Mortgage Report / Crystal Ball Anyone? by: Saeed Ghaffari

Mortgage Report / Crystal Ball Anyone? by: Saeed Ghaffari

January 27, 2021

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By Saeed Ghaffari

Saeed Ghaffari

Saeed is the founder of Money, Real Estate & More. With over 30 years of experience as a lender, investor and a real estate professional, he provides free consulting in these fields. To connect with Saeed, sign up for free / log in on moreandmorenetwork.com

Saeed Ghaffari

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Crystal Ball Anyone?

Will the foreclosure moratorium prevent a foreclosure Wave in 2021?

An article posted this week on spendmenot.com reported a total of 376,052 homes in foreclosure. The number is likely to go up as the pandemic impact on our economy and our communities still persists. Will the stimulus packages offered by the feds, the SBA loans, the PPP (Payroll Protection Program) and the foreclosure moratoria, state and federal, prevent the wave of foreclosures in 2021? Crystal ball anyone? 

I don’t have the crystal ball for sure, but I can offer you my opinion and analysis of the situation.

The stimulus packages and the moratoria are just a band-aid on a big wound. While they help a little prolonging the sustainability and the status quo for some families, it takes more to turn the economy around and that is simply defeating the corona virus and providing employment and income to families.  

Although I don’t see the measures taken by the government being effective in the long run, I still don’t see a wave of foreclosures coming in 2021, certainly nothing like the one we witnessed in 2008 and 2009.  Here are a few major differences between the economic crisis at hand and the crash of 2008.

The melt down of 2008 was caused by a man-made, artificially inflated economy that took a spiral dive with a big crash. The mortgages made roughly about 2 to 3 years leading to the crash were made with loans up to 100% of property values, in some cases, exceeding over and above the value.  When the recession hit, the homeowners had no skin in the game, 0 down payment and any equity they had gained, vanished rapidly as the economy went south. They missed a few payments, lived in their homes for free for a few months and when the foreclosure started, they did not see any recovery in the immediate future, had no financial investment of their own, and had nothing to lose by letting the property go. 

 With today’s crises, first, with the vaccine discovery and distribution, the recovery, if not around the corner, should be faster than 2008. But here is a more important point: the mortgage industry did away with the 100% and 125% LTV loans after the crash of 2008, meaning people purchasing homes had to put skin in the game, at least 3.5% if not more. On top of it the property values have been rising, we are in a very strong seller market and despite the pandemic and economic challenges, experts forecast gain in property values ranging from 5.5% to 11% in 2021. 

With the above in mind, homeowners would leave money on the table by letting their properties go to foreclosure.  Assuming they fail to manage their finances and keep their properties, most will have some equity to take with them by selling their properties on the open market.

The conclusion: The foreclosures will go up in 2021, not as bad as they did in 2008, instead, we should see a wave distressed properties with motivated sellers, if we don’t get the pandemic under control very soon. 

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Source: foxbusiness.com

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