For home buyers or real estate investors who are often looking for bargains related to foreclosure property, picking has been unusually small in recent years. Foreclosure activity has been a record low level since the onset of the Covid-19 pandemic and remains unreturned to pre-pandemic levels. In fact, according to a Recent Reports from AttomIn fact, seizure activities I declined In 2024, 10% disrupted most economists and industry analysts.
According to the Mortgage Bankers Association (MBA), an average of 1.38% of mortgages have historically been seized quarterly. But the organization’s Q4 2024 National Delinquency Survey Just 0.45% of the loans were defaulting, indicating that they were less than a third of their normal levels. The foreclosure initiation was similarly well below the historic average of 0.15%, the first legal notice borrowers receive at default on the loan.
Will something radically changed prevent foreclosure from occurring? Are these new post-pandemic levels the “new normal”? Is seized for the past? Probably not – reality is much more complicated.
Recovery from the Great Recession
In 2008 we were asking another question: Will this wave of foreclosure end?
The collapse of the housing market I saw that home prices were falling Underwritten mortgage Millions of foreclosures have occurred and flooding of bank-owned property that collides with the market. However, this residential disaster has led to the start of today’s low foreclosure rates.
In 2010, Congress passed it. Dodd Frank Lawlaws aimed at regulating the financial industry more closely and protecting consumers. To do this, the government created it Consumer Financial Protection Bureau (CFPB) And it gave the mortgage industry a wide range of executive bodies.
CFPB quickly issued new lending guidelines – what is called QM Rules Qualified Mortgages – Some of the most risky loan clauses offered by the lender had to be removed and the borrower’s “ability to pay back” had to be verified. These rules apply to loans insured by government agencies (such as FHA, VA, USDA) and loans backed by Fannie Mae or Freddie Mac.
As a result of the new rules, mortgages have become difficult for all but the most highly qualified borrowers, and delinquency and foreclosure rates have steadily declined as the country gradually ended the Great Recession. By 2019, the percentage of loans in foreclosures had fallen below half its long-term average. Lenders took little risk, borrowers generally had Unpaid credits Foreclosure activities were limited to households struggling with certain financial catastrophes (such as unemployment, divorce, illness, death).
covid protection
The Covid-19 pandemic hit early 2020 22 million US jobs have been wiped out In a few weeks. To prevent the default of a large wave of mortgages and the devastating impact they have Housing Market And the wider economy – the government has issued a foreclosure moratorium on all government-supported loans. This effectively shut down most foreclosure activities. According to Attom, the number of foreclosure cases fell from around 493,000 in 2019 to just 151,153 in 2021.
Part of the reason for the decline was the revolutionary tolerance programme that was part of the government along with the moratorium. CARES ACT. The program required that mortgage lenders be allowed to request for tolerance in order to forget that they would forget to make mortgage payments for up to 360 days without compromising interest, penalties, late fees, and credit records.
That’s all Eight million borrowers used the programwhich could be preventing millions of unnecessary foreclosures during the pandemic. In fact, the Tolerance Program has achieved more than its creators wanted. According to MBA dataonly 80% of borrowers who have finished the program were successful. By paying off your loan, reviving your loan, or entering into a loan change or loss mitigation program with a mortgage servicer.
Strong economy = less foreclosure
We expected that once the foreclosure moratorium officially concluded in the summer of 2021, foreclosure activity would at least return to pre-pandemic levels and perhaps even higher.
Foreclosure activities began grading in 2022, and Attom recorded more than 324,000 foreclosure actions that year, and recorded a little more again in 2023. This surprised most economists and predictors, but in retrospect, there are many reasons that are somewhat obvious in retrospect.
First, the US economy continued to grow ongoing Concerns about the possibility of a recession. Job growth was very strong, with the economy being very strong with all the jobs lost during the pandemic, millions and unemployment rates near historically low levels. In fact, there were more jobs than people looking for jobs, and they paid more. MBA data shows a strong correlation between unemployment and mortgage delinquency rates. Five years of employment, increased wages and lower unemployment rates have resulted in historically low mortgage delinquency rates. The borrower simply doesn’t miss out on the payment.
Secondly, home prices prepared after 2020 were extraordinary. Home prices have risen exponentiallyproviding homeowners with an unprecedented amount of fairness. Fairness alone does not prevent borrowers from postponing default on payments or mortgages, but it can provide cushions to homeowners who have encountered a temporary financial setback. Those borrowers can often Tap their fairness Or rather than selling their homes and risk losing them to foreclosure sales, they gather their fairness.
And finally, thanks to lessons learned during the Great Recession, mortgage servicers have more loss mitigation options than in history. And they make these programs available to help borrowers avoid foreclosures. Mortgage delinquency is much less likely to go to foreclosure than before, as work servicers do it to get borrowers to get back on track.
Are there more foreclosures on the horizon?
There is nothing that lasts forever. And today’s unusually low levels of foreclosure activity is probably no exception. Market conditions are changing in ways that suggest that in the near future, precautions will begin to return to pre-pandemic levels.
The economy is projected to slow down in the coming years, along with a corresponding rise in unemployment rates. Household debt It exceeded $18 trillion in the final quarter of 2024, according to the Federal Reserve Bank of New York. Homeowners are also suffering from recent property taxes and rising premium hikes.
Additionally, the regulatory environment could be a little less accommodating for borrowers as the FHA tightens its loss mitigation guidelines and the future of the CFPB is uncertain under the Trump administration.
None of these factors suggest an approaching foreclosure tsunami. Foreclosure activity is likely to increase slightly, but it is still below the historical average. This is good news. A low foreclosure rate is good for the economy, good for the housing market, and good for homeowners.
