Suspended mortgage payments resume for many homeowners, foreclosures expected

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The federal foreclosure moratorium, which covered about 70 percent of the nation’s home loans, expired on July 31. Housing experts expect foreclosures to increase in the coming months.

“The end of the government moratorium will not result in millions of foreclosures,” said Rick Sharga, executive vice president of RealtyTrac, a subsidiary of ATTOM, “but we are likely to see a steady increase in default activity. for the rest of the year ”.

In the country as a whole, the number of cases of foreclosure increased by 40 percent in July compared to July 2020, but decreased by 4 percent compared to a month earlier.

“The situation is likely to be somewhere between mild and severe, at least in part because lenders may not want to be seen as grim reapers chasing vulnerable families out of their homes,” said Todd Theta, director of products and services. ATTOM technologies. statement. “We will definitely find out next year.”

Over the next six months, Zillow economists predict several hundred thousand households will emerge from tolerance – suspended mortgage payments – without a plan to return their mortgages to good credit with lenders, putting them at risk of foreclosures. The biggest wave of departures is expected in September and October.

What is patience?

Homeowners struggling financially during the pandemic were able to pause mortgage payments for several months to find work or cover expenses.

According to Jeffrey Reuben, president of WSFS Mortgage, most homeowners give up abstinence after six months. But most borrowers have the option to renew if their circumstances have not improved.

As of Aug.15, 1.6 million homeowners nationwide were on hold, according to the Mortgage Bankers Association. This is 3.25 percent of the portfolios of mortgage companies. More than four out of five of these borrowers have extended abstinence plans.

According to Freddie Mac, the peak of the mortgage deferral was in May 2020, when more than 4 million mortgages were canceled.

By being lenient, homeowners are unable to refinance their loans in order to take advantage of historically low interest rates and lower their monthly payments.

Borrowers must pay back any missed mortgage payments. Typically, this means that either the lender extends the mortgage, including missed payments, for a longer period of time, or the lender records the missed payments at the end of the mortgage so that borrowers pay a lump sum at the end of the mortgage term.

How does it work if you are asking not to pay on your mortgage?

Throughout the pandemic, patience “helped a huge number of people who needed this relief,” Ruben said.

What’s next for struggling homeowners?

The federal government did not extend the buyback moratorium that expired in July. The ban extended to federally backed mortgages such as FHA insured and guaranteed by Fannie Mae and Freddie Mac.

But the Federal Consumer Financial Protection Bureau said mortgage companies must first assess homeowners to determine if they are eligible for assistance programs and offer options to borrowers before they file new foreclosure claims on most mortgages. This rule applies from August 31st to the end of the year.

Are mortgage payments suspended? Here’s what you need to know when it’s time to resume payments.

According to Michael Frohlich, managing attorney for Home and Consumer Rights at Community Legal Services, foreclosures in Philadelphia range from 20 to 30 per month.

“The real surge is expected to happen next month,” he said.

With a strong housing market and rising home values, homeowners in general are in a better position than they were during the Great Recession, when many people owed more than their homes were worth. The rise in home equity allows homeowners to do better with their lenders.

“It will be a much softer landing than what we have experienced in the past,” Ruben said.

What options do homeowners have?

Homeowners can still apply for abstinence.

Fröhlich said that during the pandemic, some people spent their savings or pulled out of their retirement funds to pay for their homes, so now they are having trouble paying off their mortgages.

Most homeowners who are out of patience and are still stranded have several options. They may try to participate in a loan modification program with their lender. They may ask for a loan grace period to defer the required payments. They can sell their homes to pay off their debts.

Homeowners have to wonder if they will have a stable income to pay for their mortgages, said Chelsea Barrish, vice president of program impact at Clarifi, a nonprofit financial advisory organization based in Philadelphia. If not, homeowners must exhaust all possible loan abstinence and modification options. Housing consultants can help borrowers understand the programs available and discuss options with their lenders. If a home is not available in the long term, they should consider the best exit strategy, which involves selling their home.

“And if you do sell, can you find a suitable and affordable place for your family to live?” Barrish said. “I think people are asking themselves these tough questions.”

According to a survey by the Mortgage Bankers Association, one in six borrowers gives up patience without a plan, putting them at immediate risk of foreclosure. Others said they planned to sell to avoid foreclosures. Thus, Zillow estimates that 20 to 25 percent of borrowers can list their homes for sale, which could increase the nation’s affordable housing supply from more than 200,000 homes.

According to Chris Glynn, senior economist-manager at Zillow, the “condescending departure” “will potentially ease the inventory crisis we have seen in housing markets over the past few years.”

“But,” said Fröhlich of Community Legal Services, “we know that the most affordable homes for many of our low-income clients are the homes they live in.”

Ruben said many WSFS Mortgage borrowers who give up on leniency are now refinancing their loans to reduce their monthly mortgage payments.

Experts advise homeowners to contact their lenders or be responsible when lenders contact them so that borrowers can work out next steps if they still need help after getting out of leniency or need a payment plan.

“Working with borrowers is in the best financial interests of (lenders),” Ruben said.

Short story by Michael Bond, The Philadelphia Inquirer.

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