Is a big wave of foreclosures on the way?

[Chris Martin]

In short, I don't think so. If you don't agree, please provide some insight and fill me in on what I am missing. 

There are two big clues that a foreclosure wave is not imminent. The first clue is in the first quarter 2021 10-Q filing from Fannie Mae, FNMA, one of the largest loan providers with $4.1 Trillion in assets. On page 16. under Single-Family Benefit (Provision) for Credit Losses, FNMA states:

• The primary factors that contributed to our single-family benefit for credit losses in the first quarter of 2021 were:
•    Benefit from actual and expected home price growth (details on page 6)
•    Benefit from the redesignation of certain reperforming single-family loans from HFI to HFS (details in Note 4, page 89)
•    Benefit from changes in assumptions regarding COVID-19 forbearance and change in actual and expected loan delinquencies

The net effect was that their single-family allowance for loan losses, page 89, dropped in 2021Q1. Page 83 shows total single family delinquencies of $117 Billion on $3,354 Billion of loans, or 3.49%. Page 84 shows that 9.5% of their loans are collateralized with a LTV of 80% or more. A smaller total loan loss reserve does not indicate that a substantial wave of foreclosures is imminent. After this event-based recession, a majority of those in default hold better cards than after the Great Recession. Any time a loan is reperforming, that's a good sign for FNMA, borrowers, and the overall industry. 

The second clue is summarized by the following graph, showing the post Great Recession trend in Foreclosure and Substitute Trustee filings. If you didn't know there was a pandemic, you probably couldn't identify where the foreclosure moratorium started and ended. I contend that Wake county data is a good enough proxy for a big enough chunk of the US hosing market. Yes, there will be local and regional deviations, but overall I see no sign of a substantial reversal of the long term trend. I would expect second half 2021 (2H2021) numbers to rise, but no where near the levels we saw a decade ago.