Key Takeaways
- Forbearance provides relief to those with financial hardships
- We won’t see a wave of foreclosures in the housing market
- Linda Craft Team Realtors is here to help you achieve success in your journey
In 2020, the pandemic caused some major concern about the housing market and the possibility of it crashing. Many feared that job loss and an economic downturn would lead to an increased amount of foreclosures, putting those who did lose their jobs at risk. Luckily, the forbearance program has changed the trajectory of the housing market and provided relief for homeowners. Here’s how forbearance worked, and what this means for the housing market.
What exactly is forbearance?
Forbearance is when your mortgage lender or servicer allows you to pause or temporarily reduce your mortgage payments for a limited period of time in the event of financial struggles. Therefore, you have some flexibility and breathing room to organize a stable plan and develop support surrounding your finances.
How the forbearance plan was successful
Forbearance enabled almost five million homeowners to get back on their feet when security and protection of a home was more critical than ever. By working with their banks and lenders, citizens who lost their jobs were able to stay put in their homes without fear of foreclosure. As the graph below shows, with modification, deferral, and workout options available, four out of every five homeowners in forbearance are either paid in full or are leaving with a plan.
How does this affect the housing market?
Since people are able to remain in their homes and build alternative plans, foreclosures won’t be rising in the market. And while foreclosures have seen a slight increase since the foreclosure deferment was lifted this year, foreclosures today are not anywhere close to the levels seen in the housing crisis.
There are a couple of other helpful factors that contributed to forbearance. Lending standards have improved greatly since the housing bubble burst, which helps maintain foreclosure rates and keeps filings low. Borrowers in the current market are much more qualified to pay their home loans.
In addition, while the majority of homeowners are leaving the forbearance program with a plan, those who still need to make a change because of financial challenges are able to with the record-level of equity now. Providing homeowners the opportunity to sell their homes and avoid foreclosure altogether, homeowners have more options when it comes to resolving their financial hardship. Because of equity and the current undersupply of homes on the market, homeowners are able to quickly sell their houses and make a move without fear of foreclosure.
The Bottom Line
The forbearance program was a significant relief for homeowners in need. Because of forbearance, we won’t see a wave of foreclosures coming to the market. No matter which stage you’re at in the home search process, we can help optimize your success. Contact us today to learn more and get started!