Lenders let certain late borrowers stay in homes

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. That figure, for the first time, is almost double the 2 percent whose homes have been foreclosed.
(Foreclosure actions fell in Rhode Island last month, even as they rose in the neighboring Bay State and nationwide, according to RealtyTrac. READ MORE)
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. These borrowers will eventually 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. “Looking at the data, we see the problems, but they are probably measurably greater than we think.”
Lenders took an average of 61 days to foreclose on a property last year, up from 37 days in the year earlier, according to RealtyTrac Inc., a foreclosure database in Irvine, Calif. Sales of foreclosed homes rose 4.4 percent last year at the same time the supply of such homes more than doubled, according to LoanPerformance First American CoreLogic Inc., a real estate data company based in San Francisco.
“Some people stay in their houses until someone comes to kick them out,” said Angel Gutierrez, owner of Dallas-based Metro Lending, which buys distressed mortgage debt. “Sometimes, no one comes to kick them out.”
Legal fees, property maintenance, insurance and taxes can add up to as much as 15 percent of the value of the foreclosed home, said Peter Zalewski, owner of Condo Vultures Realty LLC, a property consulting firm in Bal Harbour, Fla.
In many cases, lenders also have to foot the bill for fixing up vacant homes that have been vandalized.
Real estate broker Georgia Kapsalis is offering a home for sale in a Detroit suburb where the owner last wrote a mortgage check in July. He still lives in the house, she said.
“Some of the banks just don’t want the houses to be empty, especially if it’s in an area where there’s a lot of theft,” Kapsalis said.
With home sales dropping and national inventories rising, lenders have another reason to delay foreclosures, said Howard Fishman, a Minneapolis real estate investor.
“What are the banks going to do?” Fishman said. “They don’t want the house. They have a mortgage for $1 million and the house is worth $750,000.”
Homeowners usually get 90 days to resume paying before foreclosure proceedings begin with the filing of a complaint.
State laws determine the length of time between the filing and an auction of the house. In most states, it’s two to six months, according to database Foreclosures.com.
The civil court in St. Lucie County, Fla., is getting about 44 foreclosure cases to file every day – the same number it averaged in a typical month in 2005, said Clerk of the Circuit Court Ed Fry.
Fry said that, even with 12 full-time employees and two temporary workers handling nothing but foreclosures, the 50-page filings sit in cardboard boxes for three weeks before they can be processed.
While more than 100 mortgage originators have suspended operations, closed or sold themselves since the beginning of 2007, mortgage servicing units, which collect monthly payments and are responsible for starting the foreclosure process, are expanding.
The four largest servicers – Countrywide Financial Corp., Wells Fargo & Co., CitiMortgage Inc. and Chase Home Finance Inc. – together manage about half the home loans in the U.S., according to National Mortgage News.
Chase Home Finance, a unit of JPMorgan Chase & Co., expects to spend $200 million more servicing loans in 2008 than it did last year, said spokesman Thomas Kelly.
Recent public-private efforts to keep borrowers paying their bills have slowed the foreclosure process, said Mark Rodgers, a spokesman at CitiMortgage.
Joe Ohayon, vice president of community relations for Wells Fargo Home Mortgage in Frederick, Md., said trying to modify loan terms case by case adds time to the process.
Representatives for Calabasas, Calif.-based Countrywide didn’t respond to requests for comment.
Few mortgage companies will admit they allow homeowners to stay in their homes without paying their bills.
“No servicer will say you can live rent-free for six months, go ahead,” said Paul Miller, a mortgage industry analyst at Friedman Billings Ramsey & Co. in Arlington, Va.. “Eventually, the servicers will clear these guys out.” •