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Forbearance Report

Thanks to KCM for providing this report:

According to the latest report from Black Knight, Inc., a well-respected provider of data and analytics for mortgage companies, 6.48 million households have entered a forbearance plan as a result of financial concerns brought on by the COVID-19 pandemic.

Here’s where these homeowners stand right now:

  • 2,543,000 (39%) are current on their payments and have left the program.
  • 625,000 (9%) have paid off their mortgages.
  • 434,000 (7%) have negotiated a repayment plan and have left the program.
  • 2,254,000 (35%) have extended their original forbearance plan.
  • 512,000 (8%) are still in their original forbearance plan.
  • 116,000 (2%) have left the program and are still behind on payments.

This shows that of the almost 3.72 million homeowners who have left the program, only 116,000 (2%) exited while they were still behind on their payments. There are still 2.77 million borrowers in a forbearance program. No one knows for sure how many of those will become foreclosures. There are, however, three major reasons why most experts believe there will not be a tsunami of foreclosures as we saw during the housing crash over a decade ago:

  1. Almost 30% of borrowers in forbearance are still current on their mortgage payments.
  2. Banks likely don’t want to repeat the mistakes of 2008-2012 when they put large numbers of foreclosures on their books. This time, many will instead negotiate a modification plan with the borrower, which will enable households to maintain ownership of the home.
  3. With the significant equity homeowners have today, most can sell their home, rather than get foreclosed.

Will there be foreclosures coming to the market? Yes. There are hundreds of thousands of foreclosures in this country each year. People experience economic hardships, and in some cases, are not able to meet their mortgage obligations.

Here’s the breakdown of new foreclosures over the last three years, prior to the pandemic:

  • 2017: 314,220
  • 2018: 279,040
  • 2019: 277,520

Through the first three quarters of 2020 (the latest data available), there were only 114,780 new foreclosures. If 10% of those currently in forbearance go to foreclosure, 275,000 foreclosures would be added to the market in 2021. That would be an average year as the numbers above show.

Link to KCM Article

FHFA Extends Moratoriums

It’s costing the taxpayers more than $7 billion, but nobody in government wants to be the one who foreclosed or evicted people during a pandemic. I’d guess that a Covid loan-modification program is coming next:

Today, to help borrowers at risk of losing their home due to the coronavirus national emergency, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) will extend the moratoriums on single-family foreclosures and real estate owned (REO) evictions until at least January 31, 2021. The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The REO eviction moratorium applies to properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions. The current moratoriums were set to expire on December 31, 2020.

“Extending Fannie Mae and Freddie Mac’s foreclosure and eviction moratoriums through January 2021 keeps borrowers safe during the pandemic,” said Director Mark Calabria. “This extension gives peace of mind to the more than 28 million homeowners with an Enterprise-backed mortgage.”

Currently, FHFA projects additional expenses of $1.1 to $1.7 billion will be borne by the Enterprises due to the existing COVID-19 foreclosure moratorium and its extension. This is in addition to the $6 billion in costs already incurred by the Enterprises. FHFA will continue to monitor the effect of coronavirus on the mortgage industry and update its policies as needed. To understand the protections and assistance offered by the government to those having trouble paying their mortgage, please visit the joint Department of Housing and Urban Development, FHFA, and the Consumer Financial Protection Bureau website at cfpb.gov/housing.

SB 1079

Hat tip to Susie who sent in this article about a law recently passed in California:

The new rules apply to one- to four-unit properties sold at foreclosure auctions. If an investor wins one of those homes at auction, then people who want to live in it, as well as nonprofit organizations and government entities, get 45 days to submit competing offers.

If the home is a rental, the tenants living there could win by matching the investor’s offer. Other would-be buyers must offer more than the investor.

Known as SB 1079, the law takes effect Jan. 1, 2021.

State Sen. Nancy Skinner (D-Berkeley), the bill’s author, said her goal was to make it easier for individuals and affordable-housing groups to compete with investors.

“Homeownership is the primary way people have to build up generational wealth,” she said. “When we have rules that give advantage to a corporation, then that dream is just not available.”

The manager of the foreclosure auction is required to maintain a website that details the highest bid at the auction and how to submit competing offers.

Link to LAT article

I don’t know how many amateurs will be paying more than investors for homes sight unseen, and without proper title searches for additional liens.  But there will be a few!

It was the last paragraph that was the most intriguing.

The State of California has institutionalized transparency!

Making the highest bid known to the public could revolutionize our business. Can you imagine if Zillow ran a website that openly tracked the offers on their homes for sale – buyers would love the transparency!  Then every brokerage would be pressured into doing the same, and boom – no more agent shenanigans!

Are you thinking of selling?

Transparency can help ignite a bidding war, and get buyers to bid up the price because it becomes more about winning, then getting a deal.  It’s how I handle my listings – let’s talk about how I can help you!

Here’s the classic courthouse-steps example of how auctions help to drive up the price:

Underprivileged Get Foreclosure Privilege

Another story demonstrating how free enterprise is being squeezed:

California is taking steps to avoid a repeat of the conversion of thousands of single-family homes from ownership to rental properties as occurred during the Great Recession. In late September, the state’s governor Gavin Newson signed a bill that will give tenants, affordable housing groups and local governments the first crack at buying foreclosed homes.

As homes were foreclosed by the millions following the housing crisis, Wall Street stepped in and investors, according to Zillow, gobbled up over 5 million homes, turning them into rental properties. They were bought as individual homes, via bulk sales of lender real estate owned (REO), or as distressed loans upon which the investors later foreclosed.

It was expected that these houses would return to owner-occupied status once home prices recovered and the investors, largely big hedge funds, could realize a profit. Instead they have found ways to manage the geographically dispersed properties and continue to hold hundreds of thousands of them.

This has been problematic. While the investor purchases helped put a floor under home prices at a time when there was little appetite for buying distressed properties, it has continued to reduce the inventory of available homes for sale. There have also been many complaints of tenant abuses and deferred maintenance. Many of these were spotlighted last March in a New York Times Magazine article, “A $60 Billion Housing Grab by Wall Street” by Francesco Mari. We summarized her work here.

The California legislation, SB1079, was the brainchild of an activist Oakland group, Moms 4 Housing. It bars sellers of foreclosed homes from bundling them at auction for sale to a single buyer. In addition, it will allow tenants, families, local governments, affordable housing nonprofits and community land trusts 45 days to beat the best auction bid to buy the property. It also creates fines of as much as $2,000 per day for failure to properly maintain properties.

So far, the COVID-19 pandemic has not resulted in massive foreclosures due both to mortgage forbearance programs and a foreclosure moratorium put in place by the U.S. Congress’s Cares Act. Still mortgage delinquencies are rising, and weekly first-time unemployment claims have remained above 800,000 since March. Most forbearance plans are due to expire by next March lacking further government action.

SB1079 goes into effect on January 1, 2021.

http://www.mortgagenewsdaily.com/10132020_wall_street_landlords.asp

San Diego Distressed Homeowners?

With our unemployment rate being higher than it was during the Great Recession, it would be prudent to worry about homeowners defaulting on their mortgages…..except we didn’t even make this list:

Those who do go into default should find their lenders being very accommodating even after the moratoriums expire…..unless the homeowner has a load of equity, which virtually all do in San Diego.

Realistically, the worst thing that will happen is that they will have to sell!

Looming Foreclosure Crisis?

Our reader ‘just some guy’ sent in this article and quipped about these writers who insist on promoting a foreclosure scare due to the pandemic. But it is worth noting because it could become a self-fulfilling prophecy just due to the lack of a counter-argument being published at large.

This article is quick to point out that there isn’t a problem yet:

Even after the foreclosure moratorium expires, homeowners on a government-backed loan will have a forbearance option to fall back on, so there’s no need to panic just yet. But digging into mortgage-delinquency data shows how much water is building behind the dam that is these government backstops.

In January, just 3.22 percent of mortgages were in delinquency. By May, that number shot up to 7.76 percent — about three points shy of where the delinquency rate peaked during the financial crisis of 2008, which was at 10.57 percent.

Prior to the the pandemic in March, the number of mortgages in forbearance was fewer than 100,000. Currently, there are roughly 4.5 million mortgages in forbearance, although this is obviously a reflection of homeowners having the option of forbearance, but it gives you a sense of the scope.

Not every homeowner in forbearance is past due on their payments; some went into forbearance as a precaution, or just because they could. Some homeowners were in forbearance and have since gotten out, either because there didn’t end up being a need or they got a new job. For June, 21 percent of mortgages in forbearance were current on their payments, but as the pandemic goes on, more will enter into serious delinquency that would normally trigger a foreclosure.

With the forbearance option available for up to a year, economists have baked into their models a wave of foreclosures in the spring of 2021, which they say would cause a very rare drop in U.S. home prices.

I haven’t heard anyone predict falling home prices in 2021, and Zillow is forecasting a 5.7% increase.

We also know that the loan-modifications that worked last time will get employed again before banks lose a penny.  The only people they might foreclose on are homeowners with sufficient equity, but if it comes to that, then those folks will sell their house instead and make out nicely.

It does add an interesting component to next year’s selling season though, which should be a humdinger!

BTW, I don’t have any insider info on the rumored Compass/Keller Williams merger.  Even if it’s been discussed, it’s hard to believe the egos involved would allow for it.

Wait And See About Foreclosures?

This presentation covers both sides of the concerns about home values plunging because of the effects of the pandemic on the economy.

Suze says don’t buy a house until later this year because there could be foreclosures, and David points out that the CARES Act already gives those in forbearance at least 6-12 months. I’ll point out that the rules changed after the last crisis, and now lenders don’t have to foreclose if they don’t feel like it – which makes foreclosure an option, not a requirement. It’s a huge change that Suze doesn’t see.

Our society is now geared to take advantage of other people’s misfortune, so insiders will pounce.

Global Financial Meltdown

A viewer’s comment on YouTube led me to this terrific inside view of the 2008 financial crisis, and the resulting impact on the world. It rightly blames the entire fiasco on the Tan Man, who pitched his mortgages to Wall Street based on the yields generated if borrowers made their full-interest payments, when in reality, only a much smaller minimum monthly payment was all that was due.

It’s eerie to watch today as our financial markets are in question again:

I make a quick comment in at the 2:38-minute mark, standing in front of the most-expensive REO listing we received in the era – a 2,900sf house in downtown Carlsbad that sold for $603,000 in December, 2009.  It’s still owned by those buyers! The realtor.com estimate today is $973,900.

Foreclosures Halted

They won’t foreclose on you, but your credit score will be affected. From the AP:

Certain borrowers nervous about missed house payments got some relief as two major government backers of mortgages have said they’re stopping foreclosure work for the next 60 days.

The Federal Housing Administration and Fannie Mae announced moves to help out borrowers behind on house payments as part of effort to mitigate the financial impact of the coronavirus outbreak.

Loan servers of FHA and Fannie Mae loans have been directed to stop starting new foreclosure actions; suspend foreclosures in progress; and not evicting residents of foreclosed properties with loans backed by these agencies. Borrowers in financial trouble are encouraged to contact their loan servicer to inquire about various relief programs.

“Today’s actions will allow households who have an FHA-insured mortgage to meet the challenges of COVID-19 without fear of losing their homes, and help steady market concerns,” said U.S. Department of Housing and Urban Development Secretary Ben Carson. “The health and safety of the American people is of the utmost importance and the halting of all foreclosure actions and evictions for the next 60 days will provide homeowners with some peace of mind during these trying times.”

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