Statistics And Implication Of Default Payment On Mortgages

INTRODUCTION

Several uncertainties have been happening in the market since the onset of this pandemic. One of the most popular ones is the roaring increase in the unemployment rate, making it possible for several homeowners to keep up with their mortgage payment, among other payment forms. 

THE STATISTICS

According to recent statistics, over 30 million jobs have been lost since the COVID-19 pandemic started. According to the St. Louis Federal Reserve, this number might increase in the coming months to 47 million. This unemployment problem has caused several borrowers to default from their mortgage payments.

The National Multifamily Housing Council reports that about one-third of renters were unable to make payment in the first week of April. As of the last week in April, 91% of the total renters were still unable to make full payment.

THE REGULATION

The financial struggle happening among the population has caused the government to implement several regulations around this period. For instance, the federal government has tried to protect mortgages insured by the Federal Housing Authority against foreclosure for 60 days.

Under normal circumstances, foreclosure only occurs after the renter has defaulted four times. Although this again depends on several factors, including the lender’s policies and the housing market.

Taking the lender’s policies into consideration, a lender with a large portfolio of low-risk loans might overlook a couple of missed payments and refer the defaulter to the housing authorities. However, if the lender has a high-risk portfolio, the defaulter might only have a grace of two or three months, after which a forced foreclosure will be implemented.

A renter might get lucky with the housing market if there are several defaulters to handle at once. The housing authorities might have a backlog, leading to an extension of time for the defaulter to make payment.

However, the situation is different during this pandemic as several unplanned problems keep popping up each day, and no one knows when the pandemic will be over.

THE IMPLICATIONS

The extension of the foreclosure grace by the federal government does not automatically translate to a pardon. Some landlords, especially those who are private individuals, may allow late payment or reduced payment for the time being.

Due to the complication in residential and commercial mortgages, such as approval, sales, trading, and other regulations, it might be difficult to predict the future of mortgage and foreclosures rightly. No one can say whether there will be a rent strike eventually, or maybe the landlord will begin filing eviction notices to tenants. 

If the landlord as a federally-backed mortgage and requests for forbearance under the Coronavirus Aid, Relief and Economic Securities (CARES) Act, the mortgage payment can be paused for up to one year. This will also not negatively affect the credit score of the borrower.

Investors also have nothing to fear during this period because they will receive their income from federally backed mortgages from the Federal government.

CONCLUSION

The changing trend in the housing market during this time is causing several regulations to be implemented. It is essential for investors, landlords, and renters to keep their eyes and ears in the market for the latest updates.

LINKS

https://www.investopedia.com/ask/answers/081516/how-many-mortgage-payments-can-i-miss-foreclosure.asp

https://qz.com/1844447/missed-rent-and-mortgage-payments-are-leading-to-forbearance-and-defaults

https://www.latimes.com/business/story/2020-04-02/home-mortgage-default

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