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Covid-19 relief efforts that aimed to help homeowners pay off their mortgages and prevent people from losing their homes set a new record for the housing market: Foreclosures filed in 2021 hit lowest rate in more than a decade.
There were 151,153 foreclosure filings in 2021, down 29% from 2020 and the lowest number in at least 16 years – when property data analytics company ATTOM started tracking these data in 2005.
Important factors contributing to the low levels of foreclosure rates were Covid-related forbearance on mortgage payments, a ban on home evictions and a 2021 mortgage management rule that discouraged foreclosures. While there are still mortgages coming out of forbearance, the ban on evictions long since expired on July 1, 2021, and the Consumer Financial Protection Bureau’s service rule ended on January 1, 2022.
“The government’s foreclosure moratorium, mortgage forbearance program and mortgage servicing guidelines promulgated by the CFPB in August have kept the number of foreclosures artificially low over the past year,” he said. said Rick Sharga, executive vice president of ATTOM, RealtyTrac, in a press release. Release. “While the recovering economy should prevent a dramatic increase in defaults, we should see a gradual increase in foreclosure activity as these programs expire and managers exhaust all loan modification options. for borrowers in default.”
Most experts agreed there would be a slow increase in foreclosures as Covid relief efforts wind down. But the amount of foreclosures largely depends on lenders’ ability to get troubled borrowers out of forbearance and offer them viable payment options.
Where do the seizures go
According to the latest report from the Federal Reserve Bank of Philadelphia released on January 14, there are approximately 2.73 million mortgages pending forbearance or in arrears. Of those mortgages, nearly 800,000 fall under the CARES (Coronavirus Aid, Relief and Economic Security) Act forbearance measure, with 89% of them due to expire in the first half of this year.
“With the additional safeguards against foreclosure provided by the Consumer Financial Protection Bureau (CFPB) expiring by the end of 2021, unless mortgage officers can successfully execute hold options at home, many borrowers face the prospect of selling their home or losing it to foreclosure,” the report said.
The CFPB’s temporary rule required mortgage servicers to make every effort to ensure troubled borrowers were clear about what they could do to avoid foreclosure, including modification and alternative payment options. Without this rule in place, housing experts are urging lenders to continue to educate borrowers about their options and make them readily available. Otherwise, foreclosures could start to climb later in 2022, says Faith Schwartz, CEO of housing advisory practice Housing Finance Strategies.
Schwartz also noted the federally-sponsored Homeowners Assistance Fund (HAF) program, which provides nearly $10 billion to states to help homeowners with overdue and outstanding bills. These funds are distributed at the state level.
“The programs offered by government agencies were amazing, and most borrowers have a path to modification or deferment if they’re still employed,” Schwartz says. “However, the toughest issues in 2022 will be ensuring that borrowers know about the State’s Homeowner Relief Fund programs in addition to extraordinary loss mitigation solutions.”
However, others point out that a combination of job growth, a strong seller’s market and the latest jump in home equity is preventing a spike in foreclosures.
“Expiring CFPB guarantees is unlikely to trigger large amounts of foreclosure activity, as owners have more equity than ever before,” says Odeta Kushi, chief economist at First American.
Borrowers today are benefiting from the harsh lessons of the 2008 housing crisis as federal and state governments were more responsive to struggling borrowers, said David Dworkin, president and CEO of the National Conference. on housing.
“We learned a lot from the last housing crisis and how to reach homeowners and how to modify their mortgages to help them stay in their homes,” Dworkin says. “And we have such a housing shortage that we don’t expect to see any market disruption due to the inevitable foreclosures.”
Still, the Philadelphia Fed estimates there are more than a million borrowers who are not in forbearance and are more than 90 days behind on payments, called seriously delinquent.
“In the coming months, banking and non-banking will be challenged to execute stay-at-home or other alternative foreclosure options for these borrowers and 1.15 million other seriously delinquent and non-lenient borrowers. “, says the Philadelphia Fed report.
Ways to Avoid Foreclosure
The most important step homeowners can take if they can’t pay their mortgage payments is to contact their lender as soon as possible, Dworkin says. He advises homeowners to negotiate a “soft landing” with their lenders rather than going through a foreclosure.
“It’s human nature to shut down and avoid uncomfortable conversations, but communication with your mortgage agent is key,” says Dworkin.
Foreclosure not only means losing your home, but also facing huge hits to your credit score, which can affect your ability to secure future housing and even employment. Borrowers behind on mortgage payments can get help in a number of ways, including:
- Request forbearance (if government guaranteed mortgage)
- Refinance into a longer term mortgage
- Request a loan modification
- Apply for the Landlord Assistance Fund
- Rent part or all of the house
- Sell the house
Borrowers with mortgages backed by Fannie Mae or Freddie Mac can still apply for mortgage forbearance if they haven’t already. Forbearance allows homeowners who have experienced financial hardship to reduce or suspend their mortgage payments for up to 18 months while they find a new source of income or come up with an alternative plan.
For mortgages that are not federally guaranteed, borrowers should contact their administrators and state governments to find out what options are available to them.
If you want to lower your monthly mortgage payments, you may be able to extend the term of your mortgage (how long you have to pay off the mortgage) by refinancing. For example, if you have 20 years left on your mortgage, you can apply for a 30-year refinance, which will lower your monthly payments.
Refinancing can have an added benefit if you can lower your interest rate as well. Keep in mind that you will have to pay closing costs, which can cost between 2% and 5% of the total loan amount. Some lenders will let you build these costs into the mortgage, so you don’t have to pay them up front. To find out how much you can save by extending the term, lowering your interest rate, or both, check out Forbes Advisor’s Mortgage Refinance Calculator.
Some homeowners may qualify for a loan modification, which can lower the cost of your mortgage, including principal and interest. Loan modifications are at the discretion of your lender and terms vary depending on your lender.
If you have not yet applied for financial assistance through the HAF program, contact a housing counselor licensed by the U.S. Department of Housing and Urban Development (HUD). They offer free services and are available in all states. To locate a housing counselor in your area, visit the HUD website.
If you don’t want to refinance or modify your loan, or don’t qualify for either, you can also rent out part of the house to help pay the mortgage. However, make sure you understand the risks associated with renting your home or part of your home. For landlords who don’t have experience as a landlord or with the laws that govern tenants and rental housing in your area, talk to an expert to understand what you’re getting yourself into.
Finally, thanks to the current housing market, many homeowners will be able to sell their homes and make a profit. According to mortgage technology and analytics provider Black Knight, homeowners gained $250 billion in usable equity in the third quarter of 2021 alone.
While selling may not be the ideal situation for some people, it’s better than facing a foreclosure. Plus, struggling homeowners who don’t have access to help and who fall behind on their mortgage payments will quickly eat away at any capital they have by racking up costly late fees and even legal fees.
“Mortgage borrowers who are underemployed or unemployed may need to find a graceful exit if they don’t qualify for a solution,” says Schwartz. “The challenge for any individual when all solutions fail will be the rapid deterioration of fairness through fees and penalties.”