Economic Recession Upcoming – Mortgage Market Thinks So
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 developed massive uncertainty across the entire economy. Now we are beginning to see some of the consequences ripple over into the real estate market. There are trouble signs bubbling up in the mortgage market in particular.
The long term effects on Homeowners
The mass increase in unemployment has left many people with no way to pay their bills and few signs of any relief coming soon. This will be a lagging signal compared to unemployment as some individuals have savings or other minor revenue streams.
Surge in Loan Forbearance
Right now many homeowners have been able to find help through loan forbearance. Part of the government’s stimulus programs has extended loan forbearance for some homeowners. The people who qualify have been able to get by penalty-free without paying their mortgages by having them placed in forbearance. This alleviates the homeowners but does put pressure on the finance industry as the loan payment income stream dries up.
Possible Surge in Late Payments
The relief programs are ideal for homeowners that are under pressure right now. This will be short-lived 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.
Effect of credit ratings because to Defaults
Currently, the principal 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 potential that there would likely 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 dreadful effects on the real estate market as a whole.
More information can be found at BNN Bloomberg.