Foreclosure Crisis Won't Be A Buying Opportunity

[Joe Splitrock]

I have been saying for a while that I don't foresee the mortgage forbearance and foreclosure moratorium turning into a foreclosure crisis. There are three reasons:

1. Some people have the money ,but took forbearance as a way to save us cash. They are on sound financial ground and they will either pay the balance due or work out a plan with their mortgage company. They were never in trouble, but taking forbearance makes it appear they were. 

2. Some people will choose to sell. In most every market prices have skyrocketed since COVID. Even if you purchased a property two years ago, you probably have substantial equity. Why would someone let a property go to foreclosure, when they could just sell it and walk away with cash?

3. The federal government is dedicated to stopping foreclosure and has multiple programs in place to help people. I included a link to details of the programs, but it includes some of the following:

a. FHA will require mortgage servicers to give no cost options for borrowers to resume their old payment without forcing payment of missed payments. For borrower unable to resume, they will offer up to 25% reduction in payment. The outstanding balance is added at the end of the loan as a zero percent loan attaching a subordinate lien on the property. This means they don't have to pay the money back until the property is sold or property is refinanced.

b. Direct mortgage payment assistance through the Homeowner Assistance Fund. This is almost $10 billion allocated to pay mortgage payments, utilities and insurance. Home owners can use these funds in conjunction with other programs to wipe away unpaid bills with no repayment.

c. Government is created a new security product for modified loans through GNMA that allows loan modification out to 40 years. This allows borrowers behind on their mortgages to extend the term and lower the payment.

COVID is the biggest money grab in US history, handing out trillions of dollars in assistance and hundreds of billions to the housing industry. There is no way for this to turn into a crisis. Look at the facts:

- People have not had housing expenses for a year

- Even those out of work had considerable government aid during that time

- Employers are begging people to come back to work at higher wages today

- Those who need to resume payments don't need to repay the unpaid money until they sell

- Some people can get their debt paid and others can get their payment reduced by 25%

- Loan terms can be extended to 40 years to reduce payments

- Over a hundred billion is being passed out to pay landlords who were shorted rent

- In most cases the house is worth far more than before the pandemic, so you have an asset worth more money

I just don't see how this ends badly in the short term. As far as the government spending, that will have medium to long term affects. 

Here are the details on the programs available.  
Fact Sheet: Biden Administration Announces Additional Actions to Prevent Foreclosures | The White House