Seizures are increasing rapidly. Is another crisis heading our way?

Home foreclosures are skyrocketing, but real estate experts say this is not a repeat of the housing crisis of the mid-2000s.

They reached a pandemic high in the first quarter of 2022 as foreclosure moratoriums across the country expired, according to a recent report by ATTOM, a real estate information company. The moratoriums were put in place to protect homeowners during the early days of COVID-19 when unemployment soared as the country shut down.

There were 78,271 foreclosure filings in the United States in the first quarter of the year. This represents a 39% increase from the last quarter of 2021 and represents a jump of 132% from a year ago. A wave of foreclosures could drive home prices to a record low.

While these numbers may be reminiscent of the foreclosure crisis the nation suffered in the 2000s, no one should panic just yet.

The number of people unable to make their mortgage payments is actually still much lower than it was before the pandemic started and the moratoria were introduced. Foreclosures are still only around 57% of what they were in the first quarter of 2020.

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Watch: Weekly update: High prices and inflation continue to impact the housing market

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(The moratoriums allowed homeowners to suspend mortgage payments for up to 18 months if borrowers suffered pandemic-related hardship. The program ended at the end of July last year and many moratoria expired in the fall .)

“We don’t see a foreclosure crisis looming,” says Rick Sharga, Executive Vice President of Business Intelligence at ATTOM. “Unemployment rates are low and wages are rising, which will help most homeowners avoid bad debts and defaults.”

Even owners who can no longer afford to keep their properties are in a much better position today than they were during the foreclosure crisis. With house prices soaring across the country, they are often able to sell instead and even walk away with cash. This is the opposite of what happened over a decade ago, when many people owed more on their homes than they were worth.

“Housing demand remains strong, even with rising mortgage rates, and nearly 90% of foreclosure borrowers have positive equity. [That] gives them the opportunity to sell their home rather than lose it to foreclosure,” says Sharga. “Additionally, mortgage officers work tirelessly with financially distressed homeowners to modify loans if necessary.”

Also, lenders don’t issue a lot of risky mortgages that can lead to foreclosure when payments suddenly spike. It was these loans that helped cause the real estate crash.

Foreclosure begins, that is, when the foreclosure process has begun but the owner has not yet lost the property, has increased in all 50 states. Illinois led the way in foreclosure activity, with 6,861 foreclosures, or one in 791 housing units.

New Jersey has the second highest rate of foreclosure activity, with one in 792 dwelling units. It was followed by Ohio (one in 991 dwellings), South Carolina (one in 1,081 dwellings) and Nevada (one in 1,090 dwellings).

“States with extraordinarily long foreclosure processing times are executing foreclosures on loans that were already in foreclosure or were overdue for more than 120 days prior to the government moratorium,” Sharga explains. “It’s not unusual for a foreclosure to take a year or more to process under normal circumstances, so the moratorium has simply extended the duration of the process.”

Chicago (3,101), New York (2,580), Los Angeles (1,554), Houston (1,431) and Philadelphia (1,375) are the main metropolises that recorded the highest number of foreclosures in the first quarter of the year.

“Chicago had high delinquency and default rates before the government’s moratorium and forbearance program,” Sharga says. “Now that these loans are no longer protected, they have re-entered the foreclosure process.”

About Teresa G. Wilson

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