Thousands could soon lose – or sell – their homes as Covid mortgage bailouts expire

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  • Hundreds of thousands of homeowners could soon lose or sell their homes as the Covid-related mortgage bailout program ends.
  • There aren’t many options for borrowers who have lost a lot of income or their businesses during the pandemic, although they can take advantage of the higher equity in their homes and sell.
  • So far it hasn’t happened. One data firm found that nearly a third of borrowers who begin the foreclosure process with at least 40% equity in their homes go into foreclosure anyway.
  • “They may have equity, but then it’s a matter of where are they going? Where are they going? Where are they going to buy?” A housing counselor said.

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Hundreds of thousands of homeowners could soon lose or sell their homes as the Covid-related mortgage bailout program ends.

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The federal government, big banks and mortgage lenders launched emergency programs when the pandemic shut down large parts of the economy early last year. Bailouts have allowed millions of homeowners to miss payments, some for as long as 18 months.

“We are in the midst of the biggest transition out of tolerance, with three-quarters of a million homeowners abandoning plans in the past 60 days,” said Andy Walden, vice president of market research for Black Knight. ,

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The programs were successful to a large extent.

According to weekly data from mortgage software, data and analytics company Black Knight, more than half of the 7.7 million borrowers who were involved in bailout programs are present on their mortgages and are making repayment. About 23% of borrowers either sold their homes or refinanced their mortgages to make them more affordable. Roughly 7%, or just over half a million, are in active loss mitigation with their lenders still trying to work out a loan modification plan.

However, hundreds of thousands of homeowners are in a difficult position. Three percent of borrowers, or about 264,000 homeowners, are now delinquent on mortgages after their programs have ended, and 38,000 are in active foreclosure.

“What I see right now is people panicking. A lot of them are coming out of tolerance, some of them still not working and don’t know what to do. I try to instruct them. Contact the servicer or lender first and find out if they have options,” said Margherita Diaz, a Department of Housing and Urban Development-certified counselor at Putnam County Housing Corporation.

There aren’t many options for borrowers looking to lose a lot of income or their business during the pandemic. Servicers are offering loan modifications and lower interest rates, but some borrowers simply cannot afford to pay. Servicers also advanced money to borrowers for taxes and insurance during their forbearance period, and while this can be spread over one year of payment, some borrowers cannot afford that increase.

“There are services out there that are willing to help,” Diaz said. “But then, you know, it’s not their fault that Covid happened, so they’re relying more on the borrower for themselves.”

a possible path

There is another option – sell. According to various measures, home prices are about 20% higher than a year ago, thanks largely to a run-down on housing during the pandemic.

As a result, about 87% of homeowners currently have positive equity in foreclosures, according to an analysis by RealtyTrack, a foreclosure listing site, based on data from its parent company, ATTOM. These borrowers owe less on their mortgages than on their homes. For those 264,000 who are now delinquent but not yet in foreclosure, they also likely have significant equity.

“This is wildly different from what the market looked like during previous housing market booms and busts, when nearly a third of homeowners were under water on their loans,” said Rick Sharga, an executive at RealtyTrack.

This could be a boon to the incredibly lean housing market, which has seen record low inventories for more than a year. Builders have not been able to significantly increase production due to labor and supply-chain issues. There are some estimates that the market needs about a million more homes to meet the demand. Although these won’t completely fill the house, they will make a dent.

Roughly 73% of borrowers have more than 20% equity in foreclosures, and about 28% have more than 50% equity.

“While having equity didn’t prevent them from defaulting on their loans, it should provide them with a more soft landing opportunity — the ability to sell their home at a profit, satisfy their debt to the lender, and have money left over for them.” To give a chance for a fresh start,” said Sharga.

So far it hasn’t happened. Black Knight found that nearly a third of borrowers who begin the foreclosure process with at least 40% equity in their homes go into foreclosure anyway.

“The number of post-forbearance loans in active foreclosure has remained essentially flat over the past 90 days as servicers continue to take foreclosure action in favor of other loss mitigation options,” Walden said. “We must not fall into a false sense of security, however, as a significant pocket of foreclosure risk will remain during the first half of 2022.”

While it may seem like the better option for homeowners to put their homes on the market, especially given the fierce demand and short supply, this is not always the case.

“They may have equity, but then it’s a matter of where are they going? Where are they going? Where are they going to buy?” Diaz said. “Things are so expensive, the market is now too high to buy and even to rent – that’s a big problem.”

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