Millions of American homeowners, including thousands in Colorado, took advantage of a government program that granted them a stay on mortgage payments when their finances were hit during the pandemic.
As time is running out for these “tolerance” agreements, a large majority of homeowners who requested relief have stepped out and are back on track with their payments.
Just over a million active forbearance plans were still in place as of mid-November, compared to nearly 5 million forbearance plans at the start of the pandemic, according to Black Knight, a real estate data provider in Florida. .
“Most borrowers, even though they had the option of skipping payments, continued to pay,” Michael Fratantoni, chief economist at the Mortgage Bankers Association, told a National Association panel on the subject. of Real Estate Editors in Miami Wednesday.
This makes it unlikely that an increase in troubled sales and foreclosures will upend markets in the months to come, he and other panel experts predicted.
There will be about 180,000 mortgages going into foreclosure somewhere this year, said Rick Sharga, executive vice president of RealtyTrac. Before the pandemic, foreclosures were on average closer to 500,000 a year, Sharga said.
And although he predicts that foreclosures will rise sharply in the coming months as a percentage, it will be from a very low base. It is only at the end of next year that the volume will return to historic levels.
One of the main reasons that foreclosures aren’t going to overwhelm the market is that many distressed borrowers have enough equity in their homes to sell and move on, even if it’s not their preference. And buyers are waiting to grab those who show up.
RealtyTrac, in an analysis released Wednesday, estimates that 73% of borrowers currently in foreclosure have equity of 20% or more, while 28% have equity above 50% in the third quarter.
In Colorado, only 2% of homeowners are seriously underwater on their loans and 93% have positive equity, according to RealtyTrac.
During the housing boom and recession, about a third of all homeowners, not just those in foreclosure, owed more on their mortgages than their home was worth. Those who stayed behind had no easy way to escape and had little incentive to try and hang on to their homes.
While many struggling homeowners have equity in their homes this time around, some also have damaged credit scores and diminished incomes that prevent them from tapping into that equity, said Jim Riccitelli, CEO of Unlock, a new fintech company that helps struggling borrowers tap equity they might not otherwise be able to access.
In addition to turning to a specialist lender, the resale market offers distressed borrowers with equity a quick exit. About half of the listings that reached the Denver metro market sold in five days or less last month, according to a report released last week by the Denver Metro Association of Realtors.
But these troubled borrowers must replace the homes they leave. And unlike the housing crisis, the rental market is much less favorable and vacancy rates much lower.
Statewide, apartment rents rose 17% last year, with rents in Denver up 17.1%, rents in Fort Collins up and rents in Colorado Springs up 16. , 6%, according to a report by Apartment List, an apartment search engine.
In short, most troubled borrowers can get by, but they may not like where they are on the other side.