This week I want to talk about forbearance and the number of homeowners that have entered forbearance plans with their mortgage servicers. Forbearance is an agreement where a mortgage borrower is able to avoid making their mortgage payment for a period of time, usually 3 months, when they experience a hardship. The CARES Act permitted borrowers to use COVID-19 related financial hardship as a reason to seek a forbearance plan. At the end of the forbearance plan, the unpaid amount can be split up over the next year or added as principal to the loan and paid over the remaining period. A forbearance plan can be renewed for up to 1 year if the hardship continues.
The figure above is from Black Knight, a mortgage data analytics firm
. We have seen a peak of 4.5 million homeowners that have been in a forbearance plan at a single time, and so far that number has only fallen to about 3 million. Assuming this current rate of reduction, somewhere around 1.5 million and 2 million homeowners may be left without an option to continue their forbearance plan beyond 1 year and may face foreclosure if a loan modification cannot be reached. Currently there is a moratorium on foreclosure that is set to expire in December 2020, although it could be extended into 2021.
The forbearance plans enabled by the CARES Act and the foreclosure moratorium are serving their purpose by 'flattening the curve' and allowing homeowners to find other remedies besides foreclosure. However, time will run out and there will be some unfortunate home owners that won't be able to avoid foreclosure in the end. Therefore, the greatest impact of COVID-19 on the residential real estate market may happen slowly and be spread over much of the second half of 2021 and first half of 2022 as the forbearance plans and foreclosure moratorium expire.
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. I would be happy to discuss further.