discuss this topic or any real estate related topic, please reach out to me! I love talking real estate!

Interested in Learning More?
Posts you might like

Last week Fannie Mae released survey data regarding market sentiment: Survey showed 77% of the respondents feel that it is a “good time to sell” But the survey also confirmed what we have been feeling – an increasing number of buyers feel it is a “bad time to buy” a home at 64%…this is up from 56% … more »

The benefits of being a homeowner vs. renting are many: Building equity (ownership) in a desirable asset The ability to do what you want in your home (you can paint a room purple if you’d like! Please note that if you want to sell soon, I’m going to request it go back to a neutral color! LOL) Tax benefits – … more »