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A moratorium on foreclosures due to the pandemic

A moratorium on foreclosures due to the pandemic may be hiding how many homeowners are in trouble —  and how deeply. Credit: iStock

On the surface, Long Island’s housing market remains stunningly strong. It’s a seller's market by any definition, with multiple offers on most houses and prices jumping at a 20% clip compared with a year ago.

Underneath all that activity? Very shaky ground.

A hot market never lasts forever. Sometimes it eases slowly, sometimes it collapses. Often, there are signs of trouble months and months in advance.

But this time, it’s what we don’t know that’s worrisome.

State lawmakers plan to meet Wednesday to attempt to extend the COVID-related eviction moratorium, with much of their attention focused on tenants and landlords. But the moratorium applies also to homeowners in danger of foreclosure. For months, it has staved off the bank threats, the court paperwork, the sheriff’s knock on the door.

The lack of court filings and foreclosure records leaves the data incomplete and inaccurate. So no one really knows enough about who’s behind on their mortgage payments and how bad the problem will be.

Fifteen years ago, as 2006 came to a close, Long Island saw the first hints of a worrisome trend. The number of new legal documents indicating the start of the foreclosure process, called lis pendens, had begun to rise significantly. And the average mortgage default amount, as reported in those documents, had increased significantly, too.

In a Newsday analysis of the data at the time, Pearl Kamer, the late, great chief economist of the Long Island Association, called the situation "the tip of a spreading iceberg."

She was right. A year later, the market was mired in a severe decline that eventually led to Wall Street’s meltdown. Foreclosures rose for years. Thousands of Long Islanders lost their homes.

No one is expecting a collapse of the same magnitude this time. But a possibly dangerous mix of a housing market downturn and the return of foreclosures, especially in neighborhoods already on the edge, could await. That in turn could punch the Island’s economy down just as it’s trying to get back up.

But without those first data signs, not even the experts know exactly what’s coming. The foreclosure moratorium, while necessary, likely is masking how many homeowners are in trouble — and how deeply. The moratorium’s end, whenever it comes, likely will expose pockets of homeowners across the Island behind on their payments, potentially the same pockets hit hardest by COVID-19. Gwen O’Shea, who heads the Community Development Corp. of Long Island, says she has seen an uptick in calls from frightened homeowners in need of help. That’s likely to increase exponentially once the moratorium lifts.

A state-run, federally funded homeowner assistance program beginning next month should help. But that’s not a simple fix. What became clear nearly 15 years ago is that a check alone won’t do the trick if loans aren’t modified to meet homeowner needs.

What the data showed last time is once lis pendens start to rise, that’s often just the start of a yearslong slog. Even the most recent buyers — those celebrating their victories now but who may have bought at the market's height — could end up in trouble, too.

We’ve been down this road before. But we've never been in the deep fog now settling over us. It’ll have to clear before we can assess the damage to come, before the extent of the problem really will hit home.

Columnist Randi F. Marshall's opinions are her own.

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