Is the US Facing a Pending Foreclosure Crisis?

By Lucas Smith | July 29, 2021

This is a sad, but inevitable reality. The forecast for the market seems bleak and there will be a flood of homes without any buyers to purchase them before 2020 or 2024 at this point in time.

There are several factors that contribute to the likelihood of your home being foreclosed on over these next few years, including whether you can afford it anymore with rising interest rates or if their area has been hit by economic downturns like job loss or unemployment which mean fewer people able to buy houses because they don’t have enough money saved up after rent payments each month as well as what type of mortgage loan you had signed up for such as an adjustable rate mortgage (ARM).

This month, we are going to take another look at forbearance activity across the United States. Now, I know that we have talked about this subject several times over the past year but it is worthwhile to do so again — if only for its popularity and success with Americans today.

Let’s start by looking back on what things were like when the program started in mid-2016:
Only 3% of mortgage holders eligible for a FHA loan had their mortgages restructured due to delinquency or default as compared with nearly 10% two years ago before any relief programs existed; less than 2 million homeowners qualified for Home Affordable Modification Program (HAMP) assistance while more than 4 million families lost homes through foreclosure since 2008

It can be hard to get a grasp on the sheer number of homes in America that are underwater, but I think this chart tells it best. Although there has been improvement since last May when more than 4.76 million homeowners were enrolled in HAMP (or 9% of all American mortgages), the numbers still reflect an unprecedented housing crisis and show just how much work we have left to do before turning things around for everyone affected by these financial hardships

As you can see from this first graph below, today’s situation is vastly improved from where we used to stand back at the beginning of May with more than 4.76 million households tied up in our national program – which equates roughly nine percent out of every mortgage-holding home here in America

But the latest data from Black Knight Financial shows that by mid-July of this year, 15.6 million homeowners had left their mortgage program between May 2020 and July 2021. To put things in perspective, there are only 1.86 million homes with a mortgage currently enrolled in HAMP as of mid-July 2019 which is 3% less than it was before the housing crisis struck!

But remember when President Obama signed his stimulus bill to save us all? Yeah well…

And when we look at the makeup of mortgages in forbearance, Fannie Mae and Freddie Mac have encountered a large share coming from loans backed by them. At their peak, just shy of 2 million homes were enrolled into this program which is about 7% percent of their total portfolio.

The number of mortgages backed by FHA or VA peaked at 1.53 million, but has since dropped to 755,000–a decrease from 12.6% then down to 6%. Furthermore it’s interesting that loans created as “other” didn’t peak until June when just short of one-million homes (9%) were in the program; however today they are only 524 thousand with a 9% drop over time.

The number of homes in forbearance is high, but it’s not as bad as I would have guessed. Out of all mortgages out there right now, only 4% are under the program and that percentage has been declining since April 2020–just about when the pandemic started kicking off.

The number of people who find themselves having to take a break from their mortgage payment due to financial hardship is still higher than what we want to see at this point in time; however, things seem better already! Of course these numbers may change again if more jobs dry up or some other economic factor comes into play later on down the line (such as another natural disaster), but for now just over ninety-five percent use them sparingly.

Of the roughly 460,000 homes in forbearance that were reviewed for either extension or removal from the program during June’s first two weeks, 33% left and 67% had their terms extended. This is a lower rate than we saw over April and May but it may be due to more homeowners coming out of this situation as long as our country continues to reopen — which isn’t guaranteed given Delta and Lambda variants of COVID-19 virus rise.

The bottom line is that the forbearance program was needed, and it can be said that it has been successful so far in warding off home foreclosures because of the remarkable impact of the pandemic. Although we should never say something will happen with certainty unless we’ve seen all data (and I know there are more out there), given what I have looked at today, my prediction would be a small rise only to levels similar or less than those found before this crisis began.

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