There were approximately 4.5 million mortgages in forbearance when the number peaked during the COVID crisis in 2020.
This scared the bejeebers out of a lot of market-watchers, as they feared it portended another massive foreclosure crisis (like we saw after the 2008 meltdown, which collapsed the market).
BUT – not so much.
WHAT IS FORBEARANCE?
As a quick reminder, “mortgage forbearance” is when a loan servicer or a lender allows a borrower to temporarily make lower payments or to stop making payments altogether.
The “CARES” Act passed in response to the COVID crisis forced lenders and servicers to accept every forbearance request, with no credit repercussions.
FORBEARANCE AND FORECLOSURE NUMBERS PLUMMET
Currently, there are only 1.6 million borrowers in forbearance – down from the peak 4.5 million number referenced above.
Similarly, only 0.2% of all homes (about 1 in 750) are in foreclosure right now. For perspective, over 9% of homes were in foreclosure in Nevada (foreclosure Armageddon) in 2010, and the nationwide average was about 2.25%.
WHY THE IMPROVEMENT?
- EQUITY BABY! When borrowers have substantial equity in their homes, they will beg, borrow and steal to stay out of foreclosure. And given that equity cushions increased by about 30% last year, borrowers had that much more reason to make sure they didn’t end up in foreclosure. In sharp contrast, when borrowers have no equity and they get behind in payments… they do very little like we saw in 2008-2012.
- DIDN’T NEED FORBEARANCE. Many borrowers did not need to go into forbearance in the first place and only did so as a precautionary measure. So, when COVID concerns ebbed, they simply started paying again.
- RETURNED TO WORK/PROGRAM WORKED. The forbearance program also simply worked as intended for many borrowers who were laid off during COVID. When they returned to work, they were able to start paying again.
CONCLUSIONS: (1) Mark Twain — ‘I’ve had a lot of worries in my life, most of which never happened.’ 😊 (2) Equity cures everything, except COVID.
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