Foreclosure Errors to Extend Mortgage Crisis

November 2, 2010 No Comments »


The recent foreclosure fracas, including the now infamous robosigner allegations, will extend the ongoing mortgage crisis and push back any sign of a housing recovery, according to a new report from Fitch Ratings.

Fitch’s ‘U.S. RMBS: Still Under A Shadow’ report claims it will take more than three years to clear just the existing non-agency residential mortgage-backed securities (RMBS), a timeline that will be further extended by the recent foreclosure mistakes and related moratoria.

Non-agency RMBS includes homes loans not backed by government mortgage financiers Fannie Mae and Freddie Mac, such as jumbo loans and certain subprime mortgages.

“The foreclosure and liquidation extensions will slow the resolution of defaulted loans and delay home prices from finding a floor,” said Fitch Ratings Senior Director Grant Bailey, in a release.

“Also, extending foreclosure times will weigh on U.S. RMBS loss severities due to rising carrying costs.”

The non-agency RMBS shadow inventory is estimated at 1.5 million units, while total shadow inventory, or loans in default/foreclosure that have yet to join the traditional inventory, is pegged at seven million units.

Fitch estimates that a mortgage currently takes an average of 18 months from final borrower payment to bank liquidation, an all-time high.

I guess that means more free rent for homeowners who have stopped making mortgage payments, but more losses for the banks and mortgage lenders stuck holding the properties.

And much more downward pressure on home prices going forward.

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