While analysts have expressed concern foreclosures could overwhelm servicers when forbearance ends, new data suggest that outcomes will be manageable in most areas.
The foreclosure wave may be stalled due to the federal administration’s extension of borrower relief as well as the stabilizing number of households with long-term forbearance. A recent analysis suggests many distressed homeowners ultimately won’t enter foreclosure.
There were 841,977 borrowers in the government-sponsored enterprise forbearance plans in November, down from 922,589 the month before, according to the Federal Housing Finance Agency. That decrease, combined with broader declines in unemployment, means the incidence of distress is stable to lower for the average mortgage borrower.
Even in the more vulnerable Ginnie Mae market, borrowers have a strong home equity buffer against foreclosure, the Urban Institute found.
Thanks to home price appreciation, these borrowers have on average a 22% equity buffer and only 3.6% have negative equity, according to the Urban Institute. This presents a contrast to the Great Recession, when negative equity peaked at 30% and foreclosures surged.
To be sure, the extent to which foreclosure risk will grow is unknown as forbearance activity is fluctuating. Also, while much of the market may bear up due to strong equity levels, distress could be compounded in a limited number of local markets that were left out of the broader housing boom.
“Home prices in some parts of the country, including Chicago, Illinois; Baltimore, Maryland; and Riverside, California, are still below their pre-crisis peak,” Urban Institute researchers stated. “These areas are where we may see a greater number of actual home foreclosures.”