Lenders Warn Foreclosure May End in Lawsuit

The housing crisis will spark a wave of lawsuits filed by lenders seeking to recoup loses on home sales and foreclosure auctions that do not return enough money to pay the mortgages in full, according to real estate and legal experts.

Experts predict that mortgage companies will begin to sue home owners in the next two years, including borrowers who ransack a house that has been lost to foreclosure and those who walk away from “underwater mortgages,” with hopes of discouraging others from such behavior.

Lenders are unlikely to target borrowers who negotiate in good faith or have defaulted on their home due to job loss or other unforeseen circumstances; other borrowers could be hounded by collection agencies that have purchased their mortgage debt from their lender.

Strategic Defaulters Won’t Buy Again Soon

How long will it be before former homeowners who walked away from their mortgages can buy again?

Mortgage lenders are saying that in the future, losing a home because of illness or job loss will be seen differently than choosing to abandon a mortgage obligation for other reasons.

“If you made a strategic decision to default on paying your mortgage, it will work against you,” said Bill Merrell of the National Association of Review Appraisers and Mortgage Underwriters.

It will probably be seven or eight years before walkaways are able to buy another home, said Jay Brinkmann, chief economist for the Mortgage Bankers Association. “Credit scores are only one component of a complete credit decision,” Brinkmann said. “[In these cases] credit scores are not a good indicator of their willingness to continue to pay their mortgage.”

National Delinquency Rate Is Letting Up

The national mortgage loan delinquency rate — the ratio of borrowers 60 or more days past due — decreased in the first quarter of 2010 after steady increases for 12 consecutive quarters, according to a TransUnion report.

The delinquency rate dropped to 6.77 percent, a level slightly lower than in the fourth quarter of last year. This statistic, which is traditionally seen as a precursor to foreclosure, reflects a decrease of 1.74 percent from the previous quarter’s 6.89 percent average. Year over year, mortgage borrower delinquency is still up approximately 30 percent.

“With prices beginning to rise, increasing consumer confidence and positive trends in the equity markets, home owners who are currently upside down on their mortgages may be less inclined to join the ranks of defaulters, which have been growing in number since the summer of 2008,” FJ Guarrera, vice president in TransUnion’s financial services business unit, said in a statement.

TransUnion culls information quarterly from approximately 27 million anonymous, randomly sampled, individual credit files, representing approximately 10 percent of credit-active U.S. consumers and providing a real-life perspective on how they are managing their credit health.

The company’s forecasting models indicated that mortgage delinquency rates would be leveling off in mid 2010 at both the state and national levels.

Source: TransUnion

Future Foreclosures Could Hamper Housing

In spite of signs of a recovery, many home buyers are continuing to fall behind on their mortgages. Some economists see this as an indication that a second major wave of foreclosures is likely, even though the housing market appears to be stabilizing.

This next upsurge in foreclosures could cause more disruption and push prices down farther.

Housing experts say that the recent favorable housing data doesn’t reflect the number of properties that banks have left in limbo — repossessed, but not yet on the market.

“Lenders are deluged by late-stage delinquencies. The pent-up foreclosure inventory is there,” says Massoud Ahmadi, director of research for the Maryland Department of Housing and Community Development.

Foreclosures Decline for Fourth-Straight Month

Foreclosures declined 8 percent in November compared with October, but were still up 18 percent from November 2008.

This was the fourth-straight month that U.S. foreclosures have declined since hitting an all-time high in July, according to online foreclosure marketer RealtyTrac.

Default notices, an indicator of coming foreclosures, also were down 8 percent from October, but up 22 percent from November 2008. Bank repossessions were flat from the previous month and down 2 percent from November 2008.

“We don’t really believe the underlying problems have been resolved,” said Rick Sharga, senior vice president for RealtyTrac. Many borrowers, he told the Associated Press, “simply aren’t going to qualify” for government and mortgage servicer help.

States with the highest foreclosure rates are:

* Nevada
* Florida
* California
* Arizona
* Idaho
* Michigan
* Illinois
* Utah
* Maryland
* New Jersey

Four states account for more than 50 percent of actual foreclosures: California, Florida, Illinois, and Michigan.

« Previous Entries