At the onset of the economic disruptions caused by the COVID pandemic, the government quickly put into place forbearance plans to allow homeowners to remain in their homes without making their monthly mortgage payments. Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not.
Yanling Mayer, Principal Economist at CoreLogic, recently revealed:
“A distributional analysis of forborne loans’ payment status reveals that more than one third (39.1%) of all forborne loans are now 150+ days behind payment, while as many as 1-in-4 (25.5%) are 180+ days past due.”
These homeowners have been given permission to not make their payments, but the question now is: how many of them will be able to catch up after their forbearance program ends? There’s speculation that a forthcoming wave of foreclosures could be the result, and that could lead to another crash in home values like we saw a decade ago.
However, today’s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of equity in their homes.
What are the experts saying?
Over the last 30 days, several industry experts have weighed in on this subject.
Michael Sklarz, President at Collateral Analytics:
“We may very well see a meaningful increase in the number of homes listed for sale as these borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure.”
Odeta Kushi, Deputy Chief Economist at First American:
“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock. It is a lack of sufficient equity, the second component of the dual trigger, that causes a serious delinquency to become a foreclosure.”
Don Layton, Senior Industry Fellow at the Joint Center for Housing Studies of Harvard University:
“With a greater cushion of equity, troubled homeowners have dramatically improved options: a greater ability to access funding (e.g. home equity lines) to keep paying monthly expenses until family finances might recover, improved ability to qualify for and support a loan modification, and, if push comes to shove, the ability to sell the home and monetize their increased net worth while reducing monthly payment obligations. So, what should lenders and servicers expect: a large number of foreclosures or only a modest increase? I believe the latter.”
With today’s positive equity situation, many homeowners will be able to use a loan modification or refinance to stay in their homes. If not, some will go to foreclosure, but most will be able to sell and walk away with their equity.
Won’t the additional homes on the market impact prices?Distressed properties (foreclosures and short sales) sell at a significant discount. If homeowners sell instead of going into foreclosure, the impact on the housing market will be much less severe.
We must also realize there is currently an unprecedented lack of inventory on the market. Just last week, realtor.com explained:
“Nationally, the number of homes for sale was down 39.6%, amounting to 449,000 fewer homes for sale than last December.”
It’s important to remember that there weren’t enough homes for sale even then, and inventory has only continued to decline.
The market has the potential to absorb half a million homes this year without it causing home values to depreciate.
The pandemic has led to both personal and economic hardships for many American households. The overall residential real estate market, however, has weathered the storm and will continue to do so in 2021.
The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Marshall Malone does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Marshall Malone will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein
Why Pre-Approval Is Key in 2021
Today's housing market is highly competitive for homebuyers, so it's critical to gain every advantage in the process that you can. Let's connect to make sure pre-approval is one of the first steps you take toward homeownership this year.
Once you’ve found the right home and applied for a mortgage, there are some key things to keep in mind before you close. You’re undoubtedly excited about the opportunity to decorate your new place, but before you make any large purchases, move your money around, or make any major life changes, consult your lender – someone who is qualified to tell you how your financial decisions may impact your home loan.
Below is a list of things you shouldn’t do after applying for a mortgage. They’re all important to know – or simply just good reminders – for the process.
1. Don’t Deposit Cash into Your Bank Accounts Before Speaking with Your Bank or Lender.
Lenders need to source your money, and cash is not easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
2. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home.
New debt comes with new monthly obligations. New obligations create new qualifications. People with new debt have higher debt-to-income ratios. Higher ratios make for riskier loans, and then sometimes qualified borrowers no longer qualify.
3. Don’t Co-Sign Other Loans for Anyone.
When you co-sign, you’re obligated. With that obligation comes higher ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count the payments against you.
4. Don’t Change Bank Accounts.
Remember, lenders need to source and track your assets. That task is significantly easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
5. Don’t Apply for New Credit.
It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be impacted. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
6. Don’t Close Any Credit Accounts.
Many buyers believe having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants of your score.
Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. The best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Marshall Malone does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Marshall Malone will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.
Forbearance programs are helping homeowners manage their monthly mortgage payments right now. Let's connect and follow-up with your lender to make sure you have the information you need to make a confident decision.
...a third generation realtor. His brothers, parents, and grandfather were all realtors in Alabama. He has spent much of his life as an entrepreneur, having started 4 businesses, and he considers hospitality a key element in everything he does. Marshall will go the extra mile for you.