AZ Forbearance Update (Video) 10/7/2020

Lydia Wietsma and I discuss the latest news in forbearance trends and where borrowers can go for help. We have some suggestions for borrowers to stay in their homes after they exit their forbearance programs. Click below to watch our 19 minute video.

Today’s Takeaways:

The worst thing for the housing market is to have empty houses. We went through that 10 years ago. This time around with the forbearance programs, they were designed to keep homeowners in their homes, which keeps the housing market healthy.

Let’s talk about what we know. We know that for the past 17 weeks in a row, total loans in forbearance has continued to drop. Last week the rate dropped to 6.81%, down from the previous week at 6.87%. This means roughly 3.4 million mortgages in forbearance.

“The significant churn in the labor market now, more than six months into the pandemic, is still causing financial distress for millions of homeowners. As a result, more than 70 percent of loans in forbearance are now in an extension.”  

Mike Fratantoni, MBA’s Senior Vice President and Chief Economist

In order for a borrower to leave forbearance they have to make 3 consecutive payments and come up with a plan with their servicer or lender on how they will pay back the forborne amount that was deferred while they were in forbearance. One thing that is very important for everyone to know is that forborne payments will be repaid, they are not forgiven.

There are a number of ways a borrower can leave forbearance, not all of them require the owner to sell their property. Some of these options include:

  • Utilizing a 401K in two ways.
    • Individuals are allowed to borrow from their 401K with the option of paying themselves back with interest, since it is a loan being paid back, essentially paying yourself back there are no penalties. Talk to your 401K administrator for details.
    • Through provisions of the CARES act an individual can also withdraw an amount of their 401K with no penalties. Again, talk to your 401K administrator for details.
  • Permanent loan modification or refinance, after making 3 payments in a row, to something that allows borrowers to stay. Some scenarios include adding the forborne amount at the end of the loan, some pay a lump sum to get caught up, some offer payment plans to get caught back up.
  • Rentals are in high demand with quickly appreciating values. What about moving out of the property and renting it out to make up the difference in payments.
  • Sell and buy something more affordable, after 3 payments in a row have been made. Pay off the loan and get a new loan with more agreeable terms.
  • Sell, pay off the loan and forborne amount and rent/move in with family.

We are watching total delinquencies as well, which is tougher to monitor but what we are seeing is that new single family delinquencies continue to drop but older delinquencies, 90 days and up are growing. Here is a chart that is hard to see but shows that residential delinquencies are decreasing. The huge one is lodging.

I do want to touch briefly on unemployment. September’s numbers came out last Friday showing that our economy added 661,000 jobs. This was below expectations. They did revise up the total of new jobs from August though. The unemployment rate is now 7.9% and we have made up over 50% if jobs lost in March and April.

Elliott Pollack expects a full recovery of all industries in Arizona by the end of 2022. It would be great to be back at full employment in two years.

Please share this with your colleagues and clients.

Copyright 2020 by Sarah Perkins

Published by Sarah Perkins

Sarah has been with Lawyers Title of Arizona since 2004. As an award-winning sales executive, Sarah's role is to bring transactions to Lawyers Title. To do this, she focuses on supporting her clients and helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today's home buyers and sellers.

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