Forbearance: Crash or No Crash?

When the CARES Act was initiated earlier this year, mortgage servicers around the country worried that they might see a spike in forbearances – that is, that they might lower their monthly mortgage payments or stop paying altogether.

While the act guaranteed that lenders couldn’t foreclose for a certain amount of time, it had the potential to confuse borrowers into believing that they weren’t still responsible for those missed payments. Naturally, mortgage companies (including NOVA) rushed to educate their clients about the truth of forbearances, making sure they weren’t doing long-term damage to their loan.

Nevertheless, many people have predicted that home prices will crash drastically once these forbearance plans run out in 2021. The good news is that jobs are slowly trickling back into the economy, so more and more people are voluntarily quitting their forbearance plans. An uptick in employment means that these loans will be modified back to normal and fewer people will be likely to default.

Furthermore, today’s homeowners were in a better financial position when they first purchased than people taking out subprime loans in the mid-2000s. Therefore, we aren’t facing the same multiyear credit bubble that plagued lenders and borrowers before the financial crash of 2008.

So while many Americans are still struggling to make ends meet in the wake of the COVID pandemic, promising evidence indicates that people are slowly starting to rebound into safer economic waters, potentially avoiding a crash landing in the mortgage market next year.