By free rent, I mean free housing without making mortgage payments for an extended period of time while the banks tend to other problems, namely, delinquent mortgages with smaller balances and no second mortgage.
He noted that mortgage lenders aren’t exactly playing “Foreclosure Roulette,” but are rather being quite systematic in who they choose to foreclose on (not really a surprise as they seem to be good at making money).
Larger Loan Balance = Longer Foreclosure Timeline
Essentially, the larger the loan balance you have, the more upside down you’ll be on your home, and the bigger the loss the bank/lender will have to incur if they foreclose.
Additionally, those with second mortgages are seeing much longer foreclosure timelines because of the conflict of interest some lenders are experiencing when they service the first mortgage and directly hold the second mortgage in their own loan portfolio.
As a result, those in the worst positions are actually more likely to avoid foreclosure, at least in the short term.
“Perversely, this means those who took the biggest loans, on the nicest houses, with the largest lines of credit to buy lots of shiny new toys will also get the most free rent when they strategically default,” O’Toole wrote in the post.
Go figure….the only silver lining is that it’s more difficult for those with jumbo loans to refinance and take advantage of the low mortgage rates on offer, so I suppose that levels the playing field somewhat.