The mortgage assistance options and protections offered as part of the CARES Act provide great relief to borrowers struggling during the pandemic. We believe the vast majority of borrowers are determined to stay in their homes given their sizable home equity amounts and limited rental options at affordable price points.
Our view is supported by the performance of borrowers who requested forbearance. Based on the data published by Fannie Mae, over 40% of those who became delinquent as a result of the economic slowdown caused by the pandemic have been able to self-cure, while another 10% paid off their loans in full. Despite the high levels of cure, many borrowers remain delinquent and will require additional support, which will most likely come in the form of payment deferral option or loan modification.
Are Higher Delinquencies going to Lead to Home Price Depreciation?
According to Mortgage Bankers Association, as a result of the pandemic, total delinquencies in outstanding U.S. mortgages increased to 8.9% in Q2 2020 compared to 4.55% at the end of Q4 2019. So is the wave of foreclosures imminent? We don't think so. U.S. housing has been dealing with inventory shortages for years. Currently, the level of inventory available for sale dropped to 2.7 months nationally and is less than 2 months in some CBSAs, putting upward pressure on prices. Even if some delinquent properties end up on the market, it is still not enough to move the needle, at least at the national level. We may see pockets of the country where home prices stagnate, but nationwide housing crisis similar to what we witnessed during the Great Financial Recession is highly unlikely.