Why a Foreclosures Wave Isn’t on the Horizon

Even though data shows inflation is cooling, a lot of people are still feeling the pinch on their wallets. High costs on everything, from gas to groceries, are causing concerns about people struggling with mortgage payments. But, does that mean there’s a big wave of foreclosures coming?

Here’s a look at why the data and the experts say that’s not going to happen.

There Aren’t Many Homeowners Who Are Seriously Behind on Their Mortgages

One main reason for many foreclosures during the last housing crash was relaxed lending standards. This made it easy for people to get mortgages, even without proving they could repay them. Lenders weren’t strict about applicant credit scores, income levels, employment status, or debt-to-income ratios.

But since then, lending standards have gotten a whole lot tighter. Lenders became much more diligent when assessing applicants for home loans. And that means we’re seeing more qualified buyers who have less of a risk of defaulting on their loans.

Freddie Mac and Fannie Mae data shows mortgage delinquencies have been declining for quite some time. Take a look at the graph below:  

Borrowers are more qualified and finding ways to navigate challenges, including using equity to avoid foreclosure.

The Answer Is: There’s No Sign of a Wave Coming

A significant rise in foreclosures requires many more missed mortgage payments, but current trends make this unlikely.

Bill McBride of Calculated Risk, a housing market expert, foresaw the 2008 foreclosure crisis after analyzing the data. McBride says:

“We will NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble) for two key reasons: 1) mortgage lending has been solid, and 2) most homeowners have substantial equity in their homes.”

Bottom Line

If you’re worried about a potential foreclosure crisis, know there’s nothing in the data to suggest that’ll happen. Buyers are more qualified now, and that’s one reason why they’re not falling seriously behind on their mortgage payments.