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Will Forbearance Plans Lead to a Tsunami of Foreclosures?

At the onset of the economic disruptions caused by the COVID pandemic, the government quickly put into place forbearance plans to allow homeowners to remain in their homes without making their monthly mortgage payments.

Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not.


These homeowners have been given permission to not make their payments, but the question now is: how many of them will be able to catch up after their forbearance program ends? There’s speculation that a forthcoming wave of foreclosures could be the result, and that could lead to another crash in home values like we saw a decade ago.


However, today’s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of equity in their homes.


What are the experts saying?

Over the last 30 days, several industry experts have weighed in on this subject.


With today’s positive equity situation, many homeowners will be able to use a loan modification or refinance to stay in their homes. If not, some will go to foreclosure, but most will be able to sell and walk away with their equity.


Won’t the additional homes on the market impact prices?

Distressed properties (foreclosures and short sales) sell at a significant discount. If homeowners sell instead of going into foreclosure, the impact on the housing market will be much less severe.


We must also realize there is currently an unprecedented lack of inventory on the market.


It’s important to remember that there weren’t enough homes for sale even then, and inventory has only continued to decline.


The market has the potential to absorb half a million homes this year without it causing home values to depreciate.


By KMC writing staff

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