Forbearance programs for federally backed mortgages are rapidly coming to an end, but the National Association of Realtors has said its research shows that there won’t be a glut of foreclosed homes hitting the market, as some had warned.
The national forbearance moratorium will end on July 31, but most homeowners are expected to end with a new payment plan in place, so a spike in foreclosures is unlikely.
Data from the Mortgage Bankers Association shows that around 2.7 million U.S. homeowners are currently behind on their mortgage payments, with 1.8 million categorized as “seriously delinquent”, which mean they are 90 days or more past due. But its data also shows that 77% of homeowners in forbearance have a loss mitigation plan in place, meaning their payments have been restructured to make them more affordable.
There are however, around 400,000 homeowners that have already exited forbearance, or will soon exit, without loss mitigation plan in place.
NAR researcher Gay Cororaton said in a recent post on the Economists’ Outlook blog it’s not clear why those homeowners exited forbearance without any plan, because there is no date available. It may be because they can afford to pay their mortgages, he said, or it could be because they have already decided that foreclosure is their best option.
“If all these 400,000 homes go into foreclosure and get listed, that will add about 24 days of supply to the housing market given the current monthly sales pace of 483,333 existing homes,” Cororaton said.
However, he pointed out that such a situation is unlikely. She said that given how only one in ten borrowers are opting to list their homes, it’s more likely that only around a third, or maybe even less, of those 400,000 homes will go into foreclosure or end up being listed. As such, they will provide limited relief to the current tight housing supply, but by no means a glut of new listings that would depress prices, he wrote.
“If only one-third of these homes end up on the market, that’s 133,200 homes, which will add just 8 days of additional supply,” Cororaton explained. “If two-thirds of these homes end up on the market, that’s around 268,000 homes, which adds 17 days of supply.”
MarketWatch reported that homeowners with mortgages backed by the Federal Housing Administration are the most at risk of being delinquent on their loans, according to an analysis by the American Enterprise Institute. That study found that about 15% of 7.6 million FHA-backed mortgages were delinquent in May. Of those, 11% were seriously delinquent. The number includes loans that are in forbearance.
Meanwhile, the number of Americans who are still requesting forbearance has in recent weeks declined quite significantly. Many have already exited their forbearance plans and resumed making payments, while others have been able to modify their loans.
“If a modification is unable to address the delinquency, the next option is for the borrower to sell the home,” said American Enterprise Institute Housing Center Director Edward Pinto and Research Fellow Tobias Peter. “Given the rapid level of home price appreciation, this alternative should allow many distressed owners to avoid foreclosure, pay off the mortgage, cover selling expenses and maintain one’s credit record.”
Struggling borrowers who can’t sell their homes will ultimately face foreclosure.
“As a result, a buyer’s market could develop in ZIP Codes with heavy exposure to such borrowers,” the researchers said. They noted that many of these areas may be where there is a high concentration of FHA loan delinquency.