Cover your ears if you don’t want to hear this, but some experts in the real estate and financial sectors are starting to drop the F-bomb: foreclosures.
It’s not a word that has been expressed much in recent years, what with a booming economy. But, for a number of reasons, many experts are expecting an uptick in the coming months, perhaps a big uptick.
On the residential side, foreclosures have been held back by the U.S. Department of Housing and Urban Development’s moratorium on foreclosures of Federal Housing Administration-insured loans, along with those backed by Fannie Mae and Freddie Mac. The FHA recently announced that it would extend the ban — which was scheduled to have ended Aug. 31 — until Dec. 31. Initially, the extension was just for FHA loans, but Fannie Mae and Freddie Mac announced their own extensions, Aug. 27.
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The moratorium is intended to alleviate pressure on homeowners during the COVID-19 pandemic. Additionally, federal stimulus programs, such as the recently ended $600 a week additional unemployment benefit, enabled many homeowners to remain current on their loans.
But that extra unemployment benefit has ended, and Congress and the Trump Administration have yet to agree on a new plan, although the administration has unilaterally announced a lesser benefit.
But all of this could simply be delaying the inevitable. A recent examination of Notice of Election and Demand filings — the first step in foreclosure — for Boulder, Broomfield, Larimer and Weld counties, found some interesting data.
Through August 2019, the four counties had seen 219 such filings. Through Aug. 25 — an abbreviated time frame due to BizWest’s press date — the number totaled just 100. That means that even foreclosures that we would see in a normal economy are being prevented — or, rather, postponed. It’s likely that we’re just delaying the inevitable on homes that would have gone into foreclosure even when times were good.
So 2021 could be brutal in terms of residential foreclosures.
What about commercial real estate? Thus far, the numbers look pretty good. Commercial foreclosures for Boulder, Broomfield and Larimer counties are pretty much identical through Aug. 25 with what was seen a year ago. Weld County has seen a slight increase.
But can anyone look at the effect of the COVID-19 pandemic on office and retail space and not expect that landlords might be heading for some cash-flow woes? The Payroll Protection Program helped businesses weather the economic storm for a while, but businesses are struggling.
Office users have shifted workforces to work at home, and some have reduced their square footage. Retail stores and restaurants have shut down. Landlords in many cases have worked with tenants, allowing them to reduce their leased space, reducing their rent, or shifting rent obligations to the end of a lease.
Some landlords, in turn, have negotiated workout agreements or restructuring of loans with lenders.
But no one expects those arrangements to last forever. Landlords do not have as much rental income coming in, and some will have difficulty making mortgage payments. Lenders’ patience will last only for so long.
Bankers already are working to build up their loan-loss reserves in anticipation of problems down the road.
Commercial foreclosures remain few in number, but we are beginning to see them crop up, from a hotel in Johnstown to a business park in Broomfield to an under-construction apartment complex in Old Town Fort Collins.
So the next time you hear someone drop the “F-bomb,” cover your ears, and go “la-la-la-la” until they stop.
Christopher Wood can be reached at 303-630-1942, 970-232-3133 or email@example.com.