The coronavirus pandemic has wreaked havoc upon many areas of Maine’s economy, but mortgage experts say homeownership doesn’t appear to be under any real threat. In fact, pandemic-related protections for borrowers have reduced the risk of home foreclosure in the state – at least for now.

Mortgage lenders in Maine and across the country offered forbearance programs to help carry struggling borrowers through some of the more difficult months of the coronavirus pandemic. But 18 months later, those programs are ending along with a pandemic-related moratorium on foreclosures.

According to Rick Sharga, executive vice president of RealtyTrac, a firm that tracks foreclosure activity nationwide, an increase in foreclosures is expected and is not necessarily a signal that “a flood of distressed properties” is coming to market.

“We’ll continue to see foreclosure activity increase over the next three months as loans that were in default prior to the moratorium re-enter the foreclosure pipeline, and states begin to catch up on months of foreclosure filings that simply haven’t been processed during the pandemic,” Sharga said in a statement. “But it’s likely that foreclosures will remain below normal levels at least through the end of the year.”

Just over a month since the moratorium ended, foreclosures are starting to creep back up, but experts say a drastic spike in foreclosures like those that characterized the housing crisis of the Great Recession are unlikely, thanks largely to the quick implementation of forbearance programs, stimulus checks and increased equity from the booming housing market.

The federal CARES Act included a foreclosure moratorium and provided mortgage borrowers the option of forbearance, or the ability to temporarily suspend payments, during the pandemic.

This relief officially only applied to federally backed loans offered through agencies such as Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Housing and Urban Development, but many private lenders followed the government’s lead and offered their own programs. 

According to the Government Accountability Office, use of the provision peaked in May 2020, with about 7 percent of all single-family home mortgages, or 3.4 million, taking advantage of the offering. 

FORBEARANCE PROGRAMS WORK

There are roughly 3,900 Mainers still in active forbearance, a decrease from the high of about 11,500 in June 2020, according to Black Knight, a data analytics firm that focuses on real estate

The firm reports that roughly 15 percent of all mortgaged properties have been in a forbearance plan at some point since the start of the pandemic. 

Of those who’ve left forbearance, roughly 48 percent have resumed timely payments on their loans and 21 percent have paid off their mortgage in full. 

Major Maine-chartered lending institutions such as Bangor Savings Bank and Camden National Bank have seen similar trends, with each reporting low numbers of homeowners still needing assistance.

According to Jim Donnelly, chief commercial officer for Bangor Savings, just under 3 percent of the bank’s residential mortgage loan customers have requested forbearance of some sort in the last year and a half, with the majority in March and May of 2020. Since then, he said, requests have decreased dramatically and the bank only has a “handful” of mortgage customers currently in forbearance. Bank officials are actively working with struggling borrowers via repayment plans, deferrals and loan modifications, among other options, he said.

Renee Smyth, executive vice president and chief experience and marketing officer at Camden National, said the only customers currently in forbearance or foreclosure at the bank are in either situation for reasons unrelated to the pandemic.

In April 2020, Camden National rolled out a three-month deferral program for homeowners, later extended to six months, which peaked in June 2020. By October of that year, all borrowers were fully out of the program, Smyth said.

Dave Libby, president and CEO of Town and Country Federal Credit Union, said that when the state first shut down to combat the spread of the virus, he was immediately concerned there would be a slew of members with mortgages finding themselves in a bad spot. But ultimately, only a handful of borrowers took advantage of the forbearance programs.

Instead, he said, the credit union worked with customers in other ways, including portfolio loan programs, deferrals, loan restructuring and a crisis assistance relief loan. All in all, Town and Country provided assistance on about 2,000 loans – across all loan types, not exclusively home loans – during 2020, he said, representing about 5 percent of their loan portfolio. Of those 2,000 only about 10 still need assistance, Libby said.

RISK CREEPING BACK UP

With the moratorium’s expiration, federal housing agencies are still working to help limit mortgage defaults and foreclosures, with extended repayment options and new servicing rules to limit foreclosures through the end of the year. 

Only 0.7 percent of Maine mortgage holders were in foreclosure in June, down slightly from 0.8 percent in June 2020 and 1.3 percent in June 2019, before the pandemic, according to data released last month from CoreLogic, a real estate data firm. 

Early-stage delinquencies, or those who are 30 to 59 days past due on their mortgage payments, were below pre-pandemic levels, with 4 percent in June 2021, compared to 6.5 percent a year before and 5 percent in June 2019, the firm reported.

Serious delinquencies, or those who are 90 or more days past due, including those actively in foreclosure, were at 2.8 percent in June, down from 3.5 percent the same month last year, but up from the 2.1 percent in June 2019. 

According to Black Knight, trends continued the following month.

In July, the most recent month for which data are available, 3.7 percent of Maine mortgages were in some stage of delinquency and 0.7 percent were in foreclosure, but early national data suggest the latter number will start to rise following expiration of the national foreclosure moratorium. 

In August, the first month since the moratorium was lifted, national foreclosure filings (including default notices, scheduled auctions or bank repossessions) climbed 27 percent from the previous month, and 60 percent from August the year before, according to the August foreclosure market report from ATTOM Data Solutions, a property data firm and parent company to RealtyTrac.

It’s important to keep the numbers in context, Sharga, the RealtyTrac executive, said, as both last year’s and August’s foreclosure starts were “artificially low” due to the moratorium. The last year of “normal” foreclosure activity had over three times more foreclosure starts than this year.

Likewise, the national delinquency rate (the steps before foreclosure) continues to fall— August’s rate of 4 percent is the lowest it has been since the start of the pandemic, Black Knight reported. 

Serious delinquencies, including those in active forbearance, fell by 108,000 from the month before and by more than 1 million from this time last year. That said, there are still over 900,000 more serious delinquencies than there were before the pandemic. 

NO LOOMING CRISIS

Despite the uptick in foreclosures in August, financial experts say we’re still a long way from a foreclosure crisis like the one seen following the 2008 recession.

According to Matt Botsch, assistant professor of economics at Bowdoin College, there are three leading explanations for what caused the foreclosure crisis: toxic mortgages, bad banks and a housing bubble that burst.

“I don’t see a convergence of the same three factors at this time,” he said. “Today’s situation looks quite different.”

In the early 2000s, banks were giving out more loans, often with predatory features to “sub-prime” borrowers who couldn’t then afford their mortgage payments.

The increased popularity of mortgages as an investment incentivized banks to offer more nontraditional loans. Loans would be bundled into “tranches” for which investors could purchase shares. Such investments were later criticized for being rated much safer than they actually were based on fundamentals.

“Banks were willing to originate bad loans because they were going to sell (the loans), so they didn’t care,” Botsch said.

But banks are more careful now, he said, and “it doesn’t seem like a lot of these factors are present in this housing market.”

Overall, the New England housing market survived the 2008 housing crisis relatively well, said Libby, the Town & Country CEO.

“This time around, in the first days of COVID there were some concerns from various agencies and economists and financial institutions that it may be a lot worse this time around,” Libby said. But thanks to the proactive measures from the government and from private lenders working with borrowers, “we managed that well and weathered the storm.”

Selma Hepp, deputy chief economist at CoreLogic, agreed that the fast implementation of the foreclosure moratorium and forbearance plans helped avoid another collapse.

“This time around, because of the home price growth that we have, people have equity in their homes,” Hepp said, adding that now many people have the option to sell their home and possibly even make a profit instead of going through foreclosure.

A recent report from Black Knight found that in July, fewer than 3 percent of mortgage holders had less than 10 percent equity in their homes, with the average loan-to-value ratio – a measure of lending risk – at an all-time low of 46 percent.

The firm also reported that about 98 percent of borrowers in active forbearance have at least 10 percent equity, as compared with the Great Recession, when 40 percent of all mortgage holders had less than 10 percent equity with 28 percent fully underwater.

PAYMENT DELINQUENCIES DOWN

Nationally, serious mortgage payment delinquencies are also low compared with those during the Great Recession.

In August 2020, at their peak, 4.3 percent of mortgages were seriously delinquent. Today, the number has fallen to 3 percent – before the pandemic it was about 1.2 percent.

During the most recent housing market collapse, serious delinquencies peaked at 7.4 percent, nearly double what they are today, Hepp said.

Delinquency rates are falling much faster now, too. Over the past eight to nine months, serious delinquencies have dropped from 4.2 percent to 3 percent. It took about a year and a half to achieve the same rate of decline last time, she said.

The market is “pretty much acting the way we expected,” Hepp said, adding that stimulus payments have also likely helped people continue to make their mortgage payments.

“We’ve had a much more favorable environment than we had last time,” she said. 

Botsch and Libby both said that if anything, the high cost of housing in Maine is of more concern to them than a possible increase in foreclosures.

Maine homes have skyrocketed in price since the pandemic began, with more prospective buyers – including a growing number from out of state – than the market can accommodate.

The Maine Association of Realtors reported last month that the number of existing single-family homes sold in Maine dipped slightly in August – a 5 percent decrease, but that prices continued to rise. The median sales price rose to $310,000 in August, up nearly 15 percent from the $270,000 median price in August 2020.

It’s much the same across New England and the rest of the country.

The National Association of Realtors said there was a 2.8 percent decline nationally in home sales in August compared with a year earlier, and prices rose 15.6 percent to a median of $363,800. In New England, there was a 2.7 percent decline in home sales in August, compared with August 2020, and the median sales price rose 16.8 percent to $407,800.

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