“Reluctant Banks” Let Defaulted Borrowers Stay in Homes

Yesterday, we discussed Lender-Abandoned, Non-REO Foreclosures.

That started a robust discussion, leading to a follow up piece by Bob Ivry of Bloomberg: Lenders Buried By Foreclosures Let Late Borrowers Stay in Homes.

According to Ivry:

"Banks are so overwhelmed by the U.S. housing crisis they’ve started to look the other way when homeowners stop paying their mortgages.

The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.

Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market. "We don’t have a sense of the magnitude of what’s really going on
because the whole process is being delayed,” Zandi said in an
interview. "Looking at the data, we see the problems, but they are
probably measurably greater than we think.”

That’s quite astonishing: Conditions are actually worse, not better, than the already miserable numbers we hear being reported each month. And, the trend is accelerating downwards

Some specific data from the Bloomie piece:

- Lenders took an average of 61 days to foreclose on a property last year, up from 37 days in the year (RealtyTrac)

- Sales of foreclosed homes rose 4.4% in 2007 (LoanPerformance First American CoreLogic)

- Inventory of foreclosed homes more than doubled last year (LoanPerformance First American CoreLogic)

Given those numbers, its no surprise that the number of "Reluctant Banks" are also increasing.

What are "reluctant banks?"

Some banks are letting people stay in their houses until someone through foreclosure and beyond. One distressed mortgage buyer said people have been staying in their home "Until someone comes to kick them out . . . Sometimes no one comes to kick them out.”

Also of interest: The surge in Foreclosures is completely overwhelming much of the legal system. Court houses cannot keep up with the new foreclosure applications. And, Mortgage servicers are weeks if not months behind in  starting the foreclosure process.


There’s a lot more detail and interviews in the full piece . . .



Lenders Buried By Foreclosures Let Late Borrowers Stay in Homes
Bob Ivry
Bloomberg,  April 4 2008

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