40 Year Mortgages EXTEND The Housing CRASH AGAIN

Certified Mortgage Advisor
NMLS 1701021
Published 
July 16, 2021

It's over 40 year mortgages, extend the housing crash again

That might be a little sarcastic, but is there really going to be a wave of foreclosures hitting the market once forbearance ends? Probably not.

Fear not, there are tons of mortgage modifications

Here's the deal. Look at the height of the pandemic mortgage companies created tons of options for struggling homeowners through mortgage modifications and modifications are basically just changing your mortgage from what the term it was into a different term that helps you to be able to afford it more, the most popular option being forbearance that we've heard of so much through the pandemic. And we can see how those efforts reach their height in July of 2020, and they've slowly declined. And mortgage companies have tons of options to help people prevent foreclosure.

We're continuing to see mortgage companies provide options other than foreclosure, for example, the feared 40-year mortgage that we've been hearing so much about is one of these loan modification options that are becoming available for people who are struggling to be able to. With the payments and the FHFA has whole foreclosure prevention and refinance report detailing the options.

Lenders are not villains

Look, lenders don't wanna foreclose like it may sound counterintuitive. Like the lender wants to foreclose get a bunch of money, but it's a long and expensive process for the lender to recover a home much more so than just being able to receive a monthly payment.

CFPB's priority

They'd much rather have people paying back the loans, even if it requires like a modification on the mortgage in the CFPB. So they regulate consumer protection from financial servicers and came out with this super bold statement. Two mortgage companies saying, there is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months. Responsible servicers should be preparing now, there is no time to waste and no excuse for inaction. No one should be surprised by what is coming. Our first priority is ensuring struggling families get the assistance they need. Servicers who put struggling families first have nothing to fear from our oversight, but we will hold them accountable. Those who cause harm to homeowners, and families.

FHFA's home retention goals

FHFA's home retention goals are exactly what the CFPB is wanting. That's keeping as many people out of foreclosure as possible because it really is the worst possible outcome for our economy as a whole, it's a very narrow sight to say the foreclosures are gonna be good because it's gonna increase listings and reduce prices, but it is the worst possible outcome that can actually happen.

Foreclosures will not solve the problem

I know it sounds good to have a bunch of foreclosures and assume it's going to automatically fix the housing issues that so many people are facing right now, like lowering prices and increasing the number of homes available, but an oceanic amount of foreclosure will only create rippling effects on the economy.

It's really not the fix that you may think it is like that sweet mortgage money isn't just sitting in some bank. Like those mortgages are represented by bonds that are likely in your retirement account and at minimum, they're being invested in by the government that has wide-reaching consequences on everybody in the US. And millions, if not billions of dollars of loss do not go unfit by the person seemingly unaffected by this problem.

And at a large scale foreclosures create all of these problems in the economy that can drive job loss and unemployment, which causes future foreclosures as well.

Equity is an all time high

So on top of the modifications available, here's why I think we won't see a tsunami of foreclosures. Number one, equity is at an all-time high. Adam data says 70% of homeowners have more than 20% of the equity in their homes. And we can see from this chart, how much equity has been increasing over a period of time.

We are all-time high with equity that's money that homeowners can use to be able to refinance or get into modifications easier. If they are facing distress.

Forbearance payments are pushed to the end of a loan

There seems to be this like this myth or this unthought-through thing where people believe that somehow there's gonna be this massive lump sum payment. All of a sudden forbearance is gonna end. And then you're gonna have a bunch of people facing foreclosure as if somehow the end of forbearance means foreclosure, which is not the case.

When is foreclosure needed?

Foreclosures are only needed if a homeowner can't keep up with a monthly payment or a modified payment if it needs to be modified.

Missed payment is don't mean foreclosure

Missed payments don't equal foreclosure, just cuz you missed a payment. That doesn't mean that the lender kicks you out. There's a whole process and it usually starts with a lender trying to avoid the foreclosure because it's expensive and it takes a long period of time and the lender would much rather put you in a modification so that they can be paid back the way they want to, rather than a foreclosure.

What is foreclosure?

Foreclosures are like the last line of effort for a lender to be able to recover that money if a homeowner can't pay it back.

It takes a long way to process

Anyway, foreclosures take a long time to process, not to mention how backed up the legal system would be. If there is this whole wave of foreclosures, that all of a sudden just comes up.

What's the forecast?

Ultimately, the likelihood of this foreclosure tsunami that people are talking about is just not likely. We're gonna see forbearance come to an end at some point, might get extended. We'll see what happens. A lot of people are calling it, kicking the can down the road, which now know is necessarily fair.

But forbearance is gonna come to an end at some point, but forbearance doesn't convert into foreclosure, just because someone needed assistance at that period of time, doesn't mean that they're not back at a job now. And the options and protections for homeowners are vastly more helpful than those in two. When we had the 2008 crash and mortgage companies, frankly, are not really interested in rehashing a struggle like that again.

So will there be more short sales? Yeah, most likely. Will there be a moderate increase in foreclosures, most likely as well, will that increase some of the listings in an inventory available most likely? Will it decrease prices a ton? I don't imagine we're gonna be seeing that a moderate amount of increase in foreclosures or short sales actually increases prices as much.

Especially with demand being as high as it is right now. A foreclosure surge. I just highly doubt it. So I'd love to hear, what do you think is the inevitable being delayed or is the foreclosure tsunami? Just the fairytale of market crash chats.

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