BEFORE the coronavirus pandemic, there was the housing crisis. And before the housing crisis, there was the subprime mania when banks and other lending institutions were irresponsibly loaning money to people to buy houses, sometimes not even checking if they had the income to pay the money back.
According to the Mortgage Bankers Association, more than half of all foreclosures during that time involved “non-traditional” loans, either subprime loans given to individuals who could not qualify for a traditional mortgage, or government-backed adjustable-rate mortgages (ARMs), which offered low “teaser” below-market rate monthly payments for a few years, which then went much higher after the initial period was over.
The current housing crisis is not the result of irresponsible lenders, but one of the economic fallouts of the government-ordered coronavirus pandemic lockdowns.
A bill (SB 1327) patroned by Sen. Jennifer McClellan, D-Richmond, would give homeowners more time to avoid foreclosure. Under current law, a bank or mortgage company has to give just 14 days notice before it auctions off a foreclosed home. McClellan’s bill would increase that to 60 days, during which time the lenders would be required to provide counseling on available help.
“There was an affordable housing crisis before COVID and COVID has only made it worse,” McClellan said. “There’s a fierce urgency now, because of both [the] health and economic crises that many homeowners find themselves in.”
And two weeks is just not enough time, which is why state senators voted unanimously to pass McClellan’s bill. A companion bill (HB 2175) patroned by Del. Luke Torian, D-Dumfries, also passed the House Feb. 5 on a 60-40 vote.
Homeowners who lost their jobs or income during the COVID-19 lockdowns and are unable to make their mortgage payments have been temporarily shielded from losing their homes by a federal moratorium on evictions and foreclosures. That moratorium has been extended until the end of March, but after that homeowners are still responsible for bringing their home loans up to date.
Hopefully, those in arrears have already taken advantage of the moratorium to seek help from organizations such as Virginia Legal Aid or the Virginia Department of Housing and Community Development, which is using federal CARES Act money to help homeowners in arrears navigate the legal and financial issues they face and possibly renegotiate the terms of their mortgages.
Even though an estimated one in 10 Americans nationwide is behind on their mortgage payments, foreclosures in January were 83 percent below the number in January 2020. Real estate experts say that they don’t foresee another housing bubble after the foreclosure moratorium is lifted because this time, most homeowners facing foreclosure have enough equity in their homes to enable them to sell and pay off their mortgages in full.
According to the U.S. Census Bureau, the current homeowner vacancy rate (0.9 percent) is the lowest it’s been since 1956, with more buyers in the market than the supply of available homes. In such a market, soon-to-be-foreclosed homeowners should be able to sell their property and at least keep some of their equity.
Giving them two months instead of two weeks will not only help them get back on their feet, but it will also benefit everyone who owns property in their communities.