Mortgage Market Analysis: Indications of Economic Slump

The world economy may seem to be in turmoil at first glance lately. The effects of the Coronavirus pandemic have extended far beyond stretched hospitals. Unemployment explosion and uncertain trade relations have produced massive uncertainty across the entire economy. Now we are starting to see some of the consequences ripple over into the real estate market. There are trouble signs bubbling up in the mortgage market in particular.

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The long term side effects on Homeowners</h2>

The mass increase in unemployment has left many people with no way to pay their bills and few signs of any relief coming soon. This will be a lagging indicator compared to unemployment as some people have savings or other minor revenue streams.

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Other solutions to Loan Forbearance</h2>

Right now many home owners have been able to find relief through loan forbearance. Part of the government’s stimulus programs has extended loan forbearance for certain homeowners. The people who qualify have been able to get by penalty-free without paying their mortgages by having them placed in forbearance. This relieves the homeowners but does put stress on the finance industry as the loan payment revenue stream dries up.

<h2>Potential Surge in Late Payments</h2>

The relief programs are ideal for homeowners that are under pressure right now. This will be short-term though. There are no set guidelines for what will happen after the forbearance period is over and many banks are calling for lump-sum payments. If this happens and if a homeowner has their loan in forbearance for three months once they end the forbearance period they will owe three months’ worth of mortgage payments all at once.

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Effect of credit ratings because to Defaults</h2>

Currently, the principal fear is that once the loans come out of forbearance what happens if the homeowners cannot afford the lump sum payments. Many will be unemployed still. There is a likelihood that there will be a wave of foreclosures and delinquencies. This would not only force the largest wave of Americans out onto the streets in history but it could have devastating effects on the real estate market as a whole.

More information can be found at <a href=”https://www.bnnbloomberg.ca/gloomy-canadians-worried-about-recession-in-2020-survey-shows-1.1360292″>BNN Bloomberg</a>.

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