As we finish up the second month of this bizarre new world, I’ve been trying to get a read on what the rest of 2020 might look like for our real estate market. Things are slower, but steady so far. Where we go from here will depend on how many New Orleans homeowners will be in mortgage forbearance, and if we end up seeing a resulting spike in foreclosures. (It’s gonna get a little geeky in here, but stay with me. It’s worth it.)
Homeowners with a mortgage have been given the right to request a forbearance if the COVID-19 economy, or lack thereof, has affected their ability to make monthly payments on their loans. This arrangement doesn’t mean those payments just go away, but it allows borrowers to hit the pause button until they can start paying again. Federally-backed mortgages will allow that pause to last for 180 days, while the terms for other loans are up to the individual lenders. (Examples of federal loans are Fannie Mae, Freddie Mac, FHA, VA, and USDA. Not sure what kind of loan you have? Contact your mortgage company to find out.)
The important question is what happens after that period of forbearance is up? How those missed or reduced payments can be paid off depends on the lender. The federal loans have the most options, including paying it back as a lump sum at the end of the mortgage. The other loans are where things can get dicey. Some lenders are requiring a balloon payment once the forbearance is over. I can’t imagine many people being able to fork over 3-6 months of house payments all at once.
While some homeowners will be able to make up for the lost payments over the course of time, many won’t. Those with enough equity could put their homes on the market and use the proceeds of the sale to make themselves whole. Those without it could end up in foreclosure or requesting approval for a short sale from their bank.
I know I’m getting in the weeds a little, but it all comes down to supply and demand. Right now, there’s a pretty equal balance in our market because a lot of sellers are holding off on listing their homes until the worst is behind us. My concern is twofold. First, there has been a 60-day moratorium on foreclosures that will expire at the end of this week. Secondly, later this year, the forbearance periods will end and undoubtedly result in more foreclosures. For many reasons, we all hope that number is small. If it isn’t, a sizable increase in inventory could drive prices down. I’ll keep you updated on foreclosure numbers.