It’s no secret that the Covid-19 outbreak has affected every sector of the United State’s economy. Due in part because of the virus itself and partially due to the measures taken to fight the virus, we have seen a great deal of economic hardship this year. In particular, many people lost their jobs or have suffered reductions in income. Because of this, and fears that people will not be able to pay their mortgages and face foreclosures while also lacking the resources to find other housing, the government took action as early as March. At that time government backed mortgages from Fannie Mae and Freddie Mac, encompassing some 70% of all mortgages, were frozen so that no foreclosures could be held against them.
The FHA, or Federal Housing Administration, has been the driving force behind these mandates. Throughout the pandemic the FHA has extended the moratorium multiple times, the last time being put into place August 27th, that final extension had an ending date of December 31st and that is where the end date still sits. There are number of requirements that the FHA is holding mortgage servicers to, pursuant to this mandate. First, they are required to offer borrowers with FHA-insured mortgages delayed mortgage forbearance for up to a year. Second, they must assess borrowers who receive COVID-19 forbearance for the special COVID-19 National Emergency Standalone Partial claim, which places all deferred payments into a junior lien which is not repaid unless the borrower sells or refinances the mortgage. Third, mortgage servicers must also assess borrowers not eligible for the claim mentioned previously for one of the FHA’s other programs.
Now you might be asking, what do these programs mean for the overall real estate market? There are a couple major effects that these will have or are having. The first and most important thing to consider is that because of all this there are now tens of thousands of properties owned by people who cannot now afford them. However, because their costs are being mitigated or deferred, many of these owners have not yet realized that they are going to be unable to hold onto their property in the long run. This means that there will be a significant influx of properties on the market after December 31st, assuming that the government does not take action beforehand. The other thing to consider is that these policies are giving rise to “zombie foreclosures”, those being homes that have been abandoned by the holders during the foreclosure process. The number of zombie foreclosures has been increasing during this period and can have a significant effect upon housing values.
Those who are interested in real estate investing or are considering buying or selling a home should take note of these effects and be prepared for major changes in the real estate markets after December 31. Unless of course the government intervenes again, in which case the effects will be even more delayed and potentially even greater in the end.
Financial Analyst Intern
HUD Public Affairs. (2020, August 27). FHA EXTENDS FORECLOSURE AND EVICTION MORATORIUM FOR HOMEOWNERS THROUGH YEAR END. Retrieved from hud.gov: https://www.hud.gov/press/press_releases_media_advisories/HUD_No_20_134
Huffman, M. (2020, August 31). Moratorium on most foreclosures extended to end of 2020. Retrieved from consumeraffairs.com: https://www.consumeraffairs.com/news/moratorium-on-most-foreclosures-extended-to-end-of-2020-083120.html#author-information