In 2007, the foreclosure sign in front of the house.
As government and private sector plans to help homeowners deal with the economic impact of the Covid-19 pandemic have begun to expire, foreclosures have begun to surge.
Mortgage lenders began foreclosure proceedings on 25,209 properties in the third quarter, an increase of 32% from the second quarter. According to data from the mortgage data company ATTOM, compared with the same period last year, this is an increase of 67% compared to the third quarter of 2020.
Although the increase in foreclosures is dramatic, they are moving away from extreme lows caused by tolerance programs. A new foreclosure, also called a start, usually has about 40,000 times a month. In the first year of the pandemic, when the tolerance plan was fully implemented, they fell to 3,000 to 4,000.
Government and private sector relief programs allow borrowers in financial difficulties to defer monthly repayments for up to 18 months. The missed payment can then be attached to the end of the loan period or repaid when the home is sold or the mortgage is refinanced.
The states with the largest number of new foreclosures are:
- California: 3,434
- Texas: 2,827
- Florida: 2,546
- New York: 1,363
- Illinois: 1,362
Rick Sharga, executive vice president of RealtyTrac at ATTOM, said: “Although the level of foreclosure activity increased in September, we are still far below historical normal figures.”
Foreclosures in September were nearly 70% lower than before the pandemic. The total amount of foreclosure activity is still 60% lower than a year ago.
“Whether the increase is a prelude to a more serious problem, or just a return to normal levels of foreclosures is one of the larger debates that are currently ongoing within the industry,” said Shalgar.
A large number of borrowers are now exiting the tolerance program. The biggest one-week decline so far occurred last week. According to mortgage data and data from analytics company Black Knight, the number of borrowers participating in the rescue plan has fallen by 11% every week.
The number of active tolerance programs has been reduced by 177,000, of which FHA/VA loans have been reduced by 84,000 programs. As of October 5, nearly 1.4 million borrowers are still in pandemic-related tolerance plans, accounting for 2.6% of all active mortgages.
Most people who withdraw from the plan pay on time again. Some people who did not pay in time are working with lenders to revise their loans. Those who do not contact the lender or who still cannot make any payments will either sell the house or foreclose their mortgage.
Due to the positive adjustment of lenders, and due to the recent real estate boom and consequent high housing prices, the level of home equity is high, and the number of foreclosures should remain relatively low. According to data from CoreLogic, prices in August rose more than 18% year-on-year.
“I think the’endurance cliff’ will be the smallest,” said David Stevens, former CEO of the Mortgage Bankers Association and former FHA commissioner of the Obama administration.
“Unlike the Great Recession, where housing prices fell by about 20% from peak to trough, this recession caused housing prices to rise by roughly the same magnitude. Therefore, although we should see some foreclosures, the probability of being calculated as a percentage is much less. Be able to sell the house instead of defaulting, or stay at home because of better exercise options and higher reemployment.”
Sharga said that the number of foreclosures may continue to rise before the end of this year and return to normal levels in the middle of next year.
“Then they may be slightly higher than usual, but still far below the kind of tsunamis we saw during the Great Recession at the end of next year,” he added.
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