Predictions have been made about whether there will be a foreclosure crisis in 2021. Many people are concerned that, because of the financial distress 2020 brought, there will be a wave of foreclosures heading for us in this new year. However, for those who are comparing our current situation to The Great Recession in 2008, there are reasons to believe that history will not repeat itself and many families will be saved from foreclosure.
The CARES Act
Millions of Americans have lost their jobs since the start of the pandemic in March. To prevent financial collapse, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March. This act not only provided financial aid to those who needed it, but it also included forbearance provisions for those who had mortgages. These forbearance provisions allowed borrowers with government-backed mortgages to delay or reduce payments for up to 12 months if they were dealing with COVID-related financial struggles.
Why There Will Not Be a Foreclosure Crisis
Despite the economic decline and financial hardships so many have faced, the vast majority of families that took advantage of the forbearance provisions are not behind on their payments. As of October 20th, 2020, approximately 5,760,000 families had been granted forbearance yet only 80,000 face the risk of foreclosure. Nearly two-thirds of borrowers who are no longer utilizing forbearance are up to date on their balances and are back to – or never ceased to – make their monthly payments.
The reality of the situation is that the forbearance provisions are due to expire shortly. This is where the fear of a foreclosure crisis comes in. However, compared to in years past, homeowners have substantial equity in their homes that acts as a buffer during financially troubled times. In addition, many lenders are working with families to develop deferred payment plans in preparation for when the forbearance provisions do expire.
There is no denying that as we continue to find ourselves in nationwide economic distress, regrets from the past and fear of the future can be overwhelming. However, homeowners are in a much better position now than they were during the 2008 recession. Thanks to the provisions set in place at the start of the pandemic via the CARES Act, the anticipated foreclosure wave should be substantially less severe than most would have expected.