It is not all cheers and celebrations as President Biden took office. While a flurry of Executive Orders were spun out on Day 1, the reality is that the situation is bleak in the real estate sector for all — other than the ultra rich. Black Knight noted the national delinquency rate is a full three percentage points above pre-pandemic levels while seriously past-due mortgages remain 1.8 million above pre-pandemic levels.
Over the course of the COVID pandemic, we have seen stellar — and some say bubble like — rises in home valuations. This is based, in part, upon a lack of inventory of assets for sale and also, in part, upon the enormous rush of private capital hedge fund monies both purchasing and rolling out new construction projects. Looking at this, through Foreclosurepedia’s crystal ball, we believe that this double edged sword will eventually trigger the crash in the market as we go into the third and fourth quarter of 2021. To this point, I base my conclusion upon the fact that many of those currently under forbearance plans will ultimately seek to sell their homes as opposed to entering into foreclosure. And for those whom believe that the Biden Administration is going to be capable of keeping those numbers low, I am loathe to concur.
There are a few things which people need to understand. First, the forbearances allowed under the CARES Act expired on 31 December 2020. To that point, extensions were allowed ONLY if homeowners entered into extensions. While many may have, the reality is that many did not for a plethora of reasons including simply not knowing about the cut off dates or precisely how to do it.
When the surge of inventory begins, the first thing that happens is that valuations drop. This is good for the consumer, but bad for those hedge funds whom pegged their new home construction prices upon the lack of inventory. This translates into a long term loss, with the respect to equity and profit, which then begins to put portfolios upside down. Moreover, though, the ability for homeowners to sell off their sinking assets equates to losses. This scenario is nearly identical to the 2008 Financial Crisis, make no mistake about it. And the bigger problem is that there isn’t a proverbial magic wand available in the Biden Administration’s tool box to address it. Tens of trillions of dollars have been pumped into the financial sector and only a paltry $1,800 into American households. The financial sector has been extremely adept in siphoning off US taxpayer money and returning nothing but higher interest rates which does nothing to help the current crisis.
What needs to be understood is that the federal moratoriums against foreclosures only apply to QM agency mortgages. Generally speaking, QM simply means quality mortgage as it is backed by the US Government or a Government Sponsored Entity (GSE) such as Fannie Mae or Freddie Mac. That slice of the market only encompasses 38.6% of the space. And with over 144 million household mortgages out there, that means that roughly 76.3 million are exempted from the federal moratoriums.
We are witnessing nearly 1 million new unemployment claims, per week, and this has been ongoing for the past several months. This, combined with predictions by the US Chamber of Commerce that roughly half of all US small businesses will shutter as a result of the COVID pandemic, does not bode well for the economy. For those whom believe that the Dow Jones Stock Exchange has anything to do with the economy, I suggest that you inquire why food stamp applications are at an all time historic rise and an additional 15% were added to the monthly allotment. Or, simply take a look at the miles long food bank lines. To give a truly stark outlook, here is a quote from Lawrence Yun whom provides products to the National Association of Realtors (NAR),
Q: What percent of homes in forbearance do you estimate will go through foreclosure? Yun: Around 10% to 20%. Many will have positive equity and can do a normal sell.
Building upon this, it is not simply that foreclosure volumes may build in the coming months. The most important question, which remains unanswered by National Association of Mortgage Field Services (NAMFS) members as well as the US Department of Housing and Urban Development (HUD), is whether or not Inspectors and Field Service Technicians in the Mortgage Field Services Industry are entitled to receive the COVID vaccine as Essential Workers. As many know, both NAMFS and HUD stated all workers were Essential Workers, but the question is will both NAMFS and HUD assist in creating a safe work environment for those whom work in the field. The International Association of Field Service Technicians (IAFST) has been working with its Membership to get them vaccinated; however, there appears to be little interest by those whom collect the massive profits like ServiceLink, ZVN Properties, or Sentinel Field Services.
