Three reasons why recent foreclosures aren’t anything to worry about.
“If a lot of foreclosures hit the market, will that bring down home values?” This was a question I recently got from a reporter writing a story for an online news site. She asked if we’ll see prices drop if homeowners who entered forbearance during the pandemic start to lose their homes to foreclosures. It sounded like this reporter got the terms forbearance and foreclosure confused.
Forbearance and foreclosure are two separate things. Foreclosure is a process that begins when a borrower fails to make their mortgage payments. When a home is foreclosed, the lender typically repossesses and attempts to sell the house. Mortgage forbearance provides a form of relief to borrowers struggling to afford their monthly mortgage payments. It allows the borrower to reduce the amount they pay or even pause payments altogether for a set period without ruining their credit.
During the forbearance period, your lender will report your loan as current to the credit reporting agencies to avoid adverse credit consequences. The servicer, on behalf of the lender, will not initiate a foreclosure, and in exchange, the borrower has to resume making payments at the end of the forbearance and get current on missed amounts, including principal interest taxes and insurance.
Banks are unlikely to let what happened in 2008 happen again, especially when the real estate market is playing such a big part in our economic recovery. Here are three reasons why I believe foreclosures won’t flood our market:
1. Nearly 30% of borrowers in forbearance are still current on their mortgage payments. Only 6% missed more than one payment. This is according to research from JPMorgan Chase. The researchers are assuming that there were borrowers who had applied for forbearance and ended up not using it now.
“Don’t expect a flood of homes due to foreclosure.”
2. Banks don’t want to repeat the mistakes of the Great Recession. Many will instead negotiate a modification plan with the borrower, which will enable homeowners to maintain ownership of the house.
3. Homeowners have large amounts of equity. Therefore, many are able to sell their homes instead of going into foreclosure.
That is why I believe you shouldn’t expect a flood of homes coming on the market at rock bottom prices due to foreclosure activity. If you have any questions about this, or if you’re thinking about buying or selling, please don’t hesitate to reach out to me by phone or email. I look forward to hearing from you.