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...

Hello Christopher,

Great information, I am wondering if lenders right now will make it easy for mortgage qualifying?  Especially in the midst of high forbearance rates and tough economical situations?

Thanks, 

Claudio Salvatorelli 

I wonder how much of that 39.1% that are 150+ dpd is people who can afford to make payments just taking advantage of the program. Any insight there?

Great information. Thanks for posting.

Without a doubt!  The 'perfect storm' is about to hit  I don't see banks easing up on qualifying standards anytime soon...     Check out how #KevinMcElroy sums it up in "2021 Housing Crash Response to MeetKevin"   

I'm not sure we're looking at a tsunami.  I recently took a look at the numbers and posted this.  If they are off, let me know.

My prediction for our market is that appreciation is going to slow down soon. We (Tampa / St Petersburg / Clearwater / Pinellas) will remain a net population growth market for the foreseeable future so without a glut of inventory, there's nothing that could really cause prices to drop. So while appreciation slows to a normal number (4-ish%), prices wouldn't drop.

As we get rid of buyer's agents (there are a lot of big players trying to force that), the prices will correct for the cost savings for sellers but that's only really a few percent.

The glut of inventory that people think is coming isn't really supported by the numbers. A lot of people think that as forbearance ends, there will be a ton of foreclosures. Those people can never quote the numbers for me. The questions are:

How many houses have loans? (63%)

How many loans are in forbearance? (5.2%) (This report says 5.54%)

How many of those will NOT be able to catch up or start paying their mortgage? (Let’s pretend all of them, but we know that many of them WILL because there are still people buying. Some Americans still have jobs, in fact many do, especially in our market)

How many of THOSE are actually underwater (have no equity)? With the recent historic appreciation, almost none. That article says 7% and it's from before the pandemic price increase.

So, going off those numbers:

139 million houses in America - * 63% = 87 million * 6% in forbearance = 5.25 million * 7% underwater = 368,000 houses foreclosed or short-saled. Or to put in another way, .26% of houses (1/4 of a percent). That's not a glut of houses in my market. Definitely not enough to even change it into a buyer's market. We currently have 1.5 months of inventory.

Even if every loan in forbearance gets foreclosed / short-saled, that's 2% of all houses, so even that's not enough to change prices. Even if mortgage rates go up and half the people buying can't afford to buy, that's enough to shift us into a balanced market, which would stop appreciation but not cause a dramatic drop in prices.

That's just my two cents and it only applies to my market. I know nothing about what, say, Youngstown Ohio looks like as far as jobs, sales, ownership trends, etc. . .

I doubt we will see a lot of foreclosures in SW Florida. We have many buyers that pay cash. 

I'm sure as forbearances come expired there will be a lot of foreclosures, but only for those who are ready and knowledgeable on how to buy those deals. Foreclosures is a niche deal method and you'll want to be knowledgeable on your local sheriffs office as well as how local banks sell their REO assets.

@Christopher J. Roche

I am currently working with a seller that took forbearence and with the offer we have now she will need to bring cash to close.

Will there be tusamni ? Idk but i would think there will be a large amount of these cases. It is especially difficult for sellers that purchased in récent years and have limited equity.

My take is dont take forbearence unless absolutely needed. The late fees and interest really add up.

Not sure about a tsunami, but there will be an increase. Many people will get back on track likely due to stream lined modifications, but for those who remain unemployed or got pay cuts, and can not pay their bills, the inevitable is foreclosure proceedings beginning. Also, they trickle out. So you are more likely to see a sustained increase over the next 1-3 years then a tidal wave. 

I doubt there is a tsunami of foreclosures coming, or even much of an increase. Dan did a good job of outlining the 'why', and while that is specific to his market, I think you'll find it applies to the vast majority of markets today. Philosophically I think the issue is we're all too close to the GFC and expect that RE is what gets hammered in every downturn, which is inherently untrue. The three recessions prior to GFC other assets were where big losses were realized, RE was more stable and not as impacted. That doesn't mean there will be 0 impact from the forbearances on the market, but I think between off market sales, modifications, retail sales and the recent low interest environment assisting with buying power that it will be  an insignificant issue for many markets.