MARKET & TRENDS
FORECLOSURES
Sizing and Timing the Pandemic Backlog of Foreclosures
SIZING THE BACKLOG AND WHEN IT WILL HIT THE HOUSING MARKET IS IMPORTANT BECAUSE THOSE DISTRESSED SALES REPRESENT BOTH OPPORTUNITY AND POTENTIAL RISK FOR REAL ESTATE INVESTORS.
by Daren Blomquist
oreclosure prevention efforts during the COVID-19 pandemic
mortgages no longer protected from foreclosure by emergency programs designed to prevent a foreclosure tsunami; namely, a nationwide foreclosure moratorium on government-backed mortgages, a sweeping mortgage forbearance program with an extremely low and documentation-free barrier to entry, and an extensive loss mitigation waterfall with myriad loan modifica - tion and other options to help ease the mortgage payment burden for borrowers who exit forbearance.
Even while the overall number of seriously delinquent mortgages has been consistently falling after peaking in 2020, the number of these unprotected delinquencies has been steadily rising since the foreclosure moratorium ended in July 2021. Unprotected delinquencies increased to 420,000 as of July 2022, according to the Black Knight Mortgage Monitor report. That was up by 46,000 (12%) from the previous month and up by 198,000 (89%) from a year earlier.
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helped prevent a tsunami of dis- tressed sales during the thick of the crisis, but it also created a backlog of distress that is beginning to clear as the world slowly returns to normal. Sizing that backlog and when it will hit the housing market in the form of distressed sales is important for real estate investors because those distressed sales represent both opportunity (value- add acquisitions) and potential risk (discounted comparable sales that negatively impact surrounding home values). “We make more money in a down market than we do in a market like this,” said Paul Lizell, a Florida-based real estate investor whose primary property acquisition channel histor- ically has been bank-owned (REO) auctions. “Inventory didn’t really drop substantially on the REO side until COVID. … During the pandemic, we were using wholesalers, but now it’s going back to mostly auctions.” HIGH-RISK DISTRESS A key metric in determining the size of the pandemic-triggered distressed backlog is the number of delinquent
28 | think realty magazine :: november – december 2022
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