Expiration of Mortgage Bailout Programs Unlikely to Cause Foreclosure Crisis

The number of enrollments in mortgage bailout programs has dropped fast and many homeowners continue to see their home values rise. The number of active mortgage forbearance plans fell 5% in just one week as 18 month forbearance expirations begin. CNBC reports that 400,000 expirations will occur this month, 18 months after the largest wave of enrollment back in March and April 2020. At the peak in May 2020, there were 5 million borrowers in forbearance programs and that has since dropped to 1.618 million, accounting for 3.1% of all outstanding mortgages.

But 98% of those troubled borrowers now have at least 10% equity in their homes, not counting their missed payments. Including those payments, 93% still have more than 10% equity. Given today’s tight housing market, the majority could easily sell and still pocket some profit.

“Such strong equity positions should help limit the volume of distressed inflow into the real estate market as well as provide strong incentive for homeowners to return to making mortgage payments — even if needing to be reduced through modification,” said Ben Graboske, president of data and analytics for Black Knight.   

$1 trillion in ‘tappable equity’
So-called tappable equity — the amount of cash available for homeowners with mortgages to take out of their homes while retaining at least 20% equity — rose by a collective $1 trillion in the second quarter of 2021 alone. Fast-rising home prices have pushed the level of home equity up from a little over $6 trillion at the start of the pandemic to just over $9 trillion. 

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