The world economy may appear to be in chaos at first glance lately. The effects of the Coronavirus pandemic have stretched far beyond stretched hospitals. Unemployment increase and uncertain trade relations have produced massive anxiety across the entire economy. Now we are starting to see some of the effects ripple over into the real estate market. There are trouble signs bubbling up in the mortgage market in particular.
Effects on Homeowners could anticipate</h2>
The mass increase in unemployment has left many Americans with no way to pay their bills and very few signs of any help coming soon. This will be a lagging indicator compared to unemployment as some individuals have savings or other minor revenue streams.
The side effects of Loan Forbearance on the economy</h2>
Right now many property owners have been able to find relief through loan forbearance. Part of the government’s stimulus programs has extended loan forbearance for some homeowners. The individuals who qualify have been able to get by penalty-free without paying their mortgages by having them placed in forbearance. This relieves the homeowners but does put stress on the finance industry as the loan payment income stream dries up.
Effects of Late Payments on credit ratings</h2>
The relief programs are very good for homeowners that are under pressure right now. This will be temporary though. There are no set guidelines for what will happen after the forbearance period is over and many banks are calling for lump-sum payments. If this happens and if a homeowner has their loan in forbearance for three months once they end the forbearance period they will owe three months’ worth of mortgage payments all at once.
<h2>Possible Surge in Defaults</h2>
Currently, the primary fear is that once the loans come out of forbearance what happens if the homeowners cannot afford the lump sum payments. Many will be unemployed still. There is a possibility that there would be a wave of foreclosures and delinquencies. This would not only force the largest wave of Americans out onto the streets in history but it could have destructive effects on the real estate market as a whole.
More information can be found at <a href=”https://www.bnnbloomberg.ca/gloomy-canadians-worried-about-recession-in-2020-survey-shows-1.1360292″>BNN Bloomberg</a>.