A federal foreclosure moratorium, which covered about 70 percent of the nation’s home loans, expired July 31. Housing experts anticipate foreclosures will ramp up in the coming months.

“The end of the government’s moratorium won’t result in millions of foreclosures,” Rick Sharga, executive vice president of RealtyTrac, a subsidiary of ATTOM, said in a statement, “but we’re likely to see a steady increase in default activity for the balance of the year.”

Nationwide, foreclosures were up 40 percent in July compared with July 2020 but down 4 percent from one month earlier.

“The situation will probably fall somewhere in between mild and severe, at least in part because lenders may not want to be seen as grim reapers kicking vulnerable families out of their homes,” Todd Teta, ATTOM’s chief product and technology officer, said in a statement. “We will certainly find out over the coming year.”

According to projections by Zillow economists, over the next six months, several hundred thousand households will exit forbearance — paused mortgage payments — without a plan for returning their mortgage to good standing with their lenders, which puts them at risk of foreclosure. The biggest wave of forbearance exits is expected in September and October.

What is forbearance?

Homeowners struggling financially during the pandemic have been able to pause their mortgage payments for months at a time to find jobs or handle expenses.

The majority of homeowners exit forbearance after six months, said Jeffrey Ruben, president of WSFS Mortgage. But most borrowers have the option to extend if their circumstances have not improved.

As of Aug. 15, 1.6 million homeowners nationwide were in forbearance, according to the Mortgage Bankers Association. That’s 3.25 percent of mortgage servicers’ portfolios. More than four in five of those borrowers are in extended forbearance plans.

Mortgage forbearance peaked in May 2020, when more than 4 million mortgages were in forbearance, according to Freddie Mac.

While in forbearance, homeowners cannot refinance their loans to take advantage of historically low interest rates and lower their monthly payments.

Borrowers have to make up skipped mortgage payments. Typically, that means either a lender extends the mortgage, including the skipped payments, over a longer period of time, or a lender tacks on the missed payments at the end of the mortgage so borrowers pay the lump sum when the mortgage matures.

How does it work if you ask to skip mortgage payments?

Throughout the pandemic, forbearance “was helpful to a tremendous amount of people who needed that relief,” Ruben said.

What’s next for struggling homeowners?

The federal government did not renew its foreclosure moratorium, which expired in July. That ban applied to federally backed mortgages, such as those insured by the Federal Housing Administration and those guaranteed by Fannie Mae and Freddie Mac.

But the federal Consumer Financial Protection Bureau has said mortgage companies must first evaluate homeowners to determine if they are eligible for assistance programs and offer options to borrowers before they file new foreclosure claims on most mortgages. This rule applies starting Aug. 31 for the rest of the year.

Mortgage payments on pause? Here’s what you need to know when it’s time to resume paying.

The number of residential foreclosures in Philadelphia has stayed around 20 to 30 per month, said Michael Froehlich, managing attorney of the home ownership and consumer rights unit at Community Legal Services.

“The real spike, we anticipate, is going to come next month,” he said.

Because of the strong housing market and home appreciation, homeowners as a whole are in stronger positions than they were during the Great Recession, when many people owed more than their homes were worth. Growing equity puts homeowners in a better position to work with their lenders.

“It will be a much softer landing than what we experienced in the past,” Ruben said.

What are homeowners’ options?

Homeowners can still apply for forbearance.

During the pandemic, some people have been draining their savings or pulling from their retirement funds to pay for their homes, so they’re just now having trouble paying their mortgages, Froehlich said.

Most homeowners who are exiting forbearance and still struggling have a few options. They can try to enter a loan modification program with their lender. They can ask for a loan deferral to push back required payments. They can sell their homes to resolve their debts.

Homeowners need to ask themselves whether they’ll have consistent income that will allow them to afford to pay their mortgage, said Chelsea Barrish, vice president of program impact at Clarifi, a Philadelphia-based financial counseling nonprofit. If not, homeowners should exhaust all of their forbearance and loan modification options. Housing counselors can help borrowers understand available programs and talk through options with their lenders. If the home is not affordable in the long term, they have to consider the best strategy to exit their loan, which includes selling their home.

“And if you do sell, can you find someplace appropriate and affordable for your family to live?” Barrish said. “I think people are asking themselves those tough questions.”

According to a Mortgage Bankers Association survey, one in six borrowers are leaving forbearance without a plan, which puts them at immediate risk of foreclosure. Others said they planned to sell to avoid foreclosure. So a Zillow analysis estimates that 20 percent to 25 percent of borrowers could list their homes for sale, which could increase the available national housing supply with more than 200,000 homes.

Forbearance exits will “potentially ease some of the inventory crunch we’ve seen in housing markets over the last several years,” said Chris Glynn, senior managing economist at Zillow.

“But,” said Froehlich at Community Legal Services, “what we know is that the most affordable homes for so many of our low-income clients are the homes in which they are in.”

Ruben said a lot of WSFS Mortgage’s borrowers who are exiting forbearance are now refinancing their loans to decrease their monthly mortgage payments.

Experts advise homeowners to reach out to their lenders or respond when lenders contact them, so borrowers can work out a path forward if they still need help after exiting forbearance or they need a payment plan.

“It’s to (lenders’) financial best interest to work with borrowers,” Ruben said.

Story by Michaelle Bond, The Philadelphia Inquirer.