Mortgage Lenders Moving Faster to Stave Off Foreclosures
As the number of borrowers falling behind on their mortgage payments climbs to the highest level in five years, the San Diego Daily Transcript reports that the mortgage industry is trying new strategies to bail them out.
Much of the attention is on homeowners who, in recent years, took out Hybrid ARMs and other adjustable-rate mortgages - popular ways to finance a home when interest rates were low.
Now, with rates having moved up, many of these borrowers have recently seen, or soon will see, mortgage rates adjust higher for the first time.
To head off problems, mortgage companies are reaching out to borrowers earlier. Bank of America is allowing some borrowers with ARMs to refinance into a different loan.
CitiMortgage is focusing extra attention on parts of California, Florida and New York where home prices have moved up sharply.
The rise in problems with bad credit home loans also is leading to a pick up in so-called short sales, in which a lender allows the property to be sold for less than the total amount due and often forgives the remaining debt.
For the mortgage lender, the process can be shorter and less costly than the process of foreclosing, especially in a declining market. For borrowers, it is a way to avoid having a foreclosure on their credit report.
For some borrowers, efforts to work out bad loans can be complicated by the fact that many mortgages no longer are held by the banks that made the home loans. Instead, roughly two-thirds of mortgages are packaged into mortgage-backed securities and sold to investors.
How much leeway a borrower is given can vary, depending in large part on the rules spelled out at the time the securities are created. Agreements often don’t permit loan modification or limit the circumstances under which a home loan can be modified. Others put a cap on how many loans can be restructured.
Some 2.51 percent of mortgages were delinquent in the fourth quarter, according to new data from Equifax. That is up from 2.33 percent in the third quarter and the highest level since a recent peak of 2.53 percent in the first quarter of 2002.
The increase in bad loans is broad-based, with delinquencies rising in the past year in roughly 80 percent of the 250 local areas analyzed by Moody’s Economy.com. Some of the biggest jumps have come with California mortgage holders, for whom high prices have made it hard to afford a home, and in other once-hot markets such as Las Vegas and Port St. Lucie, Fla.
Mark Zandi, chief economist at Moody’s Economy.com, attributes the increase in part to the weaker housing market and the widespread use of adjustable-rate mortgages, many of which now are resetting at higher rates.
What is more, as demand for home loans softened, mortgage lenders loosened their standards and made riskier loans. Zandi expects that nationwide delinquency rates could rise by as much as a full percentage point from current levels in the next year, but he doesn’t expect this particular trend will have a significant impact on the overall economy.
Until recently, mortgage delinquencies were actually low by historical standards, which Zandi pegs at about 2 percent, based on the dollar value of loans that are at least 30 days past due. One reason is that a hot housing market made it easy for borrowers who missed payments to refinance or sell their home.
That changed as home prices flattened or fell in many areas.
Adding to the pain are higher short-term interest rates, which mean bigger monthly payments for borrowers with adjustable-rate mortgages or a home equity line of credit.
In addition, many home mortgages were taken out in the past few years and now are approaching the point in their life when delinquencies typically pick up. An increase in mortgage fraud in parts of the country also has contributed to many home loan problems, lenders say.