While analysts have raised concerns that foreclosures could overwhelm servicers when forbearance ends, new data suggests that outcomes in most areas will be manageable.
This is in part because the Biden government's extension of borrower relief measures this week will give borrowers more time to recover. Also, the number of long-term forbearance households is stabilizing, and recent analysis suggests that many distressed homeowners will ultimately fail for foreclosures.
According to the Federal Housing Agency, there were 841,977 borrowers in government-sponsored corporate forbearance plans as of November, compared with 922,589 in the previous month. This decline, coupled with a broader decline in unemployment, means that the incidence of hardship is stable to lower for the average mortgage borrower.
Even in the more vulnerable Ginnie Mae market, borrowers have a strong home buffer against foreclosures, according to the Urban Institute.
Thanks to the appreciation of the home price, these borrowers have an average equity buffer of 22% and only 3.6% negative equity, according to the Urban Institute. This is in contrast to the Great Recession when negative equity peaked at 30% and foreclosures rose.
Traditionally, it is believed that borrowers have a strong financial incentive not to give up repayment efforts if they have at least 20% equity in their home.
However, it is unknown how the risk of foreclosure increases as forbearance activity fluctuates. In addition, servicers will be busy with other forms of harm reduction, e.g. B. with changes that make the loan terms more affordable, even if they don't handle foreclosures per se.
The number of GSE borrowers completing forbearance plans rose from 58,016 to 59,203, and completions fell to 57,133 from 83,404 in the latest report by the Federal Housing Agency.
While much of the market could hold out due to strong stock levels, the plight could be compounded in a limited number of local markets that were excluded from the broader housing boom.
Some of these markets have house prices that may have been artificially inflated by credit that was neglected in terms of borrowers' ability to repay in the lead up to the Great Recession. Prices in most property markets recovered from the subsequent devaluation, but some did not. Real estate values are now considered more stable than they were then due to the relatively stricter underwriting and ATR regulations.
“House prices in some parts of the country, including Chicago, Illinois; Baltimore, Maryland; and Riverside, California are still below their pre-crisis peak, ”said the Urban Institute researchers in their report. "We may see more actual foreclosures in these areas."