The Housing Crisis of 2008 vs. The Pandemic Foreclosure Crisis

3d illustration foreclosure crisis3d illustration foreclosure crisis

The COVID-19 pandemic seems a bit too familiar for Floridians. At a time when people are losing their jobs, either permanently or temporarily, more and more people are finding that it is becoming nearly impossible to pay their mortgages every month. Experts in the field say that in Florida specifically, they are expecting a 200 percent increase in the amount of foreclosures they saw prior to when the pandemic hit.

It is understandable why Florida residents are worried. Just as residents in the state seemed to be getting back on their feet, the pandemic dashed their hopes. However, for those worried that it is going to be a repeat of what happened over one decade ago, there is still hope. Even though foreclosures in the state will rise, this crisis is going to differ vastly from the last one.

A Look at the Numbers

When facing yet another crisis, it is easy to imagine the very worst scenario. However, a look at the numbers can bring encouragement to homeowners in Florida, and throughout the country. A study conducted by Attom Data Solutions predicts that at least 200,000 Americans will default on their mortgage in the next year. If the economic downturn hits the worst-case scenario, that number could reach as many as 500,000 homeowners. Over the next two years, the company is forecasting an increase of 70 percent in foreclosures.

Those numbers do not sound good, but when compared with the years following the Great Recession, they are not so bad. In the first six months of 2010, 1.65 million American homes fell into foreclosure. Compare that with the first six months of 2020, which included three months of the pandemic, when 165,000 homeowners were hit with foreclosure actions. Even if the number of homeowners defaulting on their mortgage skyrockets, the numbers are still likely to remain far under what was seen in the Great Recession.

So, with millions of people suffering from this economic downturn, and unemployment at an all-time high, why is there hope that the crisis due to the pandemic will be so much better than it was during the Great Recession?

A Lack of ‘Liar Loans’

In the years leading up to the housing crisis, lenders were practically giving homes away. Their main focus was to keep a continuous stream of profit coming into their institutions and the more people they loaned mortgages to, the more profit they received, even if some of those homeowners defaulted on their mortgages. As such, they did not go to great lengths to ensure that borrowers could pay back their loans and that has resulted in a number of what have been dubbed ‘liar loans.’ When the housing market crashed, people had very little incentive to pay their mortgage and keep their homes.

Many of the laws regarding borrowing and mortgages have changed today, and lenders are much more careful about who they approve for a loan. Homeowners cannot get into the type of trouble they once did simply because lenders are more careful about who they loan to. That in itself will help ensure the current crisis is not as dark as the housing crisis of 2008.

Government Response

During the Great Recession, experts say that the government response was slow. Most homeowners relied on unemployment insurance, which was very little when compared with the mortgages they had to pay, along with their other expenses. The government did create programs to help homeowners, such as HARP and HAMP, but they were not fully operational until two years after the recession was in full swing. At that time, the government also imposed strict regulations on mortgage lending, which may not have provided immediate help at the time, but will play a great role in the current crisis homeowners are facing.

In addition to that, all levels of government today have stepped in to help homeowners during this difficult time. People that lost their job were given an additional $600 a week on top of the benefits they were receiving from unemployment. Federally-backed mortgages were given generous forbearance times, and private lenders soon followed that lead, helping homeowners regardless of what type of mortgage they had taken out. Governors across the country, including right here in Florida, placed a moratorium on foreclosures and evictions so people were not kicked out of their homes at the same time they were being told that was exactly where they should remain.

Different Banking Practices

Banks have changed the way they do business since 2008, and that extends far past allowing people to take out mortgages without first ensuring borrowers could repay the loan. Today, banks seem much more willing to work with borrowers to modify loans and provide other alternatives that will help homeowners avoid foreclosure. No one wants a repeat of the housing crisis of 2008, and that includes the banks that provide the loans.

Higher Home Values

One of the biggest problems that led to the housing crisis of 2008 was that so many homes were underwater, meaning that homeowners owed more on their mortgage than what their home was worth. It has been over 10 years since that crisis, though, and during that time, home prices have been increasing, and holding steady. Bidding wars have even erupted around the country, even amid the pandemic. This is not only good news for the market, but also for homeowners that get into trouble with their mortgage. Instead of having the bank foreclose, they can sell the home and walk away without any debt, and perhaps even a little bit of profit.

Are You About to Lose Your Home? Our Florida Foreclosure Defense Lawyers Can Help

While it is true that homeowners have many reasons to be encouraged during this particular crisis, the sad fact is that some people are still going to fear losing their homes. If you are facing foreclosure, our Fort Lauderdale foreclosure defense attorneys at Loan Lawyers are here to help. We know the defenses to foreclosure, and how to negotiate with the banks to help you keep your home. Call us today at (954) 807-1361 or contact us online to schedule a free consultation with one of our skilled attorneys.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations.  Contact us for a free consultation to see how we may be able to help you.