<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=515036989147335&amp;ev=PageView&amp;noscript=1">

1 in 5 Homeowners Missing Mortgage Payments in 2020: How Should Agents Respond?

Nov 6, 2020 12:00:00 AM

Real estate agents navigating the COVID-19 landscape have had to adapt their entire marketing model — eliminating or scaling back open houses, substituting video tours for in-person previews, and limiting home visits to buyers who are pre-approved for financing. And agents are enjoying a burst of sales as buyers exit lockdown, and pent-up demand drives the market.

But now there’s a new twist — one in five homeowners has missed at least one mortgage payment in 2020, many are living paycheck-to-paycheck, and the prospect of a new foreclosure crisis looms.

How will you react to these changes? The agent who pays attention and moves quickly can gain a competitive advantage in this landscape.

CARES Act Forbearance

The CARES Act, a coronavirus-related package of stimulus funds and safeguards to protect consumers from economic hardship, made it possible for mortgage borrowers with Fannie Mae, Freddie Mac, and government-backed loans to defer or make partial payments for up to 180 days. You also cannot be foreclosed on until at least December 31, 2020.

The Act also allows homeowners to request a 180-day extension. However, they had to do this before their initial forbearance period expired.

Stimulus Stalled

The CARES Act stimulus supplement to unemployment benefits expired at the end of July, unemployed Americans are running out of money, and foreclosure filings are up.

“Four months into the pandemic, the 120-day delinquency rate for July spiked to 1.4%,” said Dr. Frank Nothaft, chief economist at CoreLogic. “This was the highest rate in more than 21 years and double the December 2009 Great Recession peak. The spike in delinquency was all the more stunning given the generational low of 0.1% in March.”

Homeowners on the Brink

A recent survey of 1,500 Americans by Clever Real Estate backs up Dr. Nothaft's concerns:

  • 1 in 5 homeowners have missed at least one mortgage payment since the pandemic began.
  • Of the homeowners with deferred payments, 46% have missed 3 or more payments since March.
  • Nearly half (46%) of homeowners with a deferred payment still owe at least $2,000, including 18% who owe at least $5,000 in deferred mortgage payments. Just 16% of homeowners have paid back their missed payment(s).
  • 50% of homeowners report they will run out of emergency savings in 2020 (including 14% who never had emergency savings to begin with).
  • 55% of homeowners are currently living paycheck-to-paycheck.

There are a few implications here. First, lenders capitalize payment deferrals, adding these amounts to the balance owed. That reduces home equity and could push troubled families into short selling.

Second, although prices in many markets are up, a rash of foreclosures could turn that tide rapidly. Foreclosures in neighborhoods tend to depress the prices of nearby properties.

Third, foreclosed homeowners become renters, putting upward pressure on rental markets and making investment property more attractive.

What Should Real Estate Agents Do?

Keep in mind that this doom and gloom could be reversed quickly once we have widespread access to COVID-19 cures, vaccines, and rapid testing. But a smart agent prepares for the worst while hoping for the best.

Some actions you might consider taking include:

  • Positioning yourself as a distressed property specialist
  • Pursuing property management
  • Marketing pre-foreclosure homes

Branching beyond traditional residential real estate sales and not solely relying on your commission may be smarter than doubling down on a potentially decreasing pool of buyers.

Specializing in Distressed Sales

Consider becoming NAR-certified in Short Sale and Foreclosure Resources (SFR). Helping sellers with their short sales and assisting buyers with short sale and foreclosure opportunities will be critical, says the NAR. "And while short sales and foreclosures are not for the faint of heart," says the organization, "agents with the proper tools and training can use these specialty areas to build their business for the long term."

This one-day course shows you how to:

  • Direct distressed sellers to finance, tax, and legal professionals
  • Qualify sellers for short sales
  • Develop a short sale package
  • Negotiate with lenders
  • Tap into buyer demand
  • Safeguard your commission
  • Limit risk
  • Protect buyers

The course helps establish your expertise and gives you a competitive edge. You can take it online, so COVID needn't deter you.

Property Management

Agents who work in property management can realize steady income in tough times. In normal times, about one-third of Americans rent. And this is likely to increase as people lose homes to foreclosure or move to find work. If your business takes a hit from COVID-related foreclosures and falling home values, a lateral move into property management can keep you afloat. There are several compelling advantages to adding property management to your arsenal of skills, according to RentPost.

Managing rental property can be a great source of side income. Real estate agents managing rental property can earn 7% to 15% of the rent. And it's not hard to make contacts for property management when you have existing client bases and contacts. It shouldn't take an expensive marketing effort to drum up business.

You can manage rentals and still close deals. You'll be finding tenants, fixing leaks, managing payments, and carrying out repairs, but the amount of time spent on each home is still fairly limited. So you can still focus on closing deals.

Property management can help you expand your contact network. Every rental client is potentially a buyer. Managing an apartment or two can get you a ton of contacts and a potentially huge pool of future buyers.

Help Clients Avoid Foreclosure

You can help troubled clients avoid foreclosure and get yourself a nice sale. A pre-foreclosure sale is similar to a regular home sale except that your timeline is shorter. You'll also have less leeway for price reductions if the seller has little or no equity with which to work.

Before listing their home, encourage delinquent clients to talk to their mortgage lender. Explain that lenders may be willing to modify the loan, postpone the foreclosure process, help the client set up a temporary monthly payment plan while they wait for their home to sell, or agree to a short sale.

The idea is to buy time for you and your seller. You'll want to aggressively market the property to investors and others. Potential buyers are often drawn to pre-foreclosure homes because they see them as bargains.

Encourage your clients to maintain regular communication with their lenders. If you have your client's okay, contact the lender, and emphasize the win-win aspects of everyone working together. Keep the lender apprised of progress in the sales process because this can help speed the sale and obtain concessions for buyers and sellers.

Eyes on the Road

It's easy to be exuberant about the current demand for homes and soaring home prices. However, a protracted COVID recession could trigger a foreclosure crisis and upend real estate in 2021.

Those who focus on what's coming and prepare now will be positioned to expand their business and earn more money. Agents who ignore the signs and make no preparations may find their business down considerably next year.

Luke BabichLuke Babich is the Co-Founder and COO at Clever Real Estate, the nation's leading real estate education platform for home buyers, sellers, and investors. 

New call-to-action

Categories

REAL Trends content, subscribe now!
New call-to-action

You May Also Like

These Stories on Markets/Economy

Subscribe by Email

No Comments Yet

Let us know what you think