Federal and state legislation makes lenders responsible for the maintenance and repairs on occupied and vacant REO properties.

Lenders Forced to Maintain Foreclosed Homes

By Jennifer Harmon

As a result of the federal Protecting Tenants in Foreclosure Act, states across the country are passing similar legislation that makes lenders obligated to maintain foreclosed properties from the time of the judgment of foreclosure through the closing of the sale.

“I do believe that we are seeing a number of laws to protect tenants and blighted properties,” said Nanci Weissgold, a partner with the Washington law firm K&L Gates. “I am seeing these types of laws not only at the state level but also at the locallevel. The shear number of these laws (new and amended laws as well as laws currently on the books) coupled with the potential liability will raise a huge compliance problem for servicers.”

In New York, Gov. David Patterson signed the Mortgage Foreclosure Law which takes affect on April 14. The law applies when the property is vacant or if it’s been abandoned by the mortgagor but is rented by a tenant.

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Data Depicts Broader Picture

By Jennifer Harmon

Janet Ford, senior vice president at The Work Number, St. Louis, recently stopped by SourceMedia’s office in New York to talk about how mortgage servicers or organizations that are working on behalf of the GSEs are using real-time employment and income verification data to provide a broader picture of a borrower’s earnings.

These loans may have been underwritten by Fannie Mae or Freddie Mac and now these organizations must go back to determine if the lender took all the steps that were necessary and acquired the right information at the time to make the best decision possible.

Roughly 2,100 individual employers contribute payroll data to The Work Number database. The data are not released unless the employee has given consent.

Whether it’s origination or servicing, lenders are trying to do more with fewer employees. In this economic cycle, they have to play different roles, especially when it comes to compliance. “That’s an area where we are able to plug in and fill some gaps. Because of having this large database, when Fannie Mae got ready to put out their regulations, we were able to make some modifications to support the requirements. It’s almost as if they have to re-originate a loan.”

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Short Sales Bloom

As a foreclosure alternative, short sales are catching on as lenders and servicers deal with a huge inventory of defaulted mortgages that will continue to grow over the short term.

Citigroup mortgage analyst Robert Young believes there are three million mortgages in “suspended animation” with troubled borrowers living in homes and who haven’t made a payment for six months or more.

In addition, there is a large pipeline of loan modifications and foreclosures in progress. Mr. Young was expecting the sale of this huge inventory would overwhelm demand and drive down home prices, but it hasn’t happened yet. And he now thinks it may not happen at all.

“It seems like all the actions the banks and government have taken is to avoid this fire sale,” he said in an interview with National Mortgage News. Despite the carrying costs, “the government and the banks are managing liquidations to avoid a fire sale.”

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