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Since the beginning of 2020, banks across the United States have been prohibited from foreclosure of homes as part of the federal government’s efforts to help families suffering financially from the pandemic. On Saturday, the ban will end, potentially putting thousands of families at risk.

Much like the federal moratorium on evictions of rental units, it has been extended several times. The scale of potential problems is much smaller than the Great Recession, but it is still worrying.

According to the Mortgage Bankers Association, an estimated 1.75 million homeowners (about 3.5% of all homes) have some kind of tolerance plan with the bank. In contrast, after the real estate bubble burst in 2008, about 10 million homeowners lost their homes due to foreclosures.

Will these 1.75 million homeowners immediately lose their homes?

Industry officials said, not necessarily. For various reasons, banks currently have little incentive to put delinquent homeowners in foreclosure. Over the years, house prices have been rising steadily, and many parts of the country are now facing record high prices for existing homes. This means that there may not be many homeowners in the mortgage, and their mortgage is more than the total value of the house. This means that banks and mortgage service providers are more likely to have incentives to restructure loans or attach those missed payments to the back end of the mortgage.

It also takes time to start the foreclosure process, at least 120 days under federal law, plus the time for court proceedings.

In some cases, forced sales may be more than foreclosures. In this way, the bank can recover the funds, and the default homeowners will get the net worth they earned in the house, and will not leave a negative mark on their credit report.

When can we start foreclosure?

Mortgage industry analyst Black Knight predicts that some foreclosure procedures will begin in September, when the pandemic tolerance plan will end. Although approximately 1.75 million homeowners are still patient, this number is expected to continue to decline. However, the company expects that approximately 1 million homeowners are still in serious default on their loans, 90 days or more in arrears.

In terms of relief, what can homeowners expect?

Last week, the White House announced a series of measures aimed at preventing foreclosures. The new measures of several federal agencies, including the Department of Housing and Urban Development, aim to provide homeowners with approximately 25% reductions in the monthly principal and interest payments of borrowers. At the same time, federal agencies will continue to require mortgage service providers to provide borrowers who can resume payments the option to transfer missed payments to the end of the mortgage without additional fees. Those whose income is lower than before the pandemic will receive assistance to help them find work and pay taxes and insurance.

Members of Congress are also pushing banks and mortgage service companies to provide some kind of private relief. Rep. Maxine Waters D-California and the chairman of the House Financial Services Committee publicly asked the CEOs of major Wall Street banks earlier this summer whether they all plan to allow borrowers to be tolerant when needed at the end of the moratorium. All the chief executives of the big six banks said they plan to do so.

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