Many feared the pandemic would cause a repeat of 2008. In 2020 there were many homeowners who opted for a pause on their home loan through mortgage forbearance plans. Luckily, this will not be a repeat of 2008. Homeowners should see the value of their homes go up in 2022 and engage the market with confidence. There are currently an estimated 1.7 million Americans in forbearance plans right now. About 25% of those people never stopped making mortgage payments. When the CARES act was passed, the government told mortgage servicers that they should work with homeowners. Because of these efforts, the wave of foreclosures that many have been expecting will not happen. The team at Peoples Choice Mortgage is here to tell you 3 reasons why there will not be a wave of mortgage foreclosures. 

3 Reasons to Not Fear a Wave of Mortgage Foreclosures

Homeowners have been enjoying the red-hot real estate market over the past couple of years as they have seen their home values skyrocket. Over this time, many now find themselves flushed with equity. For many, the pandemic was expected to topple the entire real estate market as homeowner after homeowner would be forced to foreclose on their home loans. That did not happen and it will not happen. Here are the top 3 reasons you should not fear a foreclosure crisis or a real estate market collapse:

1. Homeowners Have Home Equity

It is very unlikely that we will see a wave of foreclosures happening. The Mortgage Bankers Association recently released data noting how different people exited their forbearance program. 38.6% of people who left the program will have their mortgage paid in full, which is already a large amount. 44% of the people also negotiated work out repayments through getting a different repayment loan, receiving a loan modification, or receiving a deferral. The statistics are overwhelmingly positive. People are handling their forbearance so that there will not be a wave of foreclosures. This is important because it means that there will be no large crashes. 

If you or someone you know is still stuck in the forbearance plan, there is still cause for optimism. People who are still in forbearance are able to work out repayment plans. On top of this, homeowners always have the option to sell their homes. The housing market has steadily increased in prices, so homeowners have been accruing more equity as time goes on. The homeowner equity report has said that homeowners have seen a collective equity gain of $3.2 trillion. The number of homeowners with negative equity has declined from 1.5 million to 1.1 million. 

2. Home Buyer Demand Remains High

A wave of forbearances is also unlikely because the demand to buy a home is very high. Investors are currently snapping up homes. In the third quarter of 2021, investor activity was at an all-time high. As long as a home buyer is high, we will not see a huge wave of foreclosures. Even if every foreclosure were to happen, there would still be nothing to worry about. The demand is too high for a negative impact to happen. 

Mortgage rates are also bound to be on the rise. Redfin reports that there is an increasing interest in selling. This shows how the market will continue to move and there will be homes being bought and sold. This will happen even if some homes are foreclosed on. 

3. Today’s Mortgages are Good Home Loans 

Today’s mortgage rates are good home loans that will hold up. There is no evidence to suggest that today’s mortgages are subprime. A subprime mortgage loan is one where the borrower has a poor credit score or other factors that hinder the loan. This sets up for unfavorable conditions and more costly payments. 

These mortgages are also not adjustable-rate mortgages,  they are fixed-rate mortgages. Adjustable mortgage rates can always change. This could be horrible because you will never know when your rate will go up or down, leading to bad surprises. Fixed mortgage rates are preferable because you will clearly know how much you pay. 

Many people now have really good mortgage rates because of the past couple of years. These people bought in while rates were low or refinanced their current home loan while rates were low. All of this is why foreclosures are very unlikely. 

Final Thoughts

Homeowners should remain confident that there will not be a wave of foreclosures that will destroy their home values or equity overnight. Homebuyers should not be complacent, thinking they can wait for a flood of mortgage foreclosures to cause home prices to drop. While anything is possible, this scenario is incredibly unlikely. What is more likely is that a home buyer waits around hoping for a discount only to watch home prices continue to rise. This is the most likely scenario and the worst-case scenario. Not only will home prices rise, but so will mortgage rates. Instead of hoping for a discount, a home buyer could find themselves paying a tax for staying on the sidelines. 

If you are worried about foreclosure or are interested in buying a home, please contact us! We have a complimentary mortgage qualifier to help you on track to getting the house of your dreams. The team at Peoples Choice Mortgage is here to help you through every step of the way.