their former values quickly will likely
continue to pay their mortgages while
those who think recovery is many years
away are more likely to quit paying.
Absent financing incentives, home
values historically have increased
slightly faster than the inflation rate. At
current rates, however, home values in
many parts of the country could take 10
years or longer to reclaim their historical peaks.
Age also plays a role in people’s decision to stay or walk away. Strategic
defaults seem more common among
young people, who have plenty of time
to rebuild their finances and credit,
than among the elderly, many of whom
have no other place to go.
One of the most-curious elements
about strategic defaults isn’t the number of people who do it but rather the
people who have every rational reason
to walk away but don’t. In many cases,
these borrowers remain in their homes
but don’t pay their mortgage.
Living mortgage free — and rent free
— has become a way of life for many.
According to the Mortgage Bankers
Association’s survey from this past
second quarter, more than 4 million
U.S. homeowners are delinquent on
their mortgage. Many, if not most, continue to live in the home that secures
their unpaid mortgage. With nearly
2.6 people per household, according
to the U.S. Census Bureau, that means
around 10 million people spend each
« ACCEP TANCE continued from page 26
night in a home they neither own nor
make payments on.
Many of these people continue to
spend money on disposable goods and
other items. This occurs because, from
default to eviction, homeowners often
can remain under the same roof for
more than a year before they are physically removed. In some areas, they can
stay put for as long as three years. The
recent “robosigner” scandal could extend these wait periods even longer.
Hidden benefits
For lenders and the overall economy,
borrowers who stay put but refuse to
pay could be a blessing in disguise.
With swollen home inventories and
slow sales, the market doesn’t necessarily need to take possession of
homes right away. Moreover, people
who stay in their homes and continue
to care for them help maintain property
values and keep their neighbors from
having to deal with the often-negative
impacts of vacant residences.
Although real estate owned inventories weigh heavily on banks’ balance
sheets, and foreclosures increase losses
on homes for lenders, vacant houses
can quickly lose value from non-use,
especially in hot and humid climates.
Unkempt lawns and discolored swim-ming-pool water are minor compared to
mold outbreaks and crime.
Another advantage of letting non-
paying residents remain in their homes
is the possibility of receiving payment
of some type — be it rent or mortgage
checks — in the future. Moreover, if
residents continue to pay their prop-
erty taxes, they contribute value to the
wider community.
Collision course
This past October, beleaguered homeowners received assistance from state
and federal regulators. Citing procedural errors on the part of lenders and
servicers — and outright fraud — some
states halted foreclosures.
Investigations into the allegations
began with bigger lenders and banks
and expanded rapidly. Within days, the
federal government was involved, and
at least one bank halted foreclosures
temporarily in all 50 states.
The starting point for this mess was
robosigners — loan-servicer employ-
ees who signed affidavits attesting
personal knowledge about tens of
thousands of home loans without actu-
ally having such knowledge.
“People who stay
in their homes and
continue to care for
them help maintain
property values.”
In many cases, crucial title documents and promissory notes are missing. In others, title insurers now refuse
to insure foreclosed properties. These
situations create serious problems that
could take years to work through.
Indeed, a great mortgage-market
reset is under way. The sooner we all
realize this — and the sooner nonpaying borrowers and lenders resolve their
differences, one way or another — the
sooner we can start figuring out where
we go from here. •
Fix & Flip Lending
B & C Lending
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40 Scotsman Guide Residential Edition | scotsmanguide.com | December 2009 10
valuation confusion, denial and disconnects. By knowing which tools should
be used when, brokers can help assess property values and collateral risk
completely.
« VALUES continued from page 22
“Brokers can
respect the
requirements
for appraiser
independence
and still help improve
valuation by promoting
a holistic approach.”
For refinance and home-equity loans,
for example, prequalification decisions
should be based on market information
as opposed to owner estimates. Home-price indexes, AVMs and market analytics are effective in many markets.
When prequalifying borrowers for purchase transactions, these same tools
can point to potential downstream appraisal issues.
Moreover, many markets are beginning to recover and prices are increasing. Appraisers must be careful to
recognize these markets and not rely
solely on historical sales when determining a property’s market value.
Under writers typically have access to
collateral-valuation tools, but they may
not be the same tools mortgage brokers and loan originators have. Many
tools available today can serve multiple
purposes. Aligning the use of tools in
the prequalification and underwriting
steps can reduce friction, lender cost
and borrower frustration.
Some of the biggest disconnects in
assessing property values and collateral risk occur between lenders, AMCs
and appraisers. Brokers can help by
suggesting that:
• Lenders• and• AMCs• use• AVMs,
home-price indexes and market-ana-lytic software and provide the output
to appraisers for consideration;
• Lenders•and•AMCs•align•their•qual-ity-control• reviews of appraisals
to underwriting criteria and ensure
that appraisers clear all errors before delivering completed appraisals; and
• Lenders•and•AMCs•offer•appraisers•
access to their AVMs and other tools.
Brokers who understand the various
tools available and promote cooperation in valuation will be best positioned
to help improve appraisal accuracy,
identify collateral risk and lend successfully. •
