The Housing Scene by Lew Sichelman

Odd Lots: Help, War, Move, Winner

The number of homeowners seeking mortgage forbearance fell for at least eight straight weeks this summer. But that decline masks a couple of other important trends.

One is a big uptick in the number of borrowers asking for an extension of plans that allowed them to defer their regular payments. The other is the number of folks who left their plans and are now seeking to move back into forbearance mode.

Further increases in these two key metrics would indicate that more owners are at financial risk of losing their homes than seem otherwise indicated.

One person who is following these trends is Julian Hebron, the founder of The Basis Point, a sales and marketing consulting firm. Hebron pointed to Mortgage Bankers Association statistics showing that from May 31 to July 19, relief extensions jumped from 3.97% to a staggering 50.23%.

The MBA also has reported a new data point: 0.41% of borrowers who ended their original forbearance plan are asking for another one.

Meanwhile, the Black Knight advisory firm reports that more that two-thirds of loans still in active forbearance have had their plans extended, mostly for three additional months, creating an “echo wave” of forbearance expirations.

These figures may or may not signal another mortgage Armageddon down the road, but they need to be observed carefully.

“It’s critical to watch forbearance reentry from this point forward,” says Hebron.

He suggests one reason for these numbers is borrowers’ inability to refinance their mortgages at the current record low rates. To refi, he notes, most lenders require applicants to either be caught up on their payments or be on time with at least three payments after exiting forbearance.

Meanwhile, the Urban Institute reports that 735,000 borrowers have gone delinquent despite the forbearance options available to them. The two most common reasons: fear of having to make a lump-sum payment at the end of the forbearance period (which is not always the case) and not realizing lenders are willing to give them a breather on their payments.

At the opposite end of the spectrum, the group also reports that more than 1 million folks are making their full payments on time even though they are in an active forbearance plan.

In another sign that bidding wars are taking hold in inventory-starved housing markets, Redfin reports that 20% of the successful offers submitted in June by the chain’s agents waived the inspection contingency. That’s up from 13% in June 2019.

Winning bids waived the appraisal contingency at a 21% rate -- an all-time high, up from 17% a year earlier, the brokerage firm said.

Redfin agents report that incidences of buyers battling one another for the same property have been on the rise in recent months. Trying to take advantage of record low loan rates but facing a shortage of houses for sale, more than half of all buyers faced competition in June.

How strong is the competition? That depends on the market. But Lindsay Katz, a Redfin agent in Los Angeles, recently booked 42 showings for a house she put into the local multiple listing service only 24 hours earlier. And she sold a house to someone who had to beat out 11 other bidders to win the day.

Incidentally, that house sold for $770,000 -- $85,000 over its asking price. “We could’ve gotten another $30,000 for the house, but we opted to take the safe bet over the highest offer because there was so much uncertainty due to the pandemic,” Katz says.

How safe? The buyer passed on the appraisal and inspection contingencies and agreed to obtain financing in 10 days. The standard in California is 21 days.

There’s no question that selling your home is a stressful experience, especially if you’re buying another one at the same time. But it’s also expensive. And we’re not talking just about the commission you have to pay your agent and the money it takes to move.

Sellers also spend thousands fixing up their places before they list them.

According to a recent study by LendingTree, sellers expect to spend more than $10,000 on average for repairs and upgrades to make their places stand out. Millennial sellers anticipate spending $13,727 on average, the highest amount of all age groups.

After removing decorations and decluttering, the top three repairs and upgrades seller have made are painting interiors, 48%; upgrading bathrooms, 45%, and replacing older appliances, 45%. A good number also improved their landscaping, threw on a fresh coat of exterior paint or changed out flooring.

Should you pull the trigger to take advantage of rates below 3%, or should you wait for them to fall lower? Matthew Graham, chief operating officer at Mortgage News Daily and a regular contributor to the industry newsletter, says his tea leaves indicate to “go for it now.”

Of course, no one can say with any certainty that rates will continue to fall. But there are some who believe they can still slip by 75 basis points or so. (A basis point is 1% of 1 percentage point.)

If you refi now and rates subsequently fall, says Graham, you can always refinance again. But if rates go the other way, you’ll be ahead of the game.

“It’s as close to a win-win as we typically see in a game that can only truly be won with clairvoyance,” he says.