About 1 in 10 mortgage borrowers who are in forbearance has less than 10% equity in their property or is underwater, indicating defaults will remain limited, according to Black Knight.
About 9% of borrowers with suspended payments are “equity poor,” meaning their mortgage balance is greater than 90% of their property’s value, and 1% of borrowers is underwater, meaning their loan exceeds their home’s worth, said Black Knight President Ben Graboske.
Almost 80% of homeowners in forbearance have 20% or more equity, which indicates they likely won’t end up in foreclosure, he said.
People who have more “skin in the game” are less likely to let their mortgages go into foreclosure. During the financial crisis, people who had little to no equity often gave up and let lenders seize their homes. Some moved and mailed the keys to their lenders.
“Equity positions among homeowners in forbearance are by and large strong,” Graboske said. “Just 9% have 10% or less equity – typically enough to cover the cost of a sale of a property – with another 1% underwater on their mortgages.”
The number of “equity poor” borrowers in forbearance is highest among people with loans backed by the Federal Housing Administration and the Veterans Administration, according to the Black Knight data.
“We see the share of low- and negative-equity borrowers in forbearance is much higher among FHA/VA loans,” Graboske said. “This segment – which has the highest forbearance rates overall – sees 19% of homeowners holding 10% or less equity in their homes.”
The surge of foreclosures that occurred after the 2008 financial crisis resulted in about 10 million American families losing their homes.
It created a black mark that impacted the ability of consumers to get credit for years after the default, and it caused trauma for both the adults and the children forced to leave their homes.