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The national forbearance moratorium for federally backed mortgages is nearing an end on July 31. But most homeowners will exit with a payment plan in place, and a foreclosure spike that has any significant impact on the health of the housing market is unlikely, housing analysts say.
About 2.7 million homeowners are behind on their mortgage payments, and 1.8 million are seriously delinquent (90 days or more past due and in foreclosure). But 77% of homeowners in forbearance programs have a loss mitigation repayment plan in place, according to the Mortgage Bankers Association.
About 15.3% of homeowners have already exited their forbearance period without a workout plan—about 400,000 homes.
As National Association of REALTORS® researcher Gay Cororaton notes in a recent post at the association’s Economists’ Outlook blog: “There is no data on whether these homeowners exited forbearance without a loss mitigation plan in place because they can affordably pay the mortgage, or whether they will likely end up in foreclosure and on the market. If all these 400,000 homes go into foreclosure and get listed, that will add about 24 days of supply to the housing market given the current monthly sales pace of 483,333 existing homes.
“If only one-third of these homes end up on the market, that's 133,200 homes, which will add just 8 days of additional supply. If two-thirds of these homes end up on the market, that's about 268,000 homes, which will add 17 days of supply. Given that only 1 in 10 borrowers are opting to list their homes, the more likely scenario is that one-third or even less of the 400,000 that exited forbearance could end up as listed homes, adding some relief to the tight supply—not a glut that could depress prices.”
Homeowners with Federal Housing Administration–backed mortgages may be among those most at risk since more are delinquent on their loans, according to a new analysis from the American Enterprise Institute. Nearly 15% of the 7.6 million FHA mortgages outstanding were delinquent as of May, according to the study. About 11% were considered “seriously delinquent.” These include loans that are in forbearance, which during the pandemic has allowed struggling homeowners to pause their mortgage payments.
The number of Americans still requesting forbearance has fallen in recent weeks. Many Americans who have already exited forbearance have resumed making their payments or were able to modify their loans. “If a modification is unable to address the delinquency, the next option is for the borrower to sell the home,” American Enterprise Institute Housing Center Director Edward Pinto and Research Fellow Tobias Peter wrote in the report. “Given the rapid level of home price appreciation, this alternative should allow many distressed owners to avoid foreclosure, pay off the mortgage, cover selling expenses and maintain one’s credit record.”
Struggling homeowners who aren’t able to modify their loan or sell may face a foreclosure. “As a result, a buyer’s market could develop in ZIP Codes with heavy exposure to such borrowers,” the researchers wrote. They noted that many of these areas may be where there is a high concentration of FHA loan delinquency.
The following metros may be at most risk of seeing homeowners in danger of foreclosure:
Atlanta-Sandy Springs-Alpharetta, Ga.
- % of loans in delinquency: 17.4%
- % of loans in serious delinquency: 12.8%
- % of loans backed by FHA: 21%
Houston-The Woodlands-Sugar Land, Texas
- % of loans in delinquency: 18.8%
- % of loans in serious delinquency: 13.8%
- % of loans backed by FHA: 19.3%
Chicago-Naperville-Evanston, Ill.
- % of loans in delinquency: 19.1%
- % of loans in serious delinquency: 14.6%
- % of loans backed by FHA: 14.2%
Dallas-Plano-Irving, Texas
- % of loans in delinquency: 15.8%
- % of loans in serious delinquency: 11.1%
- % of loans backed by FHA: 14.8%
Washington-Arlington-Alexandria, D.C.-Virginia-Maryland-West Virginia
- % of loans in delinquency: 18.8%
- % of loans in serious delinquency: 14.5%
- % of loans backed by FHA: 13.7%
Baltimore-Columbia-Towson, Md.
- % of loans in delinquency: 17.3%
- % of loans in serious delinquency: 12.8%
- % of loans backed by FHA: 19.4%