Delinquent Borrowers Get a Lifeline

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

 

Here's some news from the past week that could potentially impact thousands of homeowners:

 

Fannie Mae and Freddie Mac's regulator last week said they would begin offering lower payments to borrowers without having to prove hardship – an obstacle that previously kept a lot of borrowers from modifying their loans.

 

Starting in July, borrowers who are 90 days or more past due on mortgages backed by Fannie Mae and Freddie Mac may be eligible to reduce their monthly payments by about 30% on average. Eligible borrowers would receive an explanation of the offer and then enter a trial modification period in which they make three monthly payments under the new loan terms before they become permanent.

 

The news here is that borrowers would be able to do this without having to document their financial situations. It gives delinquent borrowers a means to avoid foreclosure.

 

And although the new program doesn't call for documentation, officials said they would still encourage borrowers to submit paperwork as it could help get them even better modification terms.

 

The question begs: Will this encourage and lead to an increase in strategic defaults – the decision to intentionally fall behind on payments when the mortgage is underwater and the borrower can still afford the payments?

 

Freddie and Fannie's regulator, the Federal Housing Finance Agency, says no. In announcing the program, officials said that they have screening mechanisms in place to detect strategic defaulters, but failed to give much detail beyond that.

 

State of foreclosures

 

Speaking of foreclosures, we got a fresh look at what's happening with this portion of the market this past week too. Close to 1.2 million properties were in some stage of foreclosure in February, according to data firm CoreLogic. That was 21% lower than the same time last year.

 

RealtyTrac also released foreclosure numbers last week showing a higher number (1.5 million), but noting that their number includes homes that have already been repossessed by banks.

 

In addition, Inman News points out an interesting nugget of info from RealtyTrac's report: When broken down by listed and unlisted status, the number of homes in foreclosure or bank-owned that were listed for sale has fallen 43% this quarter compared to a year ago.

 

That of course suggests that there may be some shadow inventory coming down the pike. Shadow inventory – homes that have started the foreclosure process but have not been listed for sale – may be just what inventory-starved markets need. In some cases, the buyers are there but the homes are not.

 

CoreLogic estimates that about 2.2 million distressed and bank-owned properties will hit the market this year.

 

This will get interesting. In some markets, you may even feel a kick into high gear.