The share of US mortgages in forbearance has steadily declined in 2021.
Under a mortgage forbearance program, the repairer temporarily waives their right to call the mortgage due and pursue the foreclosure while the homeowner takes steps to bring the mortgage up to date. 2020-2021 saw an increased number of owners in these programs – it was a period characterized by record foreclosures and low inventory, despite high levels of job losses due to the recession and the pandemic.
Forbearance is still an option for some homeowners in distress, but simplified enrollment under the CARES (Coronavirus Aid, Relief and Economic Security) Act is no longer an option as of September 2021. Homeowners can still apply to s enroll in an opt-out program, but this is now in place at the discretion of each service.
In November 2021, the share of real estate loans in a forbearance plan decreased to 1.67%, according to the Mortgage Bankers Association (MBA). For reference, just before the pandemic and recession hit in March 2020, only 0.25% of loans were protected by a forbearance plan. The share of mortgages in the forbearance period peaked at 8.5% in May 2020.
About 835,000 owners are in a nationwide forbearance plan.
From June 2020 to November 2021, the share of owners exiting abstention consisted of:
- 30% who exited with a loan repayment deferral;
- 20% who left current on payments;
- 17% who left not up-to-date payments;
- 14% who came out with a loan modification;
- 12% who exited with reinstatement;
- 7% who exited with loans repaid by sale or refinancing;
- 0.8% who exited with a repayment plan; and
- 0.6% who exited with other results, such as a short sale or a deed in lieu of foreclosure.
Forbearance has helped keep stocks low – so far
Inventories remain at a historically low level in 2022.
In January 2022, inventory shortages in California ranged from 30% lower than a year earlier in Los Angeles to 28% lower than a year ago in San Diego. In indoor metros, the inventory shortage isn’t as severe, but remains elevated, at 14% lower than a year earlier in Bakersfield, according to data from Zillow. But as abstention leaves increase, stocks will increase.
When an owner is unable to resume payments, a forced sale is preferable to a foreclosure. Rather than going through the onerous and credit-damaging process of foreclosure, a forced sale offers homeowners the opportunity to cash in on the equity in their home, especially after the rapid price increases of 2021. Forced sales are immediate increases in inventory because – lacking the ability to make mortgage payments – these sellers will not buy a replacement home.
Inventory will be boosted by forbearance releases, but will it be enough to meet demand?
Not even close – California has experienced a severe imbalance between supply and demand for years, which has only worsened in 2020-2021. The only way out of the inventory hole we’ve dug here in California is to build more homes, the key to a stable housing market.
Housing starts declined steadily in 2019-20, but started to gain ground in 2021. Housing starts still look two to three years of catch-up, with hurdles around every corner, including:
- the more than 700,000 jobs still missing in California in November 2021 after the 2020 recession;
- tight credit for home builders;
- shortages of building materials, which continue into 2022;
- rising mortgage rates, reducing the borrowing capacity of buyers and builders; and
- California’s overly restrictive zoning regulations, which stifle new housing where demand is greatest.
A steady increase in housing starts is key to rebuilding inventory and restoring a sense of stability to the California housing market. Look to the post-recovery period of 2024-2025 for the next strong performance in housing starts.