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Foreclosure Tsunami: Fact and Fear

Foreclosure Tsunami

Foreclosure Tsunami: Fact and Fear

Last year, foreclosures weren’t a worry primarily due to the moratoriums in effect. Despite the removal of the COVID-19 pandemic provisions, the market has yet to see a foreclosure tsunami.  However, as unlikely as it may be, a foreclosure tsunami remains a viable threat for many Americans.  It may not seem imminent in this current economy, but that is not a reason to negate the plausibility of a foreclosure tsunami.

COVID-19 Pandemic Effects on Foreclosures in the U.S.

Throughout the coronavirus pandemic, the industry’s service providers and the mortgage industry aided individuals in need by implementing the CARES Act, which helped rescue 4.2 million homes from foreclosure, and consequently, prevented a foreclosure tsunami.

Surprisingly, this statistic indicates a 29 percent lower foreclosure rate than 2020.  This, however, merely delayed the expiration of another quarter-million in forbearance that is expected this year.

Quick Overview of 2021 Statistics

In 2021, between 3.8 to 4.2 million homes in the United States were in forbearance, with the total decreasing to roughly one million in 2022.  ATTOM, the nation’s licensor of the most extensive foreclosure information as well as parent to the organization, RealtyTrac, published their Year-End 2021 U.S. Foreclosure Market Report.

The report contained a comprehensive analysis of the nation’s number of everything from foreclosures, scheduled auctions, the number of default notices, and bank loan repossessions, for 151,153 U.S. properties.

The report also contains updated information on foreclosure filings in December 2021, which reveals that there were 17,971 foreclosures in the U.S.  This indicates a major decline as it has declined 8% since November 2021.

However, it is worthy to note that the percentage of foreclosures has increased 66% from 2020.

Government Moratorium on Foreclosures

It appears that the predictions that the pandemic would cause a foreclosure tsunami are not and have not occurred.  Because of the pandemic, several preemptive countermeasures were set in place by the government and many mortgage companies to prevent millions of avoidable foreclosures.

Most foreclosures were previously postponed by the Consumer Financial Protection Bureau (CFPB) until the end of 2021, ultimately suspending foreclosure action. The Federal Housing Finance Agency’s (FHFA) forbearance programs also enabled some property owners with additional support to postpone or avoid foreclosure.

These efforts have deterred millions of foreclosures, preventing a foreclose tsunami that would have been difficult to recover from.  However, as the moratorium expires, foreclosures may slightly begin to emerge this year.

Is a 2022 Foreclosure Tsunami Inevitable?

What Mortgage Experts Are Saying About Foreclosure Tsunami in 2022

 

As 2022 keeps presenting positive industry trends, repossessions are expected to remain fewer than average, according to various experts across the industry.  However, some experts contend this, stating that there will be many upcoming foreclosures until the end of 2022.

This is related to several factors that will contribute to either of these expectations, such as the pandemic, political climate, socioeconomic stability, and inflation.

While the economy continues to stabilize, the industry should account for the preclusion of a sharp uptick in defaults or foreclosures, because when the CFPB policies expire and mortgage lenders deplete all loan and mortgage modification alternatives for default notices, the industry may anticipate a small but steady growth in foreclosure proceedings.

Not Everyone Will Avoid Foreclosure in 2022

For a range of factors, some states and areas may see a higher or faster rate of foreclosures than others.  Given the limits imposed on state servicers since the outset of the epidemic, the diverse projections about whether foreclosures will resume at a high volume in 2022 likely rely upon what researchers consider an ordinary market.

As opposed to fixating on analyzing the causes of foreclosures, many industry experts are focusing on increased accessibility to alternative solutions for debtors to reduce foreclosures and avoid a foreclosure tsunami.

Approximately 87 percent of property owners who are in the foreclosure process also have an unprecedented amount of over $23 million in equity.  Their massive positive equity allows the majority of U.S. property owners to retain their property and avoid a foreclosure auction.

Given the constraints imposed on servicers since the outset of the epidemic, the various forecasts about whether foreclosures will resume in 2022 may depend a lot on what consumers deem “normal.” Many of these are focused on increasing access to options for struggling borrowers in order to reduce foreclosures.  Not only are they not threatened by a foreclosure tsunami, but they have the unique opportunity to sell their property for a major profit in a recovering industry.

What to Expect From a 2022 Foreclosure Tsunami

Investors in the home sector will continue to earn good returns in 2022. Existing homeowners are in a strong position since home prices are predicted to climb, and rising rents are expected to encourage investors to continue buying properties despite the increasing mortgage rates.   This is a contrast from 2020, an atypical year for investors preferring to sell more instead of buying.

This trend began in the spring of 2021 and persisted through the summer.  The majority of pandemic-related foreclosure exemptions have expired.  Therefore, given the strong demand and forecasted rising rental prices, 2022 will be an ideal year to earn high returns if the purchases are used for rental purposes.

The Bottom Line: It’s a Buyer’s Market

Mortgage rates at an all-time low, coupled with a scarcity of availability, have resulted in a frenzied housing market, with homes selling within hours of being marketed, often for more than the listing price. Realtors now expect more than 6 million sales for the calendar year, the largest proportion since 2006. Many housing experts expect that in 2022, buyers will witness similar trends to those seen in the previous two years: higher pricing, lower inventory, and faster turnover.

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Peter Spino

Peter Spino, Jr., Esq., is an attorney that has a general law practice but specializes in residential and commercial real estate. His business and real estate experience make him uniquely qualified to represent you in any legal matter you may be faced with. Over the past five years Peter Spino, Jr., Esq., has assisted over a thousand homeowners with loan modifications, foreclosure defense, short sales, deeds in lieu, settlement of second mortgages and bankruptcy.

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