EXPLANATOR: What Happens After the Foreclosure Moratorium Ends | Business news

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KEN SWEET, AP business writer

NEW YORK (AP) – US banks have been banned from foreclosures since early 2020 as part of the federal government’s efforts to help families suffering economic distress caused by the pandemic. The ban will end on Saturday, which could endanger thousands of families.

Similar to the federal moratorium on rental housing evictions, it has been extended several times. The scale of the potential problem is much smaller than during the Great Recession, but still worrisome.

The Mortgage Bankers Association estimates that about 1.75 million homeowners – roughly 3.5% of all homes – are in some kind of leniency plan with their bank. In comparison, about 10 million homeowners lost their homes to foreclosures after the housing bubble burst in 2008.

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WILL THESE 1.75 MILLION HOUSES LOSE THEIR HOMES IMMEDIATELY?

Not necessarily, industry officials say. Banks, for various reasons, have little incentive to foreclose delinquent homeowners at this time. Housing prices have risen steadily over the years, and in many parts of the country there are now record high prices for existing homes. This means that there are probably few homeowners underwater in their mortgages who owe more mortgages than the total value of the home. This means that banks and mortgage companies most likely have an incentive to restructure the loan or move those missed payments to the back of the mortgage.

It also takes time to begin foreclosure proceedings, at least 120 days under federal law, plus time for legal proceedings.

In some cases, there will likely be more forced sales than foreclosures. This way the bank will get their money back, and the defaulting homeowners will receive the capital they earned in the house and leave without a negative mark on their credit report.

WHEN CAN WE EXPECT THE BEGINNING OF WARNINGS?

Mortgage industry analyst Black Knight expects some of the foreclosures to begin in September as plans to hold back from the pandemic are completed. While an estimated 1.75 million homeowners are still showing patience, that number is expected to continue to decline. But nonetheless, the company expects roughly 1 million homeowners to continue to seriously honor their loans for 90 days or more.

WHAT CAN THE CHIEF EXPECT IN THE CONDITIONS OF HELP?

Last week, the White House announced a series of measures to prevent foreclosures. New moves by several federal agencies, including the Department of Housing and Urban Development, are aiming to provide homeowners with an approximately 25% reduction in monthly payments on principal and borrower interest. Along with this, federal agencies will continue to require mortgage services to provide borrowers who can resume payments the ability to carry over missed payments to the end of the mortgage at no additional cost. Those who earned less than they earned before the pandemic will be offered assistance in finding work and paying taxes and insurance.

Members of Congress are also pushing banks and mortgage service companies to provide some kind of assistance to individuals. Rep. Maxine Waters, California State Representative and Chair of the House Financial Services Committee, publicly asked the CEOs of major Wall Street banks earlier this summer if they all plan to be lenient to borrowers if necessary when the moratorium ends. All the heads of the six largest banks said they plan to do so.

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