Throughout the country, people continue to default on their home loans—but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free. Whether it’s a backlog of inventory, lack of staffing, or a strategic decision on the part of the banks, it’s hard to say. But the reality is, for many families, the trend is working in their favor.
Several factors are driving the trend, including government pressure on banks to modify loans and keep people in their homes. And with a glut of inventory in places like Southern California’s Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.
Finally, allowing borrowers to stay in their homes helps protect the bank’s investment as it negotiates with the homeowners. If the borrower is in the property, there’s less chance for vandalism, and they’re probably maintaining the house.
Economists say the situation won’t last forever, but in the meantime the “amnesty” may allow at least some homeowners to regain their financial footing and avoid eviction.
In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it’s difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.
But Rick Sharga of Irvine, Calif., data tracker RealtyTrac notes that the number of loans in which the borrower hasn’t made a payment in 90 days or more but is not in foreclosure is at 5.1% nationally, a record high. And yet the number of foreclosures last year was 2.9 million, below the 3.2 million that RealtyTrac economists predicted.
More evidence is provided by another firm, ForeclosureRadar, which says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.
“For some reason, banks are being more lenient with homeowners who are behind on their loans,” Sharga said. “Whether it’s a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure.”
Lenders say the trend reflects their efforts to work with borrowers to modify loans to avoid foreclosure.
Some lenders are making it a policy to partner with delinquent borrowers. Citibank said this month that it would let borrowers on the brink of foreclosure stay at their homes for six months, whether or not they make payments, if they turn over their property deed. Such policies may partly reflect the fact that lenders can’t keep up with all the foreclosures, some say.
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