The number of foreclosures is on the rise as both government and private-sector programs that were designed to aid homeowners with the financial fallout from the Covid-19 epidemic have ended.

In the third quarter of 2018, mortgage lenders started the foreclosure process for 25,209 properties, which was 32% more than the previous quarter. According to ATTOM (a mortgage data company), it is a 67% rise year-over-year.

Although foreclosures have been rising at a rapid pace, they are not the same level as the lows achieved by the forbearance program. New foreclosures are also called starts and average around 40,000 each month. In the early years of the pandemic they fell as low as 3,300 to 4,000 per month, as forbearance programs became fully in force.

Borrowers in financial difficulty could delay their monthly payment for as long as 18 months through both government and private sector relief programs. You could add the missed payments to your loan term or repay the debt when you sell the house or refinance the mortgage.

The states with the highest number of foreclosures are:

• California: 3 434
• Texas 2,827
• Florida: 2,546
• New York: 1,363
• Illinois: 1,362

Rick Sharga (executive vice president, RealtyTrac), an ATTOM company, stated that despite the increase in foreclosure activity, our numbers are still below historical norms.

September foreclosures were nearly 70% less than pre-pandemic. In addition, total foreclosure activity remains 60% lower than last year.

Sharga stated that “whether the increase in foreclosures could be a sign of something more serious, or just an improvement on the current levels is one the larger debates within the industry.”

Numerous borrowers are currently exiting the forbearance program. This week saw the largest weekly decrease. Black Knight, an analytics and mortgage data firm, reported that the number of borrowers who participated in bailouts dropped by 11% each week.

There were 177,000 fewer active forbearance programs, mainly due to a 84,000 drop in FHA/VA loans. Nearly 1.4 million people were still in forbearance programs related to pandemics as of October 5, which is 2.6% of active mortgages.

Most people who are able to get out of these plans have been repaid their monthly payments. Those who have not been paying their bills on time are working with lenders to modify loans. For those who are unable or unwilling to contact lenders, they can sell their home or enter foreclosure.

Due to aggressive modification by lenders, and high levels of equity due to recent housing boom and subsequently high property prices, the foreclosure rates should remain low. CoreLogic reported that prices rose by more than 18% in August compared to the previous year.

David Stevens, ex CEO of Mortgage Bankers Association (now FHA Commissioner under the Obama administration), stated: “I believe the ‘forbearance Cliff’ will be minimal.”

This recession, unlike the Great Recession when home prices fell by about 20% between peak and trough (which was approximately 20%), saw home values increase roughly the exact same rate. While there may be some foreclosures in our area, it is likely that they will not occur on a proportional basis. This could be due to the possibility of selling a house versus default or staying put due to better workout options, higher re-employment, and other factors. 

According to Sharga, foreclosure numbers are expected to continue rising through the end-of-this year before returning to their normal levels in the middle of next.

He said that although they may tick up slightly more than normal, the level of the tsunami seen during the Great Recession at the beginning of next year will still be far lower than the one we witnessed.