Economic Downturn Coming – Mortgage Market Thinks So

Economic Downturn Coming – Mortgage Market Thinks So

The world economy may seem to be in turmoil at first glance lately. The effects of the Coronavirus pandemic have expanded far beyond stretched hospitals. Unemployment surge and uncertain trade relations have created massive doubt across the entire economy. Now we are beginning to see some of the effects ripple over into the real estate market. There are problem signs bubbling up in the mortgage market in particular.

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Expectations of 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 options to Loan Forbearance</h2>

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

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Results of Late Payments on credit ratings</h2>

The relief programs are very good for homeowners that are under pressure right now. This will be short-lived 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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Penalty charges do to mortgage Defaults</h2>

Currently, the primary 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 possibility that there would probably 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 dreadful 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>.

Sara

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