For the Costliest Homes, Foreclosure Comes Slowly

One of the underlying benefits to the economy that few people talk about are those people that get to stay in their homes without paying their mortgage as they continue to spend on cars, iPads, dinners out, etc. Mark Hanna formerly at Fund My Mutual Fund now with Market Montage stressed this very point time and time again over the past 4 years.  What happens when those people have to start paying rent or another mortgage?  Drag on the economy with less discretionary funds available for trips to the Apple store?


For those with the costliest mortgages, data now shows that those houses stay in foreclosure much longer that those with lower balances.  The theory goes that people with higher mortgages balances may have a better chance to repay their debt with either great monetary resources or prospects.  The banks are also hopeful for a possible loan modification in order to recoup their investment


Via the WSJ

• Nationally, borrowers with loans of at least $1 million were in default for an average 792 days last year before banks repossessed their homes, according to an analysis by data provider Lender Processing Services. For loans under $250,000, the wait stood at an average 611 days—a difference of about six months. The numbers are current through November. 
• The link between larger loans and longer foreclosures holds true in all but five states: South Dakota, North Dakota, Iowa, Rhode Island and Nebraska, states where there was a small or nonexistent sample of million-dollar foreclosures. In California, where foreclosures don't have to go through the court system, the timeline averages 671 days for loans above $1 million and 445 days for loans below $250,000. 
• There are several reasons why holders of large mortgages are able to stay in place longer. A key factor is that banks tend to keep larger mortgages on their books, while smaller mortgages are more likely to be bundled into securities and later resold to investors with backing from Fannie Mae and Freddie Mac. Fannie and Freddie, the government-controlled mortgage giants, have set strict foreclosure timelines and will fine mortgage servicers that are found to be needlessly delaying the foreclosure process. 
• Mortgage companies may also be more flexible with borrowers because they may have more assets and better prospects of recovering. "The banks have hope for the wealthy—of future employment, additional income or bonuses as the market comes back," says Genevieve Salvatore, a Connecticut real-estate lawyer who represents delinquent borrowers as part of her practice. 
• About 71% of all loans in foreclosure have balances of less than $250,000, and more than 94% have balances below $500,000. Loans above $1 million account for about 0.7% of all foreclosures. 

 

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