Foreclosures rise 67% as Covid mortgage bailouts expire


A foreclosure sign outside a house in 2007.

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Foreclosures are starting to increase as government and private sector programs designed to help homeowners cope with the economic fallout from the Covid-19 pandemic have started to expire.

Mortgage lenders began the process of foreclosing on 25,209 properties in the third quarter, an increase of 32% from the second quarter. Year over year, this is a 67% increase from the third quarter of 2020, according to ATTOM, a mortgage data company.

While the increases in foreclosures are dramatic, they emerge from the extreme lows that have been created by forbearance programs. New foreclosures, also known as housing starts, are typically around 40,000 per month. They fell to 3,000 to 4,000 in the first year of the pandemic, when forbearance programs were in full force.

Government and private sector assistance programs have allowed borrowers with financial difficulties to delay their monthly payments for up to 18 months. The missed payments could then be postponed until the end of the loan period or repaid when the house is sold or the mortgage refinanced.

The states with the highest number of new seizures were:

  • California: 3,434
  • Texas: 2,827
  • Florida: 2,546
  • New York: 1,363
  • Illinois: 1,362

“Despite the increased level of foreclosure activity in September, we are still well below historically normal numbers,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM company.

September’s lockdown actions were almost 70% lower than they were before the pandemic. Total foreclosure activity is also still 60% lower than it was a year ago.

“Whether the increase is the prelude to a more serious problem or simply a return to normal foreclosure levels is one of the biggest debates going on within the industry right now,” Sharga said.

A large number of borrowers are now leaving the forbearance programs. The biggest weekly drop to date came last week. The number of borrowers in bailout programs fell 11% week-to-week, according to Black Knight, a mortgage data and analysis company.

The number of active forbearance plans decreased by 177,000, due to a drop of 84,000 plans among FHA / VA loans. As of October 5, nearly 1.4 million borrowers were still on forbearance plans linked to the pandemic, representing 2.6% of all active mortgages.

The majority of those who come out of the plans are up to date with their payments again. Some of those who are not up to date on their payments work with lenders on loan modifications. Those who do not contact their lenders or who still cannot afford to pay sell their homes or are subject to foreclosure.

The foreclosure figures are expected to remain relatively low due to aggressive changes by lenders and also due to high levels of home equity, due to the recent housing boom and hence high house prices. Prices rose more than 18% year-on-year in August, according to CoreLogic.

“I think the ‘cliff of tolerance’ will be minimal,” said David Stevens, former CEO of the Mortgage Bankers Association and former FHA commissioner in the Obama administration.

“Unlike the Great Recession where house prices fell about 20% from peak to trough, this recession saw home values ​​rise by roughly the same amount. So while we should see foreclosures, it is likely that there will be a lot less as a percentage. due to the option of selling a home versus default, or staying home due to much better drive and higher re-employment options. ”

According to Sharga, the number of foreclosures will likely continue to increase until the end of this year and return to normal levels by the middle of next year.

“They could then climb a little higher than usual but still stabilize well below the type of tsunami we saw during the Great Recession by the end of next year,” he added. .

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