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The average U.S. borrower in the throes of foreclosure hasn’t made a
mortgage payment in 17 months, up from nearly 11 months two years ago —
and the time frame may get even longer.
Banks and mortgage servicers, who collect payments for lenders, are taking more time to complete foreclosures because of huge volumes of defaulted mortgages. Other factors include time-consuming reviews for loan modifications and additional delays that followed revelations late last year about improperly filed foreclosure documents in tens of thousands of cases.
Last year, the number of days that the average borrower in foreclosure went without making a payment stretched from 410 in January to 507 in December, says LPS Applied Analytics, which tracks 37 million mortgages. Before the foreclosure crisis, the norm was more like 250 days, says Herb Blecher, LPS senior vice president.
“Loans are spending longer in the process,” Blecher says.
About 2.2 million homes were in foreclosure at the end of January, according to LPS.
The delays may translate into higher prices in some markets for foreclosed homes as inventories shrink, real estate experts say. They will also push some foreclosures further into the future, meaning they’ll weigh on housing markets longer. “There’s a trade-off. On the plus side, you trim inventories. But ultimately, these units have to be foreclosed,” Christopher Thornberg of Beacon Economics says.
Some companies have assigned more workers to handle distressed loans in recent months, but they’re still not likely to have enough to quickly process foreclosures, Thornberg says.
Government initiatives that were begun in 2009 to increase loan modifications also slowed lenders’ efforts to modify loans, says Diane Pendley, managing director of Fitch Ratings.
The government programs were “very complex and kept changing,” which added to the work required to do a modification and increased the time that seriously delinquent borrowers could live payment-free before losing their home, she says.
Pendley estimates that delinquent borrowers now stay in their homes an average of 19 to 20 months without paying before they’re forced to leave. By year end, the average will rise to 22 to 23 months, the longest on record, she says.
Postponing foreclosure helps borrowers financially, but “everyone else is being hurt,” Pendley says. They include owners of mortgage loans, taxpayers who cover losses for government-backed mortgage companies and local governments that are owed property taxes, which often aren’t being paid, either.
Companies are also slowing foreclosures so that they don’t glut the market with homes for sale, which would depress prices, says Patrick Butler, head of asset disposition for Foreclosure.com.
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