With COVID-era forbearance programs coming to an end, some housing activists warned of an approaching flood in forbearance filings. But so far, that hasn’t happened, and the signs are good that forbearance rates will remain low.
The end of government forbearance protections is indeed causing an increase in the number of foreclosure filings. ATTOM’s latest Foreclosure Market Report, for Q3 2021, findsscheduled auctions or bank repossessions are up 34% from the previous quarter and 68% from a year ago.
However, those increases are from historic lows, as forbearance relief artificially lowered the numbers. In fact, there were just 45,517 U.S. properties with foreclosure filings in the quarter.
“Despite the increased level of foreclosure activity in September, we’re still far below historically normal numbers,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “September foreclosure actions were almost 70% lower than they were prior to the COVID-19 pandemic in September of 2019, and Q3 foreclosure activity was 60% lower than the same quarter that year. Even with similar increases in foreclosures over the next few months, we’ll end the year significantly below what we’d see in a normal housing market.”
At the same time, the Mortgage Bankers Association reports that forbearances dropped at their fastest rate last month since October 2020. Rising home prices have pulled many properties out from underwater in the marketplace.
“Many borrowers reached the expiration of their forbearance term as we entered October. The pace of exits climbed to the fastest pace in over a year, and the share of loans in forbearance declined at the fastest rate since last October, dropping by 27 basis points. The decline was the largest for Ginnie Mae and portfolio/PLS loans,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist.
More than 177,000 homes have dropped out of forbearance plans in the past few weeks, and the majority of those lenders are once again current.
California, with a population of nearly 40 million people, had just 3,434 new foreclosures in Q3 — and that was the highest number in the nation. New York (population 20 million) had just 1,363.
“I think the ‘forbearance cliff’ will be minimal,” David Stevens, former CEO of the Mortgage Bankers Association and former FHA commissioner in the Obama administration, told CNBC.
“Unlike the Great Recession, where home prices dropped approximately 20% from peak to trough, this recession saw home values rise by roughly the same amount. So while we should see some foreclosures, the likelihood is that there will be far fewer from a percentage basis due to the ability to sell a home versus default, or stay in the home due to far better workout options and higher re-employment.”
Only 4.2% of all mortgages were in some stage of delinquency in July 2021, according to CoreLogic’s monthly Loan Performance Insights Report. This is a 2.3% drop from July 2020, when it was 6.5%, but higher than the pre-pandemic rate of 3.6%.