As millions of Americans remain out of work and forbearance programs expire, there are new predictions about a surge in foreclosures. An analysis by ATTOM Data Solutions shows that foreclosures could more than double in the next year because of delinquent loan payments. (1) The analysis includes best to worst case scenarios with the middle case showing a rise from 145,000 current foreclosures to about 336,000 in quarter two of next year.
There are a lot of variables that could influence a surge in foreclosures, including new government programs to help people who’ve lost their jobs to the pandemic. As of July 11th, the Labor Department reported more than 30 million people claiming unemployment benefits of some kind. That’s a lot of unemployed people. During the same week in 2019, there were about 1.7 million people collecting benefits.
Stimulus Programs Are Expiring
Currently, the $600-a-week unemployment bonus provided by the CARES Act has expired and Congress is negotiating the terms of a new stimulus program called the HEALS Act. It appears that a $1,200 check to individuals will probably be in that legislation, but there’s disagreement over the existence and size of a new unemployment bonus. Add that to a foreclosure moratorium that’s expiring at the end of August for home loans backed by Fannie Mae and Freddie Mac, and you have a recipe for another wave of foreclosures.
But, a lot can happen between now and the end of the month or even in the next few days. Congress could come to an agreement about unemployment benefits, and extend the foreclosure moratorium, although it may not be enough for many homeowners to pay all their bills. But, some homeowners may have an option to extend their forbearance plan for another six months. We could also get a COVID-19 treatment that works, or even a vaccine that people see as safe.
As it stands, ATTOM’s forecast for a best-case scenario is that 225,000 properties will be in the foreclosure funnel. So that’s somewhere between an initial foreclosure notice to a final resale by lenders. In a worst-case scenario, that number rises to 505,000. ATTOM researchers feel the middle-case scenario is most likely with 336,000 homes experiencing foreclosure activity.
States With the Highest Risk of Foreclosures
If we see a surge in the mid-range of the forecast, the report predicts that foreclosure filings would likely triple along the West coast, double in the Northeast and Midwest, and rise about 80% in the South.
States that are projected to have the highest percentage of foreclosures include Colorado with a 361% increase, Massachusetts with a 347% increase, and California with a 277% increase. Michigan and Minnesota are also expected to have a lot of foreclosures, but the analysis says that homes at the high-end of the market will be hit the hardest.
States that will likely escape a huge rise in foreclosures include Kentucky, with virtually no change in foreclosure activity in the middle-case scenario. Maryland may see a minor increase along with New Mexico, Oklahoma, and Florida.
ATTOM researchers don’t think this surge will be as bad as the one during the Great Recession. It says, “Even if the worst predictions pan out, the impact would be milder than when 600,000 to 950,000 homes faced possible foreclosure from 2008 through late 2011.”
Curbed.com offers another view of the 2020 mortgage situation. It reports that in January, just 3.22% of home loans were delinquent. That percentage shot up to 7.76% in May because of the pandemic. If you compare that to the rate of delinquency during the financial crisis, it’s only three points less than a peak of 10.57%. (2)
Looking at the numbers of people in forbearance — there were 100,000 mortgages in forbearance in March compared to 4.5 million in July. Of course, there are programs that make forbearance easy right now, and many homeowners that don’t really need forbearance have asked for it as a hedge against what “could” happen.
Curbed says, in June, 21% of the people in forbearance were up-to-date on their payments. That’s only 21%, however.
We still have several months of uncertainty ahead of us that includes a presidential election, but the foreclosure situation is something that real estate investors should keep on their radar.
We do believe that in areas where there is strong in-migration combined with a major shortage of affordable housing will not be as affected. Find out more in 18 Best Places to Buy Rental Property in 2020.
(1) ATTOM Report
(2) Curbed Article