Foreclosures increase? How?

14 Replies

Folks, I'm a bit confused on the latest foreclosure news, reporting that there was a 21% increase in foreclosures, MoM, in October 2020. I thought that there was a moratorium on foreclosures due to the CARES act? The act states that, except for vacant or abandoned property, a Federally backed mortgage loan servicer is prohibited from initiating any foreclosure process, seeking a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or foreclosure sale for at least a 60-day period that began on March 18, 2020. So, I'm assuming these numbers are purely non-federally backed mortgages — does anyone know more about the details on these figures?

    That is correct, BUT, what I do know is most people have gone onto forbearance programs, which means at the end of the program the note will be due IN FULL upfront including the current month note as well. Of course people will not be able to come up with that kind of cash upfront as they are on the programs for the reason they can't pay. That will be when these mortgage companies will begin to foreclose.

    @Michael Johnson thanks for the reply. However, I looked into it, there are actually 4 options for homeowners coming out of forbearance, at least for Fannie Mae and Freddie Mac loans. Take a look at the link; I think this will prevent most foreclosures which would otherwise come into fruition, so I actually would not bet on a mass foreclosure problem in the government backed loan market. Add in the likely event that more stimulus is on the way with a Biden administration, and the probability of mass foreclosures becomes even more minuscule. https://capmrkt.fanniemae.com/... 

    @Oke Tammik do you not want foreclosures? Are you not a buyer? 

    I don't want to see it happen to homeowners, but for the REI speculators who drove prices up, fueled by irrational greed, biting off more than they can chew- ya, I'm ready for them to turn those properties back over at more reasonable prices.

    @David A.  what I want is not relevant to the analytics of what will realistically happen. And mass foreclosures are unlikely, IMO, except if the private market, which is a relatively small proportion of the overall mortgage loan market. 

    Re your question. Do I want housing to be more affordable? Do I want to find deals? Of course. I would rather see this happen through higher interest rates, though, as we have left normal market dynamics a long time ago in the loan market. Normalized rates would reduce demand significantly, and subsidized rock-bottom rates are largely to blame for the nutso prices that we're seeing. Now, do I want a pulverization of the middle class due to foreclosures? Only if I want to see the current social problems get worse. Which is so say, not really.

    What I find peculiar about the phenomenon of increased foreclosures is the fact that it is happening at the same time as a hugely tight housing market where buyers are actually getting into bidding wars for what few properties are up for sale.

    I've always thought that foreclosures happened because both a person stopped paying on their mortgage, and simultaneously were unable to get cash out from selling the property. I understand the first half thanks to huge unemployment and so many companies going belly-up, but how is the second half even possible?

    Maybe this is strictly a West Coast thing, where the market has so long been artificially crimped by reams of local regulations and incompetent politicians?

    Originally posted by @Alvin Sylvain :

    What I find peculiar about the phenomenon of increased foreclosures is the fact that it is happening at the same time as a hugely tight housing market where buyers are actually getting into bidding wars for what few properties are up for sale.

    I've always thought that foreclosures happened because both a person stopped paying on their mortgage, and simultaneously were unable to get cash out from selling the property. I understand the first half thanks to huge unemployment and so many companies going belly-up, but how is the second half even possible?

    Maybe this is strictly a West Coast thing, where the market has so long been artificially crimped by reams of local regulations and incompetent politicians?

     Here in MI, two different brokers I was dealing with told me they expect the forbearance here to run till April. Might not just be West Coast. 

    @Alvin Sylvain I totally agree. It's very perplexing phenomenon, but then again, what isn't these days... :/

    My GUESS as to what is going on... I believe what we're seeing, prices going up due to increased demand / short supply and foreclosures in the private market going up, is simply a reflection of A) interest rates, B) halted foreclosures in the government-backed market, and C) the K-shaped economy. It's a little hard to explain my theory, but let me give it a shot. :) 

    First the K-shaped economy: if you look at the white-collar economy, we're nearly at full employment. However, in the lower income / blue collar / service economy, we are seeing tremendous amounts of pain. You'd expect foreclosures, then, in the bottom half of the income spectrum. Makes sense. However, at the same time, you are having interest rates driving prices higher. Also, foreclosures in the larger government-backed part of the market are on moratorium, so any housing supply that might feed into the market during any other year is basically frozen solid, which helps to create a housing shortage and therefore a spike in prices. 

    Furthermore on your question of why a buyer wouldn't be able to cash out, I would expect that in SF or NYC, where prices are down YoY so there are plenty of underwater mortgages, but my understanding is that these foreclosures that we're seeing are mostly in FL, SC, and around the south. 

    There are probably local dynamics that play into every market, from LA to Portland to NYC. But in general, I think these are the dynamics in play that are creating rising prices and short supply in an otherwise horrible economy. Feedback, positive or negative, on my theory much appreciated. 

    Hey Oke. There is not a good source for unemployment by income cohort to validate that we are in a blue collar recession. We have UE by industry but not income level. Even if we are, the pain is not broadly evident in the lower income cohort. The nonprime consumer lending industry has experienced record low delinquency levels and charge-offs...and loan portfolio pay downs. Statistics from firms such as Credit Karma and Lending Tree illustrate that the lower income cohorts have requested less credit post-COVID than before...and that they used stimulus to 1/3 pay down debt, 1/3 save, and 1/3 to spend. The massive amount of loan forbearance (mortgage, auto, student, and unsecured loans), state UE benefits, the $600 federal unemployment kicker, then the $300 unemployment kicker from FEMA, and the helicopter checks have all bridged the lower and middle income consumer and led to record savings levels. Sure there is pain in certain circumstances but not broadly.

    Not sure if this applies to Federally backed mortgages but I was recently in court to evict a tenant on my lease option contract. The judge said that he could not evict just because of late payments until after December 31. However if there were other violations of the contract, then he could find judgment for the plaintiff and have the tenant removed. So I let the judge know that the tenant had violated the contract in not keeping the house up to codes. We had received a letter from codes about the violation. So he immediately passed judgment in favor of the plaintiff, and the tenant was given 10 days to move out.