Are a ton of foreclosures about to hit the market?
The answer is absolutely not. Let me tell you why:
This is a myth that's happening among a lot of renters. People that don't own homes yet are all waiting for the shoe to drop and a bunch of foreclosures to hit the market. Let me tell you why it's not going to happen:
There is something called forbearance. And a lot of people did tap into it at the beginning of the pandemic. The experts thought that about 30% of mortgage holders would need to tap into it at the beginning of the pandemic. In other words, forbearance is where a lender gives you some level of grace.
They say, "Hey, you can stop making your payments for a while, or you can make a minimum payment or we'll tack on your payments to the end of the loan." There are a lot of different variations to it.
But the government said they want everybody to have a six-month opportunity if they've been struck by COVID or COVID-related issues to tap into this forbearance. And they extended it for another six months.
So people that entered into forbearance early in COVID are now coming to an end of that 12-month cycle.
This is where the fear is coming — that we're going to have millions and millions of homes now going to be foreclosed on because people are not able to get caught up. People are going to be crushed by this market.
The answer is that's not true.
In the Great Recession, we had 9 million homes go into foreclosure or people just handed the keys back to the bank. Today, we have roughly 1,000,860 homes that are still in forbearance.
Remember where I said that lenders and the government thought that we might have as many as 30% of loans go into forbearance? Guess what that number is today: 3.5%.
3.5% of the loans across America are in forbearance.
But here's the good news:
87% of those folks have 10% or more equity in their home. They can actually escape their home. They're not underwater. Underwater means that people owe more than the home is worth. That's what we had in the Great Recession. We don't have that.
You know why?
Prices are rising. There's a huge demand out there.
So that brings up the third point — we have very limited supply now.
Any homes that hit the market are snapped up immediately. They're absorbed by the market. So this is actually good news. And actually one of the best things that could happen is we get a few thousand listings in the market for everybody. It would give some buyers some opportunities.
The fourth reason why we're not going to see this huge wave is the government's just not gonna allow it.
The White House just put out a paper that said government-backed lenders are required to work with borrowers and try to get them to a place where they can get back on a stable footing. They're not going to allow them to foreclose when it's a government-backed loan if there's any other alternative.
So we're in a different place. It's a different market. It's a different world than in 2009. There's not going to be a massive wave of foreclosures hitting the market.
This again is a great opportunity. If you are somebody that's renting, this is an opportunity to get in the market. If you're an agent, this is an opportunity to talk to people about the benefits of home ownership.
We want people to take advantage of 60-year lows in interest rates. We want people to take advantage of not throwing their money away and actually gaining equity every time they make a house payment. We want people to lock in their payment for the next 30 years and not having increasing rents every month and every year.
There's so many advantages and tax advantages to home ownership, but we need to be convicted. We need to talk to everybody about it. We need to be out there expressing our belief that this is the best instrument for building wealth in America that anybody can tap into and everybody's got access to it.
Almost anybody that sets the goal of being a homeowner can do it if we just give them the roadmap to help them do it.
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