Is a Foreclosure Wave About to Hit?

The Federal Housing Finance Agency (FHFA) implemented measures in March to ensure that millions of homeowners weren’t put out on the street in the middle of a pandemic. Protections include a moratorium on foreclosures for anyone with a mortgage backed by the federal government and up to one year of mortgage forbearance for homeowners suffering financial hardship.

But the moratorium set to expire on Aug. 31, and mortgage-delinquency rates are jumping as the pandemic rages on, showing that any lapse in government policy could cause a minor housing crash, Curbed reports. At the end of July, thanks to squabbling between Democrats and Republicans on Capitol Hill, safety nets were allowed to expire for more than 30 millions receiving supplemental unemployment benefits and for renters facing evictions. Could homeowners be next?

Even after the foreclosure moratorium expires, homeowners on a government-backed loan will have a forbearance option to fall back on, so there’s no need to panic just yet. But digging into mortgage-delinquency data shows how much water is building behind the dam that is these government backstops.

In January, just 3.22% of mortgages were in delinquency. By May, that number had more than doubled, to 7.76% – about three points shy of where the delinquency rate peaked during the financial crisis of 2008, which was at 10.57%.

Prior to the pandemic in March, the number of mortgages in forbearance was fewer than 100,000. Currently, there are roughly 4.5 million mortgages in forbearance. That’s not to say that all homeowners in forbearance are past due on their payments; some went into forbearance as a precaution, or just because they could. Some homeowners were in forbearance and have since gotten out, either because there didn’t end up being a need or they got a new job. For June, 21% of mortgages in forbearance were current on their payments, but as the pandemic goes on, more will enter into serious delinquency that would normally trigger a foreclosure.

These are national numbers, and each city is its own housing market. Looking at delinquency by city shows that the biggest jumps in delinquency have occurred in places hit hardest by the pandemic, either by the virus itself or the economic fallout – cities in Florida, along with the Northeast, California, Texas, Las Vegas, and some cities in the Deep South.

This data shows that if not for the FHFA’s actions, a serious foreclosure crisis would already be under way. If at any point the protections are rescinded – as they were with supplemental unemployment benefits and the eviction moratorium – that problem could still materialize. Given the erratic response to the virus from federal, state, and local governments – in addition to a potentially explosive national election – it’s hard to take any federal policy as a given over the next year.