On June 30th, the FHA forbearance period ends and the moratorium on evictions. What will happen then?

by Rod Williams - On June 30th, the FHA forbearance period ends and also the moratorium on evictions.  What will happen then?

Those borrowers who are able to resume normal payments may have the arrearages deferred until the loan is paid off, which would result in these loans becoming current. The way this is often expressed is "moving the missed payments to the end of the note."  What really happens is FHA mortgage insurance pays the lender the arrearage and then the borrower has a FHA lien on his house for that amount. 

Borrowers who are unable to resume regular payments or for some reason choose not to may qualify for a loan modification. A situation where this may apply is if someone lost their job due to Covid 19 and now has found a new job but it pays less money and they can't afford the previous house payment. The lender may stretch the payments back out to a longer term and lower the monthly payments. One does not automatically get a loan modification.  Sometimes the new income is too low to qualify for a mod, sometimes the borrower has acquired too much other debt, or other life changes may have occurred that make the borrower not eligible.

If a modification is unable to address the delinquency, the next option is to sell the home. Given the level of home appreciation across the county and especially in places like Nashville, there should be few people who are "upside-down" in their home and a preforeclosure sale will allow these borrowers to avoid foreclosure, but they do lose their home. 

Borrowers who are not offered the forbearance resumption of payments option should seek the help of a HUD-approved housing counselor.  A good housing counselor may be able to find a solution not readily visible to the borrower or not pursued by the lender. 

Unfortunately, there will be some people who could have been making house payments, given the generous unemployment benefits and direct stimulus payments, who did not. Also, unfortunately, some of those people did things like buy cars and increase their debt obligations when they should have not.  They may not be able to qualify for the resumption of the payment plan. Some people got accustomed to the level of disposable income they had when not making house payments and now do not think they can afford their house payments.  They need someone to review their budget with them and help them find the money to resume making payments. 

I do not expect a massive housing crisis like 2007.  That crisis was caused by a relaxation of lending standards and "creative financing" that allowed people to owe more on their home than what it was worth.  That is not the situation we are in now.  Still, among the 169 largest MSA's 15.1% of all FHA loans are delinquent and 11.5% are considered seriously delinquent.  Fortunately, none of the Tennesee MSA's are among the cities with the most delinquent FHA mortagges. 

Of the largest 169 MSA's, Memphis is ranked 31st with the most delinquent FHA mortgages, Nashville is ranked 33rd,  Knoxville is ranked number 91, and Chattanooga ranked 105. 

Here is the list of the top ten cities with delinquent mortgages:

For more on this topic and source material see link and link. 

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