Florida’s mortgage woes trigger fears

Some feel virus pandemic may lead to foreclosure crisis

Rising mortgage delinquency rates in Florida are raising fears that the coronavirus pandemic will lead to a foreclosure crisis as bad if not worse than the one that followed the 2008 housing crash.

Some experts are optimistic that far fewer homeowners will lose their homes to foreclosure if effective treatments and a vaccine are developed by early next year. Others see historically high unemployment rates leading to a wave of foreclosures, plummeting home prices and economic misery.

A new report by real estate data analytics firm Black Knight contains a sobering statistic: The percentage

of Florida homeowners who could not or did not make their mortgage payments in May was fifth-highest among all 50 states. The company reported that 10.5% of Florida mortgage borrowers were delinquent, in foreclosure, or in a payment respite known as forbearance.

That’s about 389,000 of 3.7 million mortgage loans in Florida, the company said.

Evan M. Rosen, a Fort Lauderdale attorney whose firm specializes in

defending homeowners facing foreclosure, says the high delinquency rate can likely be traced to Florida’s service and tourism economy.

“We have a tremendous percentage of people in the hospitality industry,” he says. “Restaurants, hotels, bars, even Sawgrass Mills, one of the nation’s most popular attractions. And cruise ships. They’ve all been decimated. While a significant portion of those workers are probably renters, some own.”

Ken H. Johnson, real estate professor and economist at Florida Atlantic University, says high housing prices, particularly in South Florida, have forced more homeowners to finance larger percentages of their home’s purchase price. “The more you finance, the more your monthly payment is going to be and the more financial stress those payments will put on borrowers,” he said.

So it makes sense that a larger percentage of Florida homebuyers sought to put their payments on “pause” by requesting forbearance after the state’s economy fell into a coma, he said.

Florida home prices were high well before the pandemic, Rosen said, forcing many to live paycheck to paycheck to afford them. “The pandemic might have been the proverbial straw that broke the camel’s back.”

In the U.S. overall, 4.3 million homeowners were past due or in active foreclosure in May, pushing the national delinquency rate to 7.8%, its highest level in 8.5 years.

The 4.3 million includes 1.3 million who were already delinquent prior to March and 3 million who became delinquent over the past three months, Black Knight reported.

Of those 3 million post-pandemic delinquencies, 90% worked out a forbearance plan with their lenders that allows them to skip making payments — for up to a year in most cases — and work out a repayment strategy when they are ready to resume paying. Most repayment options include paying the missed payments in a lump sum, spreading the sum over 12 months or shifting the missed amount to the end of their loan.

Wave of foreclosures expected

Forbearance options are guaranteed for borrowers of government-backed loans — about 70% of all home loans — and have been made available by many servicers of privately backed loans. Those protections, combined with temporary bans on foreclosures at the state and federal levels, have kept people in their homes so far, Rosen said.

The moratorium on foreclosures of federally backed loans has been extended twice, most recently until Aug. 31. Those include loans guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration, the Veterans Administration and the U.S. Department of Agriculture,

What’s unknown is what will happen to borrowers who are not in a forbearance plan after the moratorium on foreclosures signed by Gov. Ron DeSantis expires. He has extended it twice in Florida, and it’s now scheduled to expire on Wednesday, July 1. Rosen said he and other foreclosure defense attorneys that he works with expect a wave of foreclosure filings after the moratorium expires.

“But the consensus is it won’t be like what we saw after [the housing price crash of ] 2008,” he said.

Delinquencies to level off ?

A higher percentage of mortgage payments have been made in June compared with the same time in May, “suggesting the rise in delinquencies may be leveling off,” Black Knight’s report says.

Florida’s 10.5% delinquency rate in May was well below its historic high of 25.4%, or roughly one of every four mortgages, in January 2010, Black Knight’s report shows.

Johnson doesn’t expect Florida’s housing market to sink anywhere near those depths unless the pandemic drags on another six or nine months without improved treatments or a vaccine. That’s because the economy was on firmer footing before the pandemic than it was before the housing crash, he said. So was credit worthiness of individuals in South Florida, as measured at a community level.

“Then, people were paying high mortgages but had very little savings,” he said. Today, “people are in much better shape to ride this out. I don’t see this being a meltdown.”

As Florida’s reopened economy continues to pick up steam, workers displaced in March are going back to work and resuming making their mortgage payments so they don’t fall too far behind, said Mike Azzarello, president of the Mortgage Bankers Association of Florida. He added, “I don’t expect a large number of those COVID forbearance loans going into foreclosure.”

Some see misery ahead

Not everyone shares Azzarello’s optimism.

Nearly 30 million jobs have been lost in the U.S., including nearly 1 million in Florida, according to federal and state data. Many of them won’t be returning anytime soon, says Bruce Jacobs, a Miami attorney who spent years representing banks in foreclosures before switching sides to defend homeowners after the housing crash.

“Any business model based on getting people to a location and spending money is going to change,” Jacobs said.

Josh Migdal, a mortgage fraud litigator with Miami-based Mark Migdal & Hayden, sees Florida’s 14.5% unemployment rate in May — among the nation’s highest — leading to increased foreclosures and a glut of properties on the market. Within a year to 18 months, the glut could trigger a

10% to 20% decline in housing prices, he said.

Jacobs predicts that banks are waiting to foreclose on delinquent homeowners not protected by up to a year of forbearance. They include low-income borrowers forced into the subprime market whose loans are not backed by the government, he said.

“At some point, the foreclosure moratorium will end and lawyers for the banks will start filing foreclosures and scheduling sales,” he said. “Courts will be inundated.”

While agencies that oversee government-backed mortgages require mortgage servicers to offer loan modifications to homeowners who can resume monthly payments at the end of their forbearance periods, borrowers won’t qualify if deemed unable to make those payments, he said.

“I think we stand on the precipice of a very sad era in America,” he said. “Lots of very good people are going to lose their homes because the economy is not there to sustain them. It’s going to be far worse than

2008.”