Housing

Your Bank Will Track You Down If You Don't Pay Your Mortgage

Mortgage lenders and banks may offer forbearance on mortgage payments for 90 days. The deals aren’t very good for many people who will be out of jobs for long periods. Most of these institutions want all of the money when that period is over. The banks will track down those who have late payments, and push them to make those larger payments immediately.

The pressure for payments in 90 days will likely trigger defaults for many people. An that can take homeowners on the path to foreclosures, much as it did during the Great Recession. That puts residents out of homes and drives a glut in unsold homes.

Realtor.com experts recently made a comment that “The widespread misery spread by COVID-19 has left many homeowners scrambling to figure out how to pay their mortgages. Homeowners with government-backed loans—and even many without—are being offered up to 12 months of forbearance, doled out in 90-day chunks. But this temporary fix could result in another wave of foreclosures if additional assistance isn’t provided.”

Mark Zandi, chief economist at Moody’s Analytics, is no more optimistic. About 15 million homeowners could rely on forbearance to get them through this crisis, or nearly a third of all single-family mortgages, he predicts. That could result in roughly 2 million foreclosures. To put that into perspective, there were around 7 million foreclosures as a result of the last housing bust.

If the spread of the virus goes on for a longer time than some experts expect, two million foreclosures would be the low end. And, foreclosures begin a series of falling dominos. In some markets, prices fell by 40% between 2007 and 2009. And, sellers with foreclosed homes in their neighborhoods found it was something of a blight. That, in turn, made their own homes harder to sell, at least at reasonable prices.

Banks will track down mortgage holders who are either late on payments or have unpaid forbearance deals. That will cause a housing crisis, perhaps not as bad as the last one, but still terrible.