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

Published by CNBC Business, Real Estate | December 2, 2021

The bailouts allowed millions of homeowners to miss payments, some for up to 18 months.

Hundreds of thousands of homeowners could soon lose or sell their homes as Covid-related mortgage bailout programs expire.

The federal government, big banks and mortgage servicers started emergency programs when the pandemic hit early last year, shutting down vast swaths of the economy. The bailouts allowed millions of homeowners to miss payments, some for up to 18 months.

The programs were largely successful. Over half of the 7.7 million borrowers who piled into bailout programs are current on their mortgages and making payments again, according to weekly data from Black Knight, a mortgage software, data and analytics company. 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.

“We’re in the midst of the largest transition out of forbearance we’re likely to see, with three-quarters of a million homeowners leaving plans over the past 60 days.”

–Andy Walden, vice president of market research for Black Knight.

Hundreds of thousands of homeowners remain in a tough spot, however. Three percent of borrowers, or approximately 264,000 homeowners, are now delinquent on mortgages after their programs expired, and 38,000 are in active foreclosure.

“What I’m seeing right now is people nervous. A lot of them coming off forbearances, some of them still not working and not knowing what to do. I try to instruct them to first contact the servicer or the lender and find out what their options are,” said Margherita Diaz, a Housing and Urban Development Department-certified counselor at Putnam County Housing Corporation.

There are not a lot of options for borrowers who lost too much income or their businesses during the pandemic. Servicers have been offering loan modifications and lower interest rates, but some borrowers simply can’t pay. Servicers also advanced money to borrowers for taxes and insurance during their forbearance period, and while that can be spread over a year of payments, some borrowers can’t afford that increase.

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

There is another option – selling. Thanks to a massive run on housing during the pandemic, home prices are up nearly 20% from a year ago, according to various measures.

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

“This is wildly different from what the market looked like during the last housing market boom and bust, when about one third of all homeowners were underwater on their loans,” said Rick Sharga, an executive at RealtyTrac.

This could be a boom to an incredibly lean housing market, which has seen record low inventory for more than a year.

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