Jun122015

362,000 American delinquent mortgage squatters refuse loan modifications

Many delinquent mortgage squatters game the system to enjoy free housing for as long as they can.

squatting_until_foreclosureIt’s no secret that banks are willing to modify any delinquent loan if the borrower merely asks. Since nearly all the outstanding delinquent loans are properties worth less than the outstanding loan balance, banks are unwilling to foreclose and record the losses, so they will cut any deal possible to get some repayment until the value of the house rises high enough the bank can make a full recovery in foreclosure. Since banks are willing to give any delinquent borrower a loan modification, any borrowers who are still delinquent are delinquent by choice — they would rather squat than pay anything.

It’s difficult to feel very sorry for the banks considering they created the conditions that put millions of borrowers into homes they couldn’t afford and inflated a housing bubble in the process. Many people are rightfully pissed at the banks bad behavior, but that doesn’t justify living indefinitely in houses they aren’t paying for.

I once wrote about a man who delivered his demolished house to repossessing bank. In that post, I recounted my belief that lenders are more culpable than borrowers in the housing debacle; however, that doesn’t absolve borrowers of all responsibility for their actions. Barry Ritholtz in Bailout Nation listed those he blames for the housing bubble, and lenders are higher up the list than borrowers; however, Mr. Ritholtz goes on,

“Regardless of how low rates got, the fact remains that many borrowers took out mortgages regardless of their own ability to repay the monthly principal and interest. This was simply reckless behavior, and should be recognized as such.

Irresponsible borrowers are like children, if you offer them something they want, no matter the terms, they will take it. The federal government realized this basic fact years ago when they passed predatory lending laws, but does that make the borrower any less responsible? No, innumeracy is no excuse. So if you offer free money to the irresponsible, what would you expect? I would expect them to spend it irresponsibly and not worry about paying it back. Is it logical to expect anything different? In my opinion, it shouldn’t have taken a rocket scientist to see abandoning lending standards was going to end badly.

bad_credit_home

That being said, when will people start being responsible for their actions? Has our entire culture become based on having victim status and not being responsible? These borrowers should not have been bailed out by any government program as it creates more dependence, but what did we do? Every few months, the government unveiled a new bailout program designed ostensibly to benefit borrowers while really bailing out the banks. These programs maximized moral hazard by encouraging both irresponsible borrowing and irresponsible lending — a lose-lose for the US taxpayer who will foot the bill now that we insure 80% or more of the mortgage loans originated.save_our_squat

With the proliferation of toxic mortgages, many borrowers suffer mortgage distress, and many quit paying. Bankers react to delinquent mortgages by foreclosing, negotiating a loan modification, or often by doing nothing at all. Borrowers also react in many ways: struggling to make payments, fighting foreclosure with attorneys, moving out of the property, and often by doing nothing at all; in other words, squatting. Given that delinquent mortgage squatters are living payment-free in their houses, it’s difficult to see them as victims of intransigent banks, despite efforts of reporters to portray them as such.

Efforts to help homeowners fail their troubled mortgages

Diana Olick, Monday, 8 Jun 2015 | 12:29 PM ET

The number of delinquent mortgages continues to fall, but the foreclosure crisis is still taking its toll on hundreds of thousands of borrowers.

ponzi_borgActually, these delinquencies are a boon to the borrowers who are now living on either reduced payments or no payments at all. It’s the shareholders of the banks or investment funds that hold these mortgages that are paying the toll.

Of the approximately 952,000 borrowers who are 90 or more days past due on their monthly payments, but not yet in foreclosure, 62 percent have already been through some form of home retention program, according to Black Knight Financial Services (BKFS).

This is how I arrived at the headline that 362,000 Americans delinquent mortgage squatters refuse loan modifications. Lenders undoubtedly reached out to all 952,000 delinquent borrowers on multiple occasions and offered them generous terms if they were willing to repay something — anything — because getting anything is better than nothing, which is what the banks are getting from the 362,000 borrowers who aren’t in a retention program.

The 362,000 deadbeats are not paying by choice.

They are, it seems, beyond help.

They are not beyond help; they correctly reasoned that the bank would not foreclose on them if they simply ignore the requests, pay nothing, and merely wait until foreclosure.

Home retention programs were established by lenders and the government to work with borrowers to enable them to keep their homes. …

foreclosed_on_squattersNo, these programs were established by lenders and the government to work with borrowers to enable bankers to get a few payments from borrowers while the properties were still underwater. Of course, this doesn’t have the public relations benefit of portraying it as a program to benefit borrowers, but it’s a much more accurate way to look at the situation.

Bankers don’t give a shit about borrowers: bankers care about repayment.

As long as bankers make more money by modifying loans rather than foreclosing, that’s what they will do. The moment they make more through foreclosure than they do through modifying loans, their behavior will change.

(See: The dangerous tipping point in favor of foreclosure)

Eventually bankers will justify the final wave of foreclosures by saying they gave the borrowers every opportunity to save their homes, but the borrowers didn’t cooperate — and that will be accurate.

Banks are also getting more aggressive in pushing delinquent loans through the foreclosure process, rather than offering more modifications. As home prices rise and demand surges, banks can sell the homes more easily in today’s market than they could during the height of the crisis.

More than two years ago I opined that the Loan modification entitlement will be rescinded as prices near the peak. A year later I noted that Today’s loan modifications are tomorrow’s distressed property sales, which is what the reporter is noting above.

What’s my final prediction? The final resolution of loan modifications will push people out of their homes.

Retention actions are down 42 percent over past two years, but of the new modifications or payment plans, 70 percent have already been through one or even more modifications that failed, according to BKFS.

Loan modifications as “permanent” solutions has a dismal track record of success.

Keith-Jurow-131104-Fig-3

(See: Are mortgage delinquencies much worse than reported?)

Although the number of both delinquent loans and those in active foreclosure is down dramatically, they are still two and three times their precrisis norms, respectively, with 28 percent of the remaining foreclosure inventory located in just three states: Florida, New York and New Jersey, according to BKFS.

Those three states show just how absurd can-kicking can get. Consider this statistic:

Looking at pipeline ratios – the length of time it would take to work through the backlog at the current rate of foreclosure completions – we see New York and New Jersey with nearly 13 and nine years of inventory, respectively. Even though Florida peaked with 20% of the entire state being 90 or more days past due, its pipeline ratio was never longer than 10 years and is currently the lowest among all the judicial foreclosure states at just under three years. Compare that to Washington, D.C., which uses a non- judicial foreclosure process and a comparatively very small backlog inventory, yet still has a pipeline of over 43 years, primarily due to extremely low foreclosure sales volume there.

Given the huge backlog of foreclosures, why would any delinquent borrower agree to make any payments at all? If they knew it would take 10 more years (in addition to the 8 they probably already have been squatting), is it wiser to wait and see if you can get 10 more years of free housing or start paying now? When given the choice between paying something now or nothing now for continued occupancy of the same house, most will chose to pay nothing, particularly if attorneys score free houses for mortgage deadbeats.

Paul-Onder

When it comes to obtaining something for nothing, concepts of right and wrong are quickly abandoned.

Other notable squatters

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defaulters

Darrell Thomas

durkin

Keith_Janet_Ritter

Tell me, do you feel sorry for any of these people?

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