Real Estate

1M Homeowners Face Elevated Risk Of Foreclosure When Protections Lift

The percentage of homeowners who are behind on their mortgage payments continues to fall, but at the current rate of improvement it’s likely there will still be 1 million homeowners who are at an elevated risk of foreclosure as forbearance protections start expiring in September.

That’s according to a sneak peak at mortgage performance statistics released each month by data aggregator Black Knight, which showed the national delinquency rate falling to 4.37 percent in June — the lowest level since the pandemic began.

Of the 2.32 million homeowners who are at least one payment behind but not yet in foreclosure, Black Knight estimated 1.5 million haven’t made a payment in 90 days or more.

Source: Black Knight “first look” at June mortgage data.

A rule taking effect Aug. 31 will phase out borrower protections put in place during the pandemic, giving lenders more leeway to initiate foreclosure proceedings against homeowners who are 120 days behind on their mortgage payments.

The Consumer Financial Protection Bureau says lenders must first give borrowers the chance to apply for assistance, but can initiate foreclosure proceeding if the homeowners don’t qualify, a home has been abandoned or the borrower can’t be reached.

Borrowers with mortgages backed by Fannie Mae, Freddie Mac, FHA, VA and USDA are eligible for up to 18 months of COVID forbearance, but many borrowers are scheduled to hit their 18-month eligibility limit at the end of September.

Depending on the type of loan they have, they may be able to enter into a repayment plan, apply for a loan modification, or defer repayment until they refinance or sell their home. Homeowners and renters can learn more about their options on the Consumer Financial Protection Bureau’s website.

So far, forbearance programs and restrictions on foreclosures have prevented a wave of foreclosures.

Black Knight said a record low 0.27 percent of mortgages were in foreclosure during June, with lenders starting foreclosure proceedings on just 4,400 homes, and holding 145,000 homes in their foreclosure presale inventory.

At the height of the housing bust that followed the Great Recession, Black Knight counted 292,308 foreclosure starts in January 2010 alone. The total number of homes in foreclosure during the downturn peaking a year later at 2.25 million in January 2011.

Record home price appreciation could help many distressed homeowners avoid foreclosure by selling their homes and using the proceeds to pay off their mortgage and cover their closing costs, researchers with the American Enterprise Institute said in a recent report identifying 10 cities where borrowers are most at risk.

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