Problem Loans Piling Up During Ongoing Foreclosure Moratoriums

The widespread implementation of voluntary foreclosure moratoriums in early 2009 is resulting in an unprecedented buildup of defaulted mortgages that will be extremely difficult to work through in the months ahead. According to preliminary numbers compiled by Inside Mortgage Finance, a record-high 2.54 percent of mortgages serviced by the top servicers in the country were 90 days or more delinquent at year-end. This was the largest quarterly jump ever recorded in the most serious delinquent category.

At the end of the third quarter, 90 plus day delinquencies stood at 1.92 percent. The buildup of defaulted loans has only gotten worse in the first quarter as most major mortgage market players have reduced or stopped foreclosures in response to political pressure. The new Obama loan modification initiative will be severely challenged to put a dent in the more than one million mortgages now facing foreclosure.

Delinquencies and Foreclosures Continue to Rise

According to the Inside Mortgage Finance Large Servicer Delinquency Index, 7.20 percent of home mortgages were in some stage of delinquency or foreclosure as of the end of September. That was up 110 basis points from the previous quarter.

Foreclosure starts on subprime adjustable-rate mortgages actually fell 16 basis points from the previous quarter to 6.47 percent in the third quarter of 2008, according to the Mortgage Bankers Association. However, the group cautions that indications that subprime foreclosures are leveling off could be misleading as servicers implement foreclosure prevention efforts.

Update on Loss Mitigation Strategies in 2008 Focus of New Event

Mortgage industry experts will provide a detailed look at what foreclosure avoidance and management strategies are working in the current depressed housing market on May 20 at 3 p.m. at an important new audio conference from Inside Mortgage Finance. Featured speakers from Wells Fargo, PMI and Freddie Mac are headlining the program. Additionally, results from a major new study of mortgage lender loss mitigation practices will be released at this must-attend event. Click here for more info.

Audio Conference to Examine 2008 Foreclosure Environment

A detailed look at this year’s challenging foreclosure climate and what strategies major mortgage market players are using to cope with it is the subject of an important new audio conference being offered by Inside Mortgage Finance. on May 20. Featured speakers from PMI, Freddie Mac and Wells Fargo are headlining the program. Additionally, results from a major new study of mortgage lender foreclosure practices will be released at this must-attend event. Click here for more info.

New Study Finds Lenders Could Save Money on REO Sales

Mortgage servicers could save a lot of money for themselves and investors if they better managed the sales of homes they acquire through foreclosures, according to a new study sponsored by Inside Mortgage Finance.

The study, based on a nationwide survey of real estate agents that focused on loss mitigation practices, indicates that servicers could significantly reduce losses on the sale of real estate owned (REO) if they: (a) negotiated lower sales commissions; (b) priced properties more realistically to reduce sales time; and (c) took specific steps to reduce damage to foreclosed properties before they are put up for sale.

The study found that REO sales now account for nearly 40 percent of all completed homes sale transactions nationwide. The survey of real estate agents was conducted in March by Campbell Communications and produced the first national rating of major loan servicers on their loss mitigation performance. Click here for more info.

Fed Chief Pushes for Principal Write-downs to Limit Foreclosure Losses

Federal Reserve Chairman Ben Bernanke last week broke ranks with the Bush administration and strongly urged mortgage servicers to consider loan modifications that involve a write-down or permanent reduction in the amount of mortgage debt owed by borrowers.

“In this (low and declining home equity) environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means for avoiding delinquency and foreclosure,” Bernanke said in a speech at the annual convention of the Independent Community Bankers of America.

The Fed chief noted there are a number of tax-related, accounting, and legal obstacles to expanding the use of principal write-downs. But he suggested that this still may be the best approach to controlling foreclosures and mortgage losses in the current depressed housing market.

The Bush administration has not come out in favor of any specific approach for dealing with problem loans, other than urging servicers to pursue cost-effective loss mitigation strategies.