Will COVID Increase Foreclosure Filings in 2021?

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Without a doubt, COVID-19 has negatively impacted the lives of millions across the globe. The pandemic has brought not only sickness and death, but also job loss, financial strain, and an increase in Americans seeking government help. At one point, more than 32 million Americans were receiving some form of government assistance or unemployment benefit. Coronavirous left Americans with the worst unemployment in history.

With heightened unemployment rates and a negatively impacted economy, people are left without the income to pay necessary expenses, including monthly mortgage payments

Foreclosure Moratorium

In March, when the U.S. was first hit with the coronavirus pandemic, the Federal Housing Finance Agency (FHFA) implemented measures to protect against foreclosures. These measures included up to a year of forbearance for those experiencing financial difficulties and a moratorium on foreclosures for homeowners with mortgages backed by the federal government. 

This initial moratorium was set to expire on August 31, but on August 27, the FHFA announced it would be extending it until December 31, 2020. While this protects homeowners for the time being, it still leaves many wondering what the coming year will bring.

Areas Most Vulnerable to Foreclosure

Studies have shown that the areas most vulnerable to foreclosure are those with weak housing markets. The counties most at risk are those where home costs outweigh wages. According to Forbes, the top states with the most counties in danger of foreclosure include:

  • Illinois, 
  • Maryland,
  • New Jersey,
  • New York, and 
  • Virginia.

The states with counties least in danger of foreclosure are Oregon, Colorado, Wisconsin, and Texas.

Upside-Down Mortgages

The 2008 housing crisis takes the top spot for upside-down mortgages, with 2020 coming in second place. Upside-down mortgages, also called underwater mortgages, occur when the loan amount is well over a property’s value. If a homeowner were to sell their home in an upside-down mortgage situation, they would end up still owing money on their loan after the sale. According to Forbes, the counties with the highest number of upside-down mortgages are:

  • Sussex County, New Jersey;
  • Monroe County, Pennsylvania;
  • Cumberland County, New Jersey;
  • Livingston County, Louisiana; and
  • Saint Clair County, Illinois.

With the economy continuing to suffer, it appears that there is a 75% chance that 125 metro areas will see a decrease in home values by May 2021.

Zerega Consulting

Outlook for 2021

It does not appear that the housing market will recover in the near future. With the pandemic still affecting the economy and unemployment, foreclosures are likely to spike in 2021. 

A likely projection of the housing market in 2021 has 336,000 homes experiencing foreclosure in Q2 of 2021. Foreclosures will increase in all 50 states, with as many as 34 states experiencing double the amount of foreclosures. Regionally, the South will experience the worst with an 80% increase. The West will be hit three times harder, and the Northeast and Midwest will double.

Take Advantage of the Help Provided

Thanks to the moratorium extension, Americans can breathe a sigh of relief and not worry about foreclosures for the time being. There are also other options for homeowners struggling to pay their mortgages.

CARES Act and Forbearance

Homeowners with government-backed mortgages, which account for about 70% of mortgages, are covered by the CARES (Coronavirus Aid, Relief and Economic Security) Act. The CARES Act allows homeowners to go into forbearance, a time when you can stop making mortgage payments without penalties. 

The initial forbearance period is 180 days, with an option to extend another 180 days. After these 360 days, if you are still experiencing financial hardship, you can discuss loan modifications with your lender. 

Loan Modification

Loan modifications can vary, depending on your lender and situation. Some loan modifications will extend the loan period, others will lower your interest rate, and in some cases, homeowners may be able to achieve both. Loan modifications benefit homeowners in the form of lower monthly payments. 

Discuss Options with Your Lender

If you are experiencing financial instability, you are not alone. Millions of homeowners are in the same situation. If you find yourself unable to make mortgage payments, don’t ignore the problem. Stay in communication with your lender and discuss your options. 

For some, it may also be helpful to seek help from a Chicago foreclosure attorney. It is always beneficial to understand all your available options.

Know and Understand Your Situation

While foreclosures are likely to increase in 2021, that does not seal your fate. Be sure to comprehend your financial and mortgage situation fully. Reach out to lenders if needed, and stay on top of your circumstances. Lenders will often work with you to avoid foreclosure.

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