Economic Downturn Coming – Mortgage Market Thinks So

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

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Impacts on Homeowners could anticipate</h2>

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

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Other solutions to Loan Forbearance</h2>

Right now many home owners have been able to find help through loan forbearance. Part of the government’s stimulus programs has extended loan forbearance for some 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.

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Penalties due to Late Payments</h2>

The relief programs are very good 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 shows up 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 due 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 possibility that there would 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 destructive 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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