At the beginning of the COVID-19 pandemic, federal and state governments imposed foreclosure moratoriums, effectively halting almost all foreclosure activity in the United States. However, those moratoriums have expired, and foreclosure rates across the country are on the rise.
According to ATTOM Data Solutions, a provider of real estate data, foreclosure activity in the United States more than doubled in 2022. But this sudden increase is understandable. Foreclosure filings were down to record-low levels in 2020 and 2021 due to the government's COVID-19 forbearance program, moratoriums, and other mortgage-relief options for homeowners. And the elevated foreclosure levels of 2022 and early 2023 are actually well below the numbers during the Great Recession and foreclosure crisis.
Because recent foreclosure numbers aren't close to those the nation suffered through in the 2008-2012 timeframe or even pre-pandemic, you don't need to panic—even if you're having trouble making your mortgage payments.
ATTOM says that 324,237 properties had foreclosure filings in 2022, up 115% from 2021. As the country has moved closer to a recession, you might wonder whether and when more foreclosures will hit the markets. After all, when the Great Recession began in 2008, foreclosure numbers skyrocketed.
In the past couple of years, home prices climbed to record levels, similar to the market peak of 2006, which preceded the last real estate bubble burst. Then, foreclosures increased as people's home values plummeted.
While the housing market is experiencing a downturn and a rise in foreclosures is expected, the situation is nothing like 2008. Foreclosure levels are very unlikely to reach a crisis level and probably won't lead to a crash in home values.
Even though many economists predict a mild recession before the end of 2023, employment and homeowner equity appear strong enough to prevent a massive increase in foreclosures.
Foreclosures are actually down 34% from 2019, before the pandemic and its associated moratoriums and mortgage-relief programs massively reduced foreclosure rates. The increased number of foreclosures in 2022 only seems high compared to 2020 and 2021.
In fact, numbers are also down 89% from 2010, the peak of the mortgage crisis when nearly 2.9 million homes went into foreclosure.
Mortgage lenders, loan servicers, legislators, and homeowners learned from the foreclosure crisis. Federal and state governments passed laws to give homeowners more rights in the foreclosure and loss mitigation processes. Lenders and servicers revamped their policies to comply with these laws. And homeowners have access to resources and information to help them avoid losing their homes to foreclosure.
Lenders, servicers, and the government also responded to the COVID-19 pandemic accordingly by initiating moratoriums and relief options for homeowners affected by the disease. Along with a relatively strong economy, these factors have prevented thousands, if not millions, of foreclosures and will continue to curb them.
Another big difference between the foreclosure crisis that began in 2008 and now is that the abusive, predatory, and unaffordable subprime mortgage loans made in the early 2000s are no longer available.
Those loans allowed people to buy homes they couldn't afford and inflated the housing market. Today, lending laws and practices are much stricter and generally prevent people from buying homes they can't afford.
Also, the majority of homeowners have equity in their properties. So, while the housing market is slowing down, mainly due to the Federal Reserve's increasing of mortgage interest rates to control inflation, it isn't crashing.
During the pandemic (and even now, up until the COVID-19 national emergency declaration expires), homeowners could get a forbearance—a temporary pause in mortgage payments. Millions of homeowners took advantage of this opportunity.
When a forbearance ends, homeowners have to repay the missed amounts by:
Because of the availability of forbearances and because so many options are in place for getting caught back up on skipped payments, most people have avoided defaulting on their mortgage loans during the pandemic and when their forbearances expired. But those who weren't able to work out a solution are now facing foreclosures.
Also, many of today's foreclosures we're seeing today are the continuation of ones that began before the pandemic. If a moratorium or forbearance hadn't happened, many of these homes would have gone through foreclosure in 2020. Much of the increase in foreclosure levels today is because of the pre-pandemic backlog.
The country probably won't go through another foreclosure crisis—at least not anytime soon. Homeowners facing foreclosure, say because of unemployment or some other financial hardship, can leverage their home equity to make ends meet (for example, by taking out a home equity loan) or sell the home and pay off the mortgage rather than go through foreclosure.
Also, more resources and protections are available to homeowners to avoid foreclosure. For example, if COVID-19 has affected your ability to make mortgage payments, you might qualify for help from the Homeowner Assistance Fund program in your state.
And many federal and state laws protect homeowners and provide ways for borrowers to get a foreclosure alternative.
The increase in foreclosure activity in 2022 over 2020 and 2021 does indicate a return to pre-pandemic ("normal") levels, likely in 2023. But again, the country isn't likely to experience a wave of foreclosures.
If you're behind in mortgage payments and worried about foreclosure, you might have more options than you think. Consider talking to a foreclosure attorney to learn about alternatives. A lawyer can advise you about loss mitigation options, your legal rights in a foreclosure, and defend you against a foreclosure in court.
Also, consider contacting a (free) HUD-approved housing counselor if you need more information about loss mitigation options or want help with the application process. Visit hud.gov to find a housing counseling agency near you, or call 800-569-4287.