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Mortgage in the US are having a tough 2020.
What does this mean? What should we expect in the coming months? https://twitter.com/the_real_fly/status/1275049180008976384
What does this mean? What should we expect in the coming months? https://twitter.com/the_real_fly/status/1275049180008976384
The 8% figure is based on a release by Black Knight, the company that runs the databases for most fo the mortgage lenders in the US. Here’s their most recent report. https://www.blackknightinc.com/blog-posts/forbearance-volumes-fall-by-57000/
Short answer: they’re counting every loan that’s not current regardless of reason. That means borrowers who have worked out forbearances (a pause in payments) and those who have just stopped paying for whatever reason. https://twitter.com/sstuntz40/status/1275259986231406592
What is a forbearance? It’s an agreed-upon multiple-month pause in mortgage payments, to be repaid later (at the end of the forbearance period, in some kind of payment plan, or at the end of the loan).
If you want more information on forbearance, check this out: https://ricardolaw.com/forbearance-is-not-forgiveness-heres-how-to-keep-your-home-out-of-foreclosure/
Important figures here: while forbearance plans have declined slightly, the number of people making payments on time has plunged, by my estimates, from 97% in April to 93% in June.
That’s with the economy “reopening” and unemployment benefits still flowing* until sometime in July. (*I know, I know).
What’s going to happen when forbearance runs out? https://twitter.com/realJosephRich/status/1275065992058568710
https://twitter.com/elite_investor/status/1275057183370215425
Are we in a situation like 2008, as seen in the movie The Big Short?
Are we in a situation like 2008, as seen in the movie The Big Short?
The Big Short is a great movie, by the way, and I highly recommend it to everyone who wants to understand a little bit better what happened in 2008. It’s not perfect, but you’ll get a very good grasp of the basic issues from that time period. https://www.imdb.com/title/tt1596363/
There are some important differences between 2008 and now. The biggest one is that the causes are much more external and unpredictable—this time, borrowers and even lenders aren’t really at “fault” for the delinquencies.
Instead, it’s a wave of unemployment related to the pandemic shutdown. That means there will be much less scapegoating of borrowers and lenders than in 2008, which will affect government policy on how to fix the problem.
The other is that there has been more scrutiny of lending practices and subsequent securitization since 2008. We’re not seeing no-income, no-doc loans like in 2008 and were bot relying on Moody’s to slap an A+ bond rating on a pile of steaming garbage.
There’s still systemic exposure, but it’s seems to be more contained than in 2008.
Don’t take that to mean this is just a speed bump. The consequences could be enormous because the root cause is broader. More secure loans with lower interest rates are at risk just like anything we used to call subprime.
This means even conservative investors might take a big hit—including pension plans and other “safe” investments that people rely on for predictable income payments.
So when does the house of cards come tumbling down? One wing at a time. Federally-related mortgage loans (Fannie, Freddie, FHA, etc.) have forbearance options as long as one year. Some estimates put that as high as 70% of all mortgage loans.
For the rest, any forbearances are up to the lender, and we probably are looking at the first wave of those expiring on July 1.
This means homeowners will be officially “delinquent” and subject to immediate foreclosure proceedings as soon as the various states begin processing them again. (This will vary widely among states).
I predict multiple “buckets” of borrowers will be affected. For those who never fell behind, it’s business as usual.
Those who suffered a temporary income hit, but got forbearances, and recover by the time those forbearances run out, will mostly be able to work out full recovery plans and keep their homes without much long-term damage.
(This assumes lenders handle all these cases with perfect execution and no errors. But there WILL be mistakes.)
Those who suffer a longer-term income loss, and may not be able to make payments after forbearances run out, they are facing a much more difficult road and likely foreclosure.
In 2010, some states saw more than 5% of all homes in foreclosure. In the next few years, depending on a number of factors including economic recovery, and government policy, we could see foreclosure rates in the same range.
