The federal government enacted protections in 2020 for homeowners who couldn’t pay their mortgages because of the COVID-19 pandemic’s economic impact. Now that these programs are beginning to end, will we see a wave of home foreclosures?
Mortgage forbearance programs and foreclosure moratoriums
Because the COVID-19 pandemic has had a severe impact on the financial status of many American homeowners, last year the federal government passed laws allowing for mortgage forbearance for those who needed it. Homeowners qualified for a COVID hardship forbearance if the federal government backed their mortgage through programs such as Fannie Mae and Freddie Mac and if they experienced direct or indirect financial hardship because of the pandemic. These forbearance programs allowed homeowners to pause or lower mortgage payments for a limited time but required them to formulate a plan for repaying the deferred amount with their lender. These programs allowed a forbearance of as long as 18 months, but for many homeowners, these protections will expire this summer.
Also in 2020, the federal government imposed a pandemic-related moratorium on mortgage foreclosures on federally backed mortgages. That moratorium will end June 30, 2021.
Some have feared that the end of these protections will trigger a rash of home foreclosures. But housing market trends and the improving state of the economy now make such an outcome unlikely.
Growth in home equity
Despite the pandemic, housing prices have risen in the past year. The Case-Shiller national home price index indicates that home prices have risen more than 10 percent during the pandemic, an unusually large increase. Prices have climbed in part because of both high demand for housing and low inventory volumes, and economists predict the price increases will continue. These higher prices have created additional home equity in a relatively short period for many homeowners. This equity cushion will protect many homeowners who have gotten behind on their mortgages from foreclosure.
Fewer mortgages in forbearance
Additionally, many homeowners are coming out of forbearance and fewer are entering such programs. Currently only a little more than 2,000,000 homeowners are still in forbearance, less than half the number who were in forbearance a year ago. As the economy and employment levels continue to improve, it should become easier for homeowners to repay deferred indebtedness, which will help prevent a wave of mortgage foreclosures.
As forbearance and moratoriums end, some foreclosures are inevitable. But economists predict the number will be much smaller than we saw during the Great Recession.