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Are We About to See a New Wave of Foreclosures?

Are We About to See a New Wave of Foreclosures?

With all of the havoc being caused by COVID-19, many are concerned we may see a new wave of foreclosures. Restaurants, airlines, hotels, and many other industries are furloughing workers or dramatically cutting their hours. Without a job, many homeowners are wondering how they’ll be able to afford their mortgage payments.

In spite of this, there are actually many reasons we won’t see a surge in the number of foreclosures like we did during the housing crash over ten years ago. Here are just a few of those reasons:

The Government Learned its Lesson the Last Time

During the previous housing crash, the government was slow to recognize the challenges homeowners were having and waited too long to grant relief. Today, action is being taken swiftly. Just this week:

  • The Federal Housing Administration indicated it is enacting an “immediate foreclosure and eviction moratorium for single family homeowners with FHA-insured mortgages” for the next 60 days.
  • The Federal Housing Finance Agency announced it is directing Fannie Mae and Freddie Mac to suspend foreclosures and evictions for “at least 60 days.”

Homeowners Learned their Lesson the Last Time

When the housing market was going strong in the early 2000s, homeowners gained a tremendous amount of equity in their homes. Many began to tap into that equity. Some started to use their homes as ATM machines to purchase luxury items like cars, jet-skis, and lavish vacations. When prices dipped, many found themselves in a negative equity situation (where the mortgage was greater than the value of their homes). Some just walked away, leaving the banks with no other option but to foreclose on their properties.

Today, the home equity situation in America is vastly different. From 2005-2007, homeowners cashed out $824 billion worth of home equity by refinancing. In the last three years, they cashed out only $232 billion, less than one-third of that amount. That has led to:

  • 37% of homes in America having no mortgage at all
  • Of the remaining 63%, more than 1 in 4 having over 50% equity

Even if prices dip (and most experts are not predicting that they will), most homeowners will still have vast amounts of value in their homes and will not walk away from that money.

There Will Be Help Available to Individuals and Small Businesses

The government is aware of the financial pain this virus has caused and will continue to cause. Yesterday, the Associated Press reported:

“In a memorandum, Treasury proposed two $250 billion cash infusions to individuals: A first set of checks issued starting April 6, with a second wave in mid-May. The amounts would depend on income and family size.”

The plan also recommends $300 billion for small businesses.

Bottom Line

These are not going to be easy times. However, the lessons learned from the last crisis have Americans better prepared to weather the financial storm. For those who can’t, help is on the way.


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3 replies
  1. Richard Dale-Mesaros
    Richard Dale-Mesaros says:

    During the last crash, I sat at 100+ kitchen tables with people facing foreclosure and 99% of the time the reason they were behind WAS NOT because they went on lavish vacations or purchased non-essential items. It was always because something major had occurred like death of a spouse, cancer, job loss or similar. Recessions aside, there will always be distressed situations that agents (and investors!) can assist with and it would behoove everyone to get savvy with handling these scenarios for community support and as a source of business. :)

    Reply
  2. Dwayne Elliott
    Dwayne Elliott says:

    We have already seen the biggest job loss in history as of today. The government and loan servicers won’t carry these mortgages forever, it’s not possible. There will be a wave of foreclosures never seen before, it’s just going to be delayed through a momentary bailout and postponed repossessions, which will even do more damage in many cases. It might take a 6 months to a year but it will happen. Many businesses have already been destroyed and wont be back. People who have lost jobs will go mobile looking for whatever they can find, properties will be left in the dust. Some things never change.

    Reply
    • Michelle Davis
      Michelle Davis says:

      Those that have equity may still get in trouble but they should at least not become a foreclosure statistic. Some may, unfortunately still have to sell and downsize but it will it should not create the same market as 2008. It is always wise to prepare for all of the scenarios because this will certainly raise some challenges for a lot of people.

      Reply

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