Thursday, July 9, 2009

Foreclosure Moratoriums Helped 4%?

HousingWire reports Foreclosure Freeze Had Little Impact: Report

Widespread foreclosure freezes that began in late last year and ran through the first quarter of this year appear to have done little to change the outlook for troubled borrowers — and may even have made things worse, for everyone involved.

A report released recently by due diligence and surveillance specialist Clayton Holdings, Inc. highlights the early returns of various moratoria put into place by servicers ahead of the Obama administration’s Making Homes Affordable (MHA) modification and refinance programs. A number of the nation’s largest servicers had released statements earlier this year announcing their intent to suspend foreclosure sales until details of the program were released, generally until the end of March.

According to Clayton’s data, halting foreclosures did little to improve the outlook for most troubled borrowers: of the loans that the firm’s analysts estimated would have otherwise had foreclosure sales completed during the “freeze” period, 93% remained in foreclosure or were moved into REO status by April among those servicers that implemented a widespread moratorium on foreclosure activity. In comparison, among servicers that did not implement a large scale freeze on foreclosures, 89% of loans estimated to have progressed to foreclosure sale by the end of March either remained in foreclosure status or had been moved into REO.

The data seem to illustrate just how little freezing foreclosures really helped matters: Among servicers implementing a moratorium, just 7% of borrowers facing imminent foreclosure were “helped,” either in the form of repayment plans, modifications, reinstatements, or short sales. That number actually grew to 11% among servicers that did not implement a foreclosure freeze — a result that is clearly at odds with reports in the popular press, which have painted the freezes as a needed step to help troubled borrowers.

Servicing executives that HousingWire spoke with suggested that the real problem is negative equity, or borrowers who have seen the value of their homes drop precipitously in the most troubled housing markets. “Negative equity puts borrowers into a precarious situation,” said one servicing executive, who asked to remain anonymous. “Borrowers are over-leveraged, on homes, cars, and everything else, to begin with.”

And, of those few who were actually “helped", an alarmingly high percentage has ended up back in default. Depending on time frames and the pool of properties in the study, I’ve seen figures in the 60-75% range.