As abstention exits pile up, where will they go next?
With the option to participate in a COVID-19 forbearance program now ending September 30, 2021, the only way abstentions can evolve now is down. But what will happen when these protections decrease?
The share of loans in a abstention program continued to decline, to 2.1% at the end of October 2021, representing 1 million homeowners in abstention across the country. These homeowners are unable to make their mortgage payments. While participating in a program, the lender agrees to temporarily waive the exercise of its right to call the mortgage payable and to continue foreclosure while the owner takes action to make the mortgage outstanding.
Among these mortgages currently in forbearance:
While the vast majority of forborne mortgages are in extension, the total share of forborne loans has steadily declined since peaking at 8.5% in June 2020.
The 3.2 million homeowners who have walked away from forbearance plans since the peak in mid-2020 have mostly been able to keep their homes. However, many have been forced to apply for a loan modification, sell, or resign themselves to possible foreclosure now that the foreclosure moratorium has ended.
Exits from abstention during the peak period from June 2020 to October 2021 saw:
- 29% exit with a loan deferral or partial claim;
- 20% output with proven ability to do their regular mortgage payments;
- 17% came out unable to make payments and without loss mitigation plan;
- 13% output with a loan modification in place;
- 12% output with full reinstatements, which means that they were able to repay the overdue amounts; and
- 7% output by repaying the loan by refinancing Where sale.
So, most homeowners coming out of forbearance in the second half of 2021 are doing so in good enough shape to keep their home in one way or another. However, 17% of forbearance exits are in the air, unable to pay, and are likely headed for a lockdown or a forced sale. Additional 7% might not be able to pay, but may have benefited from high levels of home equity sell or refinance their home and avoid default.
Job losses expand the need for abstention
Just over one million Californians are still unemployed from their pre-recession peak. A mix of renters and homeowners, these unemployed residents are largely unable to make their housing payments. Protections against eviction and foreclosure remained in place until the end of September 2021, but now that they are gone, so too are their safety nets.
Additionally, the large share of forborne homeowners requesting loan modifications shows the continued need for help, according to an MBA analysis.
So far, the success of the forbearance plans has allowed millions of people to stay at home and shut them out of the market. However, that will change soon.
As long as California’s employment recovery remains out of reach, the need because abstention will continue. But as these forbearance plans come to an end and jobs are still missing, many will inevitably choose to sell when they can (read: when they have enough home equity to cover the principal of their mortgage as well as any missed payments). When they lack equity, they will be forced to choose foreclosure. Either way, major additions to inventory for sale are on the horizon.
As a sign of a return to normal, real estate professionals can closely monitor the resumption of their local jobs. At the current pace of a staged recovery, expect a steady recovery in employment around 2024. Until then, expect volatility in home sales volume, prices and inventories to continue.