What are the Chances of a Housing Foreclosure Crisis in 2021?
Some are asking if the 2020 economic downturn will lead to another foreclosure crisis like the 2007 housing crash.
There’s several differences, but one major difference is a robust forbearance program provided in the CARES ACT.
During the housing crash of 2006-2008, many homeowners entered into mortgages they couldn’t afford with little or no money down. There was a growing sentiment that homeowners should be forced to pay their mortgages despite the economic hardships they were experiencing. There was no empathy for the challenges those households were facing. In a 2009 Wall Street Journal article titled Is Walking Away From Your Mortgage Immoral?, John Courson, Chief Executive of the Mortgage Bankers Association, was asked to comment on those not paying their mortgage. He famously said:
“What about the message they will send to their family and their kids?” Courson suggested that people unable to pay their mortgage were bad parents. What resulted from that lack of empathy? Massive foreclosures.
This time is different. There was an immediate understanding that homeowners were faced with a challenge not of their own making. The government quickly jumped in with a mortgage forbearance program that relieved the financial burden placed on many households. The program allowed many borrowers to suspend their monthly mortgage payments until their economic condition improved. It was the right thing to do.
What happens when forbearance programs expire?
Some analysts are concerned many homeowners will not be able to make up the back payments once their forbearance plans expire. They’re concerned the situation will lead to an onslaught of foreclosures.
The banks and the government learned from the challenges the country experienced during the housing crash. They don’t want a surge of foreclosures again. For that reason, they’ve put in place alternative ways homeowners can pay back the money owed over an extended period of time.
Another major difference is that, unlike 2006-2008, today’s homeowners are sitting on a record amount of equity. That equity will enable them to sell their houses and walk away with cash instead of going through foreclosure.
What are the Chances of a Housing Foreclosure Crisis in 2021? The differences mentioned above will be the reason we’ll avert a surge of foreclosures. As Ivy Zelman, CEO of Zelman & Associates, said: “The likelihood of us having a foreclosure crisis again is close to zero percent.”