Is there a flood of foreclosures coming from Covid19?
Flipper/Rehabber · Tyler, TX · Member since 2019 · 58 posts · 41 votes
Is there a flood of foreclosures coming from Covid19?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votescouple thoughts.
1. depends on the state time from a payment default to an actual sale at court house is minimum of 1 year to 3 to 5 years in some states.. so this will be state specific.
2. there could be a semi flood of those in foreclosure prior to the moratorium and those break loose as soon as the moratorium is over and the counties resume post covid lock downs
3. Mortgage servicers/lenders in my mind will be far more willing to do work outs than what happened 08 to 2011 were the feds forced the action much of the time.
1. depends on the state time from a payment default to an actual sale at court house is minimum of 1 year to 3 to 5 years in some states.. so this will be state specific.
2. there could be a semi flood of those in foreclosure prior to the moratorium and those break loose as soon as the moratorium is over and the counties resume post covid lock downs
3. Mortgage servicers/lenders in my mind will be far more willing to do work outs than what happened 08 to 2011 were the feds forced the action much of the time.
23 Replies
Originally posted by @Jesse Morrell:
Do you think there will be a flood of foreclosures from the economic shutdown? If so, do you think it will drive the prices of real estate down? Banks also hold on to foreclosures and slowly release their inventories to avoid saturating the market and driving prices down.
Nobody knows. People are making educated guesses and it is pointing toward the increase of foreclosures.
- Flipper/Rehabber · Tyler, TX · Member since 2019 · 58 posts · 41 votes6y
I can’t imagine there could be a nationwide economic shutdown causing mass unemployment, especially with a moratorium against evictions, that won’t eventually cause massive amounts of mortgage foreclosures. It’s just the way the system works.
Real estate prices are high right now because banks have such low interest rates in an attempt to stay alive, while real estate inventory is low. Many buyers plus low inventory means high prices, which we have seen. But once all these nationwide foreclosures hit the market (I don’t think it will be in September like some have said because the foreclosure process takes time, especially to hit the market) it will drive the prices of real estate down.
The only thing that could counter balance that is for banks to continue to flood the market with home buyers from the low interest rates while also slowly dripping their foreclosure inventory of REO to the market. That would help the retail market from taking as much of a dive, but the foreclosure auctions will still likely have more deals than cash bidders, driving down the prices.
The low interest rates are tempting many to refinance but if the market drops from a flood of inventory, you could end up owing more than the property is worth, for the time being, since the high prices are sort of artificial from the low interest rates. Banks will have to raise interest rates again, out of necessity of how their business works.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votescouple thoughts.
1. depends on the state time from a payment default to an actual sale at court house is minimum of 1 year to 3 to 5 years in some states.. so this will be state specific.
2. there could be a semi flood of those in foreclosure prior to the moratorium and those break loose as soon as the moratorium is over and the counties resume post covid lock downs
3. Mortgage servicers/lenders in my mind will be far more willing to do work outs than what happened 08 to 2011 were the feds forced the action much of the time. - Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes6y
@Jesse Morrell As Joe pointed out, we're all making our best educated guesses. Jay is spot on with his observations.
My perspective:
1. Government, GSE's, and banks are already doing what they can do to slow foreclosures via forebearances and self imposed moratoriums on evictions and foreclosures for government backed loans.
2. I predict that this help will morph into mass loan modifications. You had a 6 or 12 month forbearance and can't pay? Don't worry, we'll roll up your arrears into deferred principal and you'll owe it at the end. They already know this move and used it extensively in 2010-2014 to dry up foreclosures.
3. The loans that are not government backed, were delinquent before COVID, and are held by people like me will continue to get foreclosed on. But now there's a backlog in some states. Almost everything has opened backed up yet so foreclosures will start back up again. If anything, we'll see a surge in foreclosures over time but not a looming tidal wave.
This time, governments know what to do to slow foreclosures, have every incentive to do so, and the secondary market is already positioned to deal with the issues.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes6y
Originally posted by @Jesse Morrell:
Do you think there will be a flood of foreclosures from the economic shutdown? If so, do you think it will drive the prices of real estate down? Banks also hold on to foreclosures and slowly release their inventories to avoid saturating the market and driving prices down.
The answer is no, at least not for a good period of time. Between extended unemployment, stimulus checks and loan forbearance, nobody should be delinquent on their loan. The only reason would be if they didn't take advantage of the programs available. Even once the government money dries up, a foreclosure takes a year or more to execute. With interest rates low, many properties will likely sell pre-foreclosure. The other factor is there is lots of investors holding cash waiting for opportunity. That will prevent prices from falling too far. The only way prices fall is when there is no buyers.
The best way to understand it is that prices move based on two factors. Supply and demand. Supply can go down or up and prices can still increase, because it is all relative to demand.
- Flipper/Rehabber · Tyler, TX · Member since 2019 · 58 posts · 41 votes6y
@Joe Splitrock you mean prices go down when there are less buyers, not no buyers, right? When the supply is greater than the demand. There doesn’t have to be zero demand for prices to drop, just an over supply.
I’ve seen many foreclosure take years to hit the market, like 5-8 years in some cases, even when they are vacant and empty.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes6y
Originally posted by @Jesse Morrell:
@Joe Splitrock you mean prices go down when there are less buyers, not no buyers, right? When the supply is greater than the demand. There doesn’t have to be zero demand for prices to drop, just an over supply.
I’ve seen many foreclosure take years to hit the market, like 5-8 years in some cases, even when they are vacant and empty.
Right, I was using the term "no buyers" meaning very few. There is always people buying and selling - it is how many, how long and at what price that changes. The entire foreclosure process was way too slow during the housing crisis and one of the main reasons was the poor policies in place around short sales. I knew people trying to acquire properties on short sale during the housing crisis and offers just went unanswered. The HAFA helped streamline the short sale process. This allows homes to sell, rather than sit vacant for years. There are many other changes since the housing crisis to lending in general that make a repeat of the foreclosure spike unlikely.
- Rental Property Investor · Fishers, IN · Member since 2016 · 337 posts · 470 votes6y
I sure as heck don't know, but I believe it all depends on what the next/future government stimulus encompasses to bridge between now and when we have a vaccine.
Check out the data in the link from the National Low Income Housing Coalition: https://nlihc.org/sites/default/files/The_Eviction_Crisis_080720.pdf
If 28-43M people are on the brink of eviction, how will leveraged investors fare paying their mortgages?
- Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes6y
@Jesse Morrell The government & banks have been in this situation before and did everything they could to stem the tide of foreclosures, which really started working in 2012-2013. Government added steps like manadatory mediations in some states that added to the foreclosure timeline. Big banks are large, bureaucratic, and slow to make decisions, which made short sales drawn out and painful. They also slow down even more with added rules and regulations.
With the added stimulus that Joe mentioned, less borrowers should be in trouble. But even the ones that do get into trouble will have extra help with forbearance plans, which, in my opinion, will turn into loan mods with deferred balances.
Also, keep in mind the huge difference that the 2008 crisis involved a huge amount of borrowers that should never have gotten loans in the first place because of the easy credit and misaligned incentives that caused the credit bubble. We didn't have that this time. Loans had much stricter underwriting, most borrowers could afford their loans, and the economy was booming. The hugest factor, in my opinion, is getting the economy going again. The faster we do that, the faster we can recover and the less defaults, we'll see.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Andy Mirza:
@Jesse Morrell The government & banks have been in this situation before and did everything they could to stem the tide of foreclosures, which really started working in 2012-2013. Government added steps like manadatory mediations in some states that added to the foreclosure timeline. Big banks are large, bureaucratic, and slow to make decisions, which made short sales drawn out and painful. They also slow down even more with added rules and regulations.
With the added stimulus that Joe mentioned, less borrowers should be in trouble. But even the ones that do get into trouble will have extra help with forbearance plans, which, in my opinion, will turn into loan mods with deferred balances.
Also, keep in mind the huge difference that the 2008 crisis involved a huge amount of borrowers that should never have gotten loans in the first place because of the easy credit and misaligned incentives that caused the credit bubble. We didn't have that this time. Loans had much stricter underwriting, most borrowers could afford their loans, and the economy was booming. The hugest factor, in my opinion, is getting the economy going again. The faster we do that, the faster we can recover and the less defaults, we'll see.
Andy one thing that sticks in my mind was a client I had that worked in the loss mit department of Wells here in Portland.
in 06 his department was less than 10 people for his region. by the time we got to talking they were at 400 .. And i suspect by 2015 2016 it was back to 10 to 20.. now if the defaults start stacking up in Mass.. its going to take time for the banks/servicers to simply hire and train folks to deal with this.. that right there can lead to a years lag time.. And especially with the in person meetings in this state that are law.. those take time to coordinate etc.. So like most things it will be very state specific
- Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes6y
@Jay Hinrichs Completely agree with you. These things take time to get set up plus there's no political will or drive to foreclose as fast as possible. It's the opposite and no one's in a hurry.
Quick example: Nevada passed a law a few years ago to add a mandatory attempt at mediation before you could foreclose. It took over a year for them to set up a new office and procedure for it. (We were a month away from foreclosing on a loan and this delayed it for over a year, frustrating!)
I talked to a friend who works for a title company and they are flooded with "loan mod" requests. She can't tell whether those are permanent, temporary, or forbearances, but it's far greater than normal.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Andy Mirza:
@Jay Hinrichs Completely agree with you. These things take time to get set up plus there's no political will or drive to foreclose as fast as possible. It's the opposite and no one's in a hurry.
Quick example: Nevada passed a law a few years ago to add a mandatory attempt at mediation before you could foreclose. It took over a year for them to set up a new office and procedure for it. (We were a month away from foreclosing on a loan and this delayed it for over a year, frustrating!)
I talked to a friend who works for a title company and they are flooded with "loan mod" requests. She can't tell whether those are permanent, temporary, or forbearances, but it's far greater than normal.
Not sure about CA but the mandatory meeting between lender/servicer and the borrower and the Borrowers foreclosure consultant is the law in Oregon and Washington.. Of course commercial purpose loans are exempt I believe these laws/rules I believe are strictly owner occ.
- Flipper/Rehabber · Allentown, PA · Member since 2011 · 1k+ posts · 701 votes6y
Yes. But not necessarily for the reasons you are thinking.
There is a dam wall up right now with restrictions on foreclosure filings being filed.
Once the restrictions are lifted, the dam wall will break, and there will be a flood.
It's not really going to be a flood from "new" foreclosures. It's going to be a flood of in process foreclosures finally catching up, and selling at courthouse sale.
But, there is also pent-up demand at courthouse sale. So lots of those foreclosures that will sell at courthouse sale, will not actually hit the open MLS market, they'll sell to investors at the courthouse.
- Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes6y
@Jesse Morrell, an important metric to look at is owners’ equity in their homes, which is significantly higher now than in ‘08.
When the forbearance programs end, there will be a flood of sales, not foreclosures. If you can’t pay you mortgage but aren’t underwater, you can sell!
An increase in supply will lower prices, but it won’t be a crash.
That’s my two cents. Follow the equity!
- 6yCalvin OzanickBusiness MemberProperty Manager · Janesville, WI · Member since 2017 · 708 posts · 297 votes
I have spoken with my broker quite a bit about this. I believe there will not be a lot of foreclosures, but rather a spike in inventory. With banks bringing in a second wave of forbearance in some areas, along with the initial 3 month time frame coming to a close in the next month or so, many people are going to be in a similar situation they were 3 months ago. They are faced with the decision, pay the increased mortgage amount and find a way to struggle through. Or, they can sell at an all time high for valuation. This is going to increase the inventory on the market, while also lowering the price because supply is going to go up. Obviously, this could lead to the next market shift which is sure to be coming, but that is my best approximation of where the market will be heading.
Wisconsin Property Managers4.7414 Reviews - Flipper/Rehabber · Tyler, TX · Member since 2019 · 58 posts · 41 votes6y
@Calvin Ozanick that’s a good point. The supply could increase as a result of people who can no longer pay their mortgage trying to sell and capitalize on those all time highs.
Historically real estate always increases over every ten year span, with ups and downs in between, because that’s just how inflation works.
The good thing about real estate, as opposed to stocks, is that houses all rise and fall together. Markets always go up and down but real estate always tends up overall.
I’m asking and thinking about this question because I have a flip I’m working on finishing up and getting on the market. If the market does turn down, since houses all rise and fall together, I could still sell this one fixed up and move on to my next fixer upper no problem. I have a large enough profit margin to handle a down turn.
I suppose those renting out their properties, using BRRRR, can also handle a temporary down turn too because their strategy is long term and real estate always trends up in the long term. Still, everyone refinancing right now could temporarily end up owing more than they would be able to sell it for.
- Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes6y
Originally posted by @Account Closed:
Originally posted by @Jon Schwartz:
@Jesse Morrell, an important metric to look at is owners’ equity in their homes, which is significantly higher now than in ‘08.
When the forbearance programs end, there will be a flood of sales, not foreclosures. If you can’t pay you mortgage but aren’t underwater, you can sell!
An increase in supply will lower prices, but it won’t be a crash.
That’s my two cents. Follow the equity!
This is very interesting observation. Do you foresee any significant price discounts?
Not significant, but I think prices will soften.
- Flipper/Rehabber · Tyler, TX · Member since 2019 · 58 posts · 41 votes6y
Market down turns and even market crashes are the best investment opportunities to buy real estate for those with the cash. A flood of foreclosures would drop prices but also create more amazing buying opportunities. I’m personally looking forward to more deals hitting the courthouse steps because it’s the worst when there are more investors than deals. To have more deals than investors would be great. I just want to sell what I have now at high prices before that happens.
- Investor · NorCal · Member since 2015 · 282 posts · 240 votes6y
There won’t be a foreclosure wave. The government just added 3 trillion dollars to the money supply (and more coming soon), most of which goes straight to stocks and real estate. Folks are buying houses like crazy right now. On top of that, from 2009-2019 we have built annually only 500k-1 million new homes, compared to 1-2 million annually every year since the 1950’s. So we now have a shortage of about 5 million homes, and a wave of foreclosures would not “create more homes”. Sure, some folks will be forced to move in with friends and family, but with 10% unemployment there are still 90% employed, and a lot of the 90% want to put their money in real estate, just like you and me.
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