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Fears of a foreclosure crisis are waning

Data: Black Knight; Chart: Axios Visuals

The federal government's foreclosure moratorium — designed to help homeowners weather the pandemic — is ending is ending later this month. But that doesn't mean foreclosures are about to come roaring back.

Why it matters: The housing market is very tight, and people who lose their home right now can find it very hard to find somewhere else to live. The good news, however, is that foreclosures are almost certain to remain extremely uncommon until 2022 at the earliest.

Driving the news: As the White House's moratorium is ending, the Consumer Financial Protection Bureau is proposing new rule, called Regulation X, that would effectively ban foreclosures until the end of 2021, while also making it easier to keep borrowers in their homes.

  • Reg X is not yet in force, but state regulators and the CFPB have made it clear to servicers that they will take a very dim view of any attempts to foreclose on houses in the interim period.

The big picture: About 7.2 million homeowners entered pandemic-related forbearance plans, but most of them have already successfully left that purgatory.

  • By the numbers: According to data from Black Knight, 46% are now reperforming on their loans, and another 17% have paid off their mortgage entirely, either by refinancing or by selling their house into the strong housing market.
  • About 2.1 million homeowners remain in forbearance. Even if they're behind on both mortgage payments and property taxes, the overwhelming majority of those homeowners still have substantial positive equity in their homes, says Black Knight economist Andy Walden.

What they're saying: "It’s almost the exact opposite of what we saw during the last financial crisis," Walden tells Axios.

  • Back then, millions of homeowners were underwater on their mortgages, "which really limited the options and created a snowball of distress."
  • Now, by contrast, rising prices create a lot more space for servicers to work out deals that keep borrowers in their homes.

"Next year there will be a lot of efforts to provide forbearances and workouts," adds Jorge Newbery, the CEO of AHP Servicing, which concentrates on the low-income borrowers most at risk of foreclosure. "Extra foreclosure activity will be modest."

The bottom line: There's a good possibility that foreclosures will rise above their pre-pandemic levels in 2023, once all other options have been tried and once the current backlog of court cases has begun to clear. For the time being, however, foreclosure is one thing that most homeowners don't need to worry about.

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