Will Forbearance Develop into Foreclosures in 6 Monthe

[Kenneth Garrett]

COVID-19 has created havoc in the RE sector.  Tenants can’t be evicted and Landlords have to pay there mortgage.  Is there something wrong with this picture.  I acknowledge the fact there are loans/grants to apply for.  Is there enough money to go around.  We have banks shutting down the applications because of the sheer number of applicants.  2 Trillion stimulus package sounds great.  How long will that money last.  I bet not long.  Will that help the small landlord with 3 properties.  The forbearance in most cases is delaying the inevitable.  Most banks are stating the 3 month forbearance will all be due in 90 days.  If you can’t pay what do think the banks will do. Start the Foreclosure process.  Stimulus money to tenants by the government does not insure rents are paid.  The no eviction law is an open door to not pay.

Thoughts on this are appreciated.

[Evan Polaski]

@Kenneth Garrett, yes forbearance on mortgage payments, just like rent payments, will lead to delayed foreclosures and evictions. 

As I understand it, currently mortgage forbearance for 90 days, starting April 1, means July 1 you owe 4 mortgage payments or are in default.  This policy really only works if someone was laid off today, got a new job very quickly, but has to wait for their first paycheck and didn't have savings.  In reality, like most things, it is just going to delay the inevitable. If you get laid off with no savings, you will likely lose your house.  Even if you get another job in a month or two, and a payment plan with your lender or landlord, you are still behind behind, and assuming you didn't get a big raise with your new job, you still won't be able to catch up.

That being said, I am glad they are doing something, but even when we beat Coronavirus, there will still be a lot of unemployment for a while.  Just like in 2008, it will delay the downturn in real estate, but it won't prevent it.