AS MORATORIUM ENDS, FLOOD OF FORECLOSURES AWAITS
The foreclosure moratorium on federally backed mortgages meant to help reduce the financial hits from the COVID-19 pandemic is set to end on Saturday after having been in place for 16 months and extended twice.
More government intervention likely will be needed to help families get back on track with their house payments and ward off a new foreclosure crisis — although it most likely would be far less severe than the last one a decade ago, according to industry experts.
The amount of equity that families have in their homes is much higher this time around than during the 2008 housing crisis, and mortgage underwriting standards are generally stronger across the board as a result of the fallout from that time. Meanwhile, the moratorium on foreclosures during the COVID-19 pandemic effectively changed the market for foreclosed properties.
Over 2 million U.S. homeowners are more than 90 days behind on mortgage payments, according to the Consumer Financial Protection Bureau in Washington. That amounts to 3.3% of mortgages that were in deep trouble in April 2021 compared to 1.2% in April 2020 just before COVID-19-related financial difficulties began affecting people’s ability to pay.
For now, the foreclosure restrictions and government-mandated forbearances have held the number of homes lost to foreclosure artificially low since 2020.
Allegheny County saw a record low 402 foreclosures in 2020, compared with 1,152 foreclosure filings in 2019 and 1,584 foreclosures filed in 2016, according to data reported by RealStats, a Ross Township-based real estate information company.
“We put a dam in the stream, and now foreclosures are building up behind the dam,” said Daniel Murrer, president of RealStats. “When they open the gates or when the dam breaks, we are going to see a flood of foreclosures.
“That statement is based on the assumption that if it weren’t for COVID-19 and the protections put in place to help distressed homeowners, we would have normally expected to see 1,100 to 1,200 foreclosures.”
Even those numbers pale in comparison to what happened here in the mid2000s.
Home losses in the Pittsburgh region hit a peak of 2,834 in 2006 when a mortgage foreclosure crisis steamrolled through the area. That prompted the creation of a specialty court — the Save Your Home program — which was established through an administrative order in 2009.
Under that program, lending institutions cannot foreclose on homeowners in Allegheny County without the homeowner being given the option to go through the county’s specialty court to try to work out a loan modification agreement with the mortgage lender.
Judge John McVay Jr. of the Court of Common Pleas Civil Division has presided over the Save Your Home program since 2017. He said the program has never been as quiet as it is now. But with the foreclosure moratorium being lifted soon, he expects the number of homeowners in the program to expand significantly.
He is scheduling court dates for Aug. 12,17 and 19 to review all current cases — about 200 — to get an update on where all of the homeowners who were in the program before the moratoriums went into effect stand on working out new loan agreements with their lenders.
As long as homeowners remain in good standing in the program, lenders cannot foreclose.
“I’ll bring all cases in to see if forbearance agreements are expiring and see what remedy they have available and if it’s still in place,” Judge McVay said. “I must consider either removing them from the program or stay the foreclosure.”
Housing provisions in the American Rescue Plan Act of 2021 will make about $350 million available to the state of Pennsylvania. Some portion of the funds administered by the Pennsylvania Housing Finance Agency will be used to help people affected by the pandemic with mortgage assistance.
The judge will be looking for information on that funding, as well. “I don’t want to move forward and kick anybody out of the program until I see how the federal money will be administered and who will be eligible for it.”
“Investors are being crowded out by the public jumping into the fray. The worst part of it is that the public doesn’t understand what they are doing. You don’t get keys after you buy a sheriff’s sale property.”
— Libby Sosinski-Souililard, real estate agent
Pitfalls and perils
The moratoriums that went into effect in March 2020 prohibiting banks from foreclosing on most mortgages marked the start of a long dry spell for real estate professionals who specialize in buying and selling homes in the foreclosure market.
Only a handful of real estate agents in the country sold more foreclosed homes in 2020 than Libby Sosinski-Souilliard, a real estate agent in Keller Williams Realty’s Mt. Lebanon office. She specializes in listing foreclosed houses and gets her inventory of listings directly from banks that repossess them.
She sold 160 homes that already had been foreclosed on by lending institutions last year for a total of $17 million in sales. With that inventory depleted, business has slowed to a trickle.
“I’m used to getting 25 to 30 foreclosure assignments a month, and I’ve probably received only three in the last three months,” she said.
While the court system is taking precautions to prevent vulnerable homeowners from losing their properties, the Allegheny County Sheriff’s Office recently resumed its monthly auction of foreclosed homes — starting with vacant land and commercial properties that were already in the pipeline before the pandemic.
But, in response to the pandemic, the sheriff’s office moved its auction to a new online format on Facebook. Ms. Sosinski-Souilliard believes the online auctions have radically changed the game.
“It used to be that few people knew of the sheriff’s sales,” she said. “It was a specialty event. Then they put the auctions on Facebook. And now everybody and their mother is watching the auction online and bidding on these properties, thinking they are going to get a good deal.”
The number of people bidding is exponentially larger now that the bidders don’t have to drive Downtown and sit in a crowded courtroom. Retail buyers recently bid the price of a foreclosed home in Upper St. Clair to more than $750,000.
But that also means professional investors looking to buy as low as possible are getting outbid more often by amateurs.
With more online bidding, there’s a higher chance that all — or most — foreclosed properties up for auction will be sold at auction. That means there will be fewer foreclosed homes going back to the lending institutions, which is where Ms. Sosinski-Souilliard and other real estate agents in the foreclosure market get their inventory of listings.
Retail buyers can eliminate the middle man buying properties at foreclosure auctions. But it’s a path to homeownership that is fraught with pitfalls and perils for the inexperienced buyer.
“Investors are being crowded out by the public jumping into the fray,” Ms. Sosinski-Souilliard said. “The worst part of it is that the public doesn’t understand what they are doing. You don’t get keys after you buy a sheriff’s sale property.
“They bid on these properties without realizing that it comes with liens and other open mortgages and title issues and inheritance tax issues and everything else,” she said.
A changed market
The number of foreclosures from the COVID-19 recession is not likely to resemble the unprecedented 1.65 million home losses the nation experienced during the Great Recession, which started in 2008.
For one thing, the forbearance provisions of the 2020 CARES Act have allowed what is now millions of homeowners to either pause or reduce their payments temporarily.
Tougher lending standards require homeowners to put more cash down on their home purchases, and that has caused homeowners to have more equity and a lower percentage of debt on their homes than was the case in 2008.
Mortgage forbearances — the option to pause or reduce payments temporarily — have cut down the reporting of delinquent mortgages. The Mortgage Bankers Association reported home loan forbearances peaked in June 2020 at 8.55% when almost 4.3 million homeowners were in forbearance plans. As of May 2021, the number had dropped to 4.36% of loans in forbearance for 2.1 million homeowners.
Black and Hispanic borrowers accounted for 33% of homeowners who have made arrangements with banks to pay less than the agreed mortgage payment or to halt payments for a period of time, according to the Consumer Financial Protection Bureau.
There’s really nothing to see in terms of foreclosure numbers in Allegheny County, said Rick Sharga, executive vice president of RealtyTrac, a foreclosure data collection company based in Irvine, Calf.
“Allegheny County and the city of Pittsburgh are still running way below where they were prior to the pandemic and way below normal levels of foreclosure activity,” he said. “The numbers are so minuscule that you can’t see them right now.
When foreclosures start to trickle back into the market, the impact it will have on housing values will be very neighborhood sensitive, said Michael Sichenzia, a Fort Lauderdale, Fla.-based national housing analyst.
“In the neighborhoods where there’s a demand for buyers, you’ll see that inventory get scooped up very quickly, and you won’t see any effect in pricing,” he said.
“But as it always seems to be the story in America, marginalized communities will bear the brunt of this problem,” Mr. Sichenzia said, suggesting lower-income communities are more vulnerable to price declines. “If there is a problem, it will be in that area where you see it the most.”