Suspended mortgage payments are resuming for many homeowners. Foreclosures and sales are sure to follow.
A federal moratorium on foreclosures, which covered about 70% of the nation’s home loans and about 80% of Philadelphia’s mortgages, expired on July 31. Housing experts predict that foreclosures will increase in the coming months.
“Ending the government moratorium will not result in millions of foreclosures,” said Rick Sharga, executive vice president of RealtyTrac, a subsidiary of ATTOM, in a statement, “but we will likely see a steady rise in property foreclosures. default activity for the remainder of the year.
Last month, New Jersey had the third highest foreclosure rate among states, according to ATTOM, a real estate data provider. Lenders have foreclosed on one in 4,809 homes. Nationally, foreclosures were up 40% in July from July 2020, but down 4% from the previous month.
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“The situation will likely be somewhere between mild and severe, at least in part because lenders may not want to be seen as reapers chasing vulnerable families from their homes,” said Todd Teta, chief product officer and of ATTOM’s technology, in a press release. declaration. “We will certainly find out in the coming year.”
According to projections by economists at Zillow, over the next six months, several hundred thousand households will emerge from forbearance – suspended mortgage payments – without a plan to bring their mortgage back into good standing with their lenders, putting them at risk. at risk of foreclosure. The biggest wave of abstention exits is expected in September and October.
Homeowners struggling financially during the pandemic were able to put their mortgage payments on hold for months to find jobs or manage their expenses.
The majority of owners leave forbearance after six months, said Jeffrey Ruben, president of WSFS Mortgage. But most borrowers have the option to extend if their situation has not improved.
»READ MORE: Mortgage payments paused? Here’s what you need to know when it’s time to start paying again.
As of Aug. 15, 1.6 million homeowners nationwide were in forbearance, according to the Mortgage Bankers Association. That’s 3.25% of mortgage agent portfolios. More than four in five of these borrowers are on extended forbearance plans.
Mortgage forbearance peaked in May 2020, when more than 4 million mortgages were in forbearance, according to Freddie Mac.
During forbearance, homeowners cannot refinance their loans to take advantage of historically low interest rates and reduce their monthly payments.
Borrowers must make up for missed mortgage payments. Typically, this means either a lender extends the mortgage, including missed payments, over a longer period of time, or a lender transfers on missed payments at the end of the mortgage so that the borrowers pay the lump sum when the mortgage matures.
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Throughout the pandemic, abstention “has served a tremendous number of people who needed this relief,” Ruben said.
The federal government has not renewed its moratorium on foreclosures, which expired in July. This ban applied to mortgages guaranteed by the federal government, such as those insured by the Federal Housing Administration and those guaranteed by Fannie Mae and Freddie Mac.
But the Federal Bureau of Consumer Financial Protection said mortgage companies must first assess homeowners to determine if they are eligible for assistance programs and offer options to borrowers before filing new claims. foreclosure on most mortgages. This rule applies from August 31st for the rest of the year.
In Philadelphia, sales of sheriff’s homes are expected to pick up in September.
»READ MORE: Sheriff’s sales postponed to September by court ruling
The city’s foreclosure cases before the pandemic have yet to make their way through Philadelphia’s mortgage foreclosure diversion program. The city’s foreclosure volume “is still not that high,” said Chelsea Barrish, vice president of program impact at Clarifi, the Philadelphia-based nonprofit financial advisory organization.
“The owners are kind of waiting to see what happens,” she said. “Either they’re still forbearing or they know they won’t get a foreclosure notice” for a period of time.
The number of foreclosures in Philadelphia has remained around 20 to 30 per month, said Michael Froehlich, lead attorney for the property and consumer rights unit of Community Legal Services.
“The real peak, we predict, is going to happen next month,” he said.
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Due to the strong housing market and home appreciation, homeowners as a whole are in a stronger position than they were during the Great Recession, when many people owed more than the value. from their house. The increase in equity puts homeowners in a better position to work with their lenders.
“It will be a much softer landing than what we have experienced in the past,” said Ruben.
Homeowners can always ask for forbearance.
During the pandemic, some people used up their savings or dipped into their retirement funds to pay for their homes, so they are just struggling to pay off their mortgages, Froehlich said.
Most homeowners coming out of forbearance and still struggling have a few options. They can try to get into a loan modification program with their lender. They can ask for a loan deferral to push back the required payments. They can sell their house to pay off their debts.
Homeowners need to consider whether they will have a constant income that will allow them to pay their mortgage, Barrish said at Clarifi. Otherwise, homeowners would have to exhaust all their forbearance and loan modification options. Housing counselors can help borrowers understand the programs available and discuss options with their lenders. If the home is not affordable in the long run, they should consider the best strategy for getting out of their loan, which includes selling their home.
»READ MORE: EXPLANATOR: What happens after the end of the moratorium on foreclosures
“And if you are selling, can you find a suitable and affordable place for your family? Affordable housing stock is so hard to come by in Philadelphia, ”Barrish said. “I think people are asking these tough questions.”
According to a Mortgage Bankers Association survey, one in six borrowers quit without a plan, putting them at immediate risk of foreclosure. Others said they were planning to sell to avoid foreclosure. For example, an analysis by Zillow estimates that 20 to 25% of borrowers could put their homes up for sale, which could increase the national supply of available homes with more than 200,000 homes.
The forbearance exits “will potentially alleviate some of the inventory crunch we’ve seen in housing markets over the past few years,” said Chris Glynn, chief economist at Zillow.
“But,” said Froehlich of Community Legal Services, “what we know is that the most affordable homes for so many of our low-income clients are the homes they are in.”
READ MORE: The supply of homes for sale around Philly is expected to remain low for some time
Ruben said many WSFS Mortgage borrowers coming out of forbearance are now refinancing their loans to lower their monthly mortgage payments.
Experts advise homeowners to contact their lenders or respond when lenders contact them, so borrowers can find a way forward if they still need help after leaving forbearance, or if they need help. ‘a payment plan.
” It’s for [lenders’] best financial interest in working with borrowers, ”said Ruben.
Homeowners can call the Save Your Home Philly hotline at 215-334-4663 for free assistance from a housing counselor or lawyer.
Homeowners in financial difficulty because of the pandemic may be eligible for the Federal Homeowners Assistance Fund, which is administered by the states. The American Rescue Plan Act, the federal coronavirus relief program, allocated $ 350 million to Pennsylvania and $ 325.6 million to New Jersey to help homeowners pay off their mortgages and other expenses related to the lodging. It is intended to prevent mortgage defaults, foreclosures, utility cuts and loss of homes.
The Pennsylvania Housing Finance Agency and the New Jersey Housing and Mortgage Finance Agency, which will administer the state’s programs, are still working on the details, but homeowners could use funds to pay off the mortgages. overdue and property taxes, insurance and utilities. The Pennsylvania program is slated to launch in late fall.