Housing market analysts have raised concerns that we could see a rise in foreclosures once COVID-19 pandemic-related moratoriums end, and indeed, activity is already increasing even with those bans in place.
A report from ATTOM Data Solutions this week shows that foreclosure filings in March rose by 5% compared to the previous month, even as the government relaxed its requirements to enable more homeowners to seek forbearance.
Somewhat controversially perhaps, RealtyTrac executive vice president Rick Sharga said that if we look at the broader consequences, the slight uptick in foreclosures might be a good thing as it is mostly related to properties that have already been abandoned.
“The foreclosure moratorium on government-backed loans has virtually stopped foreclosure activity over the past year,” he said. “But mortgage servicers have been able to begin foreclosure action on vacant and abandoned properties, which benefits neighborhoods and communities. It’s likely that these foreclosures are causing the slight uptick we’ve seen over the past few months.”
Borrowers who have federally backed loans are entitled to up to 18 months of forbearance, but those who took advantage of the offer will see those protections lifted by September, which means they’ll not only have to start making payments again, but also come to an arrangement with their lender to make up for the ones they missed. According to the Consumer Financial Protection Bureau, that could put around 1.7 million homeowners at risk of losing their homes.
“There is a tidal wave of distressed homeowners who will need help,” the CFPB’s Acting Director Dave Uejo said in a recent statement.
Still, other analysts say that rising home prices and growing homeowner equity will help to prevent another foreclosure crisis like we saw in the late 2000s with the Great Recession. The shortage of homes for sale, which is at historic levels, will also ensure that demand for homes stays high. Homeowners that can’t continue making payments on their homes will therefore be able to make a quick sale, and make a decent profit from the transaction too.
“We can’t have indefinite forbearance, and we can’t have an infinite foreclosure moratorium,” said Marina Walsh, vice president of industry analysis at the Mortgage Bankers Association, in a recent interview with realtor.com. “As things get back to some sense of normal, people have to move on.”
Still, it’s likely we will see lots more sales activity later this year, if not foreclosures. The percentage of homeowners who are seriously behind on their mortgages or in foreclosure was up 245% in February compared to the year before, according to data from Black Knight.