Early 2020 when the pandemic surged through the country and mortgage forbearance plans were first announced, many homeowners were allowed to pause their mortgage payments. Most people were concerned that once the forbearance program ended, the housing market would experience a wave of foreclosures like what happened after the housing bubble 15 years ago.

The good news is this isn’t the case and here’s  why.

1. Less Homeowners are in Trouble This Time

After the last housing crash, over nine million households lost their homes to a  short sale, foreclosure, or because they turned it back over to the bank. In the face of uncertainty, it was feared that homeowners would face the same fate again this time.

However, today’s data shows that most homeowners exited their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The data from the Mortgage Bankers Association (MBA) studies show

38.6% left the program paid in full

• 19.9% made their monthly payments during the forbearance period
• 11.8% made up all past-due payments
• 6.9% paid off the loan in full

44% negotiated work-out repayment plans

• 29.1% received a loan deferral
• 14.1% received a loan modification
• 0.8% arranged a different repayment plan

0.6% sold as a deed-in lieu or a short sale

16.8% left the program still in trouble and without a loss mitigation plan in place

2. Most Homeowners Have More Than Enough Equity To Sell Their Homes

For those who can’t negotiate a solution, many will have enough equity to sell their homes and leave the closing with cash instead of facing foreclosures. That is a huge difference from before when most homes were under water.

Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home.  President & CEO of CoreLogic, Frank Martell states:

“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”

 

3. If Your Still In Trouble You Can Still Negotiate a Repayment Plan

As of last Friday, the total number of mortgages still in forbearance stood at 890,000. Those who remain in forbearance still have the chance to work out a plan with the servicing company that represents their lender.

4. There Have Been Far Fewer Foreclosures Over the Last Two Years

One of the seldom-reported benefits of the forbearance program was that it allowed households experiencing financial difficulties prior to the pandemic to enter the program. It gave those homeowners an extra two years to get their finances in order and work out a plan with their lender. This prevented over 400,000 foreclosures that normally would have come to the market had the new forbearance program not been available.

5. The Current Market Can Easily Absorb Over a Million New Listings

When foreclosures hit the market in 2008, they added to the oversupply of houses that were already on the market. That resulted in over a nine-month supply of listings across the country.  For reference anything over a six-month supply can cause prices to depreciate.

It’s exactly the opposite today. The latest Existing Home Sales Report from the National Association of Realtors (NAR) reveals:

“Total housing inventory at the end of November amounted to 1.11 million units, down 9.8% from October and down 13.3% from one year ago (1.28 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago.”

A balanced market would have approximately a six-month supply of inventory. At 2.1 months, the market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand.

Bottom Line

The end of the forbearance plan will not cause any upheaval in the housing market.