Baltimore home with foreclosure sign

The COVID-19 pandemic has resulted in significant economic difficulties for many people, and those with mortgages are no exception. Thanks to legislation passed to help homeowners experiencing financial hardship, many borrowers were granted forbearance relief which temporarily postponed their mortgage payments. Starting in 2020, foreclosure and eviction moratoriums were also put in place. Throughout the pandemic, these moratoriums have been extended multiple times, but they are set to expire in the coming months. So what happens to borrowers who exit their mortgage forbearance period but are still unable to pay their mortgage? Similarly, what happens to renters when the nationwide eviction moratorium ends? Some experts predict that when these programs expire, the U.S. housing market may experience a wave of foreclosures at a time when a high number of displaced renters are also looking for housing.

Eviction Moratorium for Renters

The CDC recently extended its eviction moratorium, which was scheduled to end in March, through June 30th. This program was initially put in place to help minimize the spread of COVID-19, but had the added benefit of helping families retain housing. As of March 2021, millions of renters are behind on rent according to a Household Pulse Survey conducted by the U.S. Census Bureau. When the eviction moratorium runs out, if additional tenant protections are not put in place, the result could be a housing and homelessness crisis.

Foreclosure Moratorium for Homeowners

According to CNBC, nearly 30% of unemployed Americans have been jobless for more than a year. In fact, unemployment rates are estimated to be double what they were prior to the pandemic, making a marked increase in foreclosures entirely possible. At the end of 2020, approximately 5.5% of active mortgages in the U.S. were in forbearance. When the program ends, mortgage providers will be scrambling to deal with these borrowers. Some borrowers will exit forbearance with a repayment plan or loan modification in place and will be successful in making timely payments. But some percentage of the 2.7 million loans in forbearance are likely to end in default as unemployed or underemployed homeowners are unable to make their mortgage payments.

Avoiding the Wave

The Consumer Financial Protection Bureau (CFPB) wants to put a stop to foreclosures until 2022. The CFPB proposed mortgage services changes would provide extra time for struggling homeowners to reassess their financial situation and also provide mortgage providers additional time to work with homeowners who are exiting forbearance. Regardless of whether or not these proposed protections become a reality, here are some things you can do to avoid foreclosure:

  • Talk to your mortgage provider. If you find you are unable to make your mortgage payments, it is important to speak with your lender immediately. It may be possible to apply for a loan modification, which could result in reducing your monthly payments by lowering your interest rate or by extending the loan payments. It is important to note that loan modification applications can take some time, so do not delay in reaching out to your lender if you foresee any financial difficulties.
  • Revaluate assets. Take a closer look at what assets you have (jewelry, vehicles, etc.) that could be sold to provide additional funds to help you get caught up on mortgage payments.
  • Consolidate debts. Examine any consumer debt that you have besides your mortgage (e.g. credit cards, student loans, retail store or gas cards, etc.). It may be possible to consolidate this debt into one smaller monthly payment, leaving additional funds available to put toward your mortgage.
  • Consider seeking bankruptcy relief. Bankruptcy can provide immediate relief from the threat of foreclosure. Once you file for bankruptcy with the courts, an “automatic stay” will be put into place which immediately halts any foreclosure activity by the mortgage lender.

In addition to offering an opportunity to prevent foreclosure, bankruptcy can provide other benefits as well. It stops all debt collection calls and letters, can lead to the elimination of dischargeable debts such as medical bills and may ultimately result in an improved credit score. If you are facing foreclosure, visit the HUD resource center or call to speak with one of our bankruptcy attorneys. At Waldman, Grossfeld, Appel & Baer, we have been helping Marylanders avoid foreclosure for over 50 years. We serve clients in Pasadena, Rosedale and Reisterstown, Cambridge, Essex, Glen Burnie, Middle River, Perry Hall, Severna Park, Towson, Owings Mills, Westminster, Annapolis, Columbia, White Marsh, Ellicott City, Easton and Bel Air. Contact us for a consultation.