Who Owns Defaulted Mortgages?

Question

I have been told by real estate brokers in different geographies of the Western US that the local banks control more than three years of supply of homes that are in default but that they refuse to foreclose on.   The robo-signing scandal aside, it appears that the banks are simply allowing the homeowners to continue to live in these properties rent-and-mortgage-free.   The banks only foreclose on small numbers of properties at a time, thus artificially limiting the supply of homes on the local market, and sending home prices higher.

My question is does someone have a percentage breakdown of who actually owns these defaulted mortgages that remain unforeclosed?   Specifically:

- What percentage are owned by banks outright?

- What percentage are owned by agencies (Freddie, Fannie, etc)?

- What percentage are wrapped up in securitizations which are then in turn owned by corporate and bank owners across the world?

- What percentage are owned by other types of owners?

I'm hoping that understanding how the ownership divides up might reveal insights into why so many of these "shadow inventory" homes remain unforeclosed.

Any and all insights to this interesting situation are appreciated.

Will E. · Answer

What is more efficient about sitting on an asset that pays no income for three years and allowing someone to live in the property for free for another three years more?

It seems to me that the real truth is that if enough of these properties were sold at sizeable losses all at once it would overwhelm the bank's reserves for loss allowance, and would require that many banks either recapitalize or fold.

You can call it conspiracy - or practical reality - but the US regulators are allowing the banks to hold onto these properties in a limbo state in order for their losses to be slowly absorbed over time against other income.   They are simply trying to earn their way out of a very large hole.

For those properties owned by Freddie and Fannie directly, do Fannie and Freddie foreclose the property directly, through a servicer?   What percentage of the defaulted properties are Fannie and Freddie foreclosing on each year, based on last two years of activity?

Account Closed · Answer

Aaron Churnick  Pretty sure you're dreaming. But you never know with Florida.  :)

Statute of limitations does apply to collections on notes  Varies by state.  I think it's 4 years here in CA.  Is it 5 years in FL?  But the security instrument (mortgage or trust deed) has a life of it's own and lives on and isn't extinguished by SOL. At least not here.  That being said, if you file a quiet title action and the lender or their successor can't or doesn't answer, maybe you could win by default.

William D. · Answer

Generally, there is a servicer for the pool of loans who is delegated certain duties/obligations. This servicer has authority to make business decisions just like an agent is delegated certain authority to make decisions. If a world pre-OCC consent agreement or DOJ settlement these servicers would push default after X amount of payments. It could be 3, 4 or 5 missed payments. 
The issue presently is that you have dual levels of bureaucratic oversight. For example, National Servicer A is servicing a GSE loan. The GSE (investor) may be full steam ahead but for whatever reason the National Servicer may not have a process set up or vice versa.  
The b

Will E. · Answer

Rob K, I think you misunderstood my message in its conclusion.  The banks are *REFUSING* to foreclose.  They are leaving these shadow properties unforeclosed because they don't want to overwhelm their own loss reserves too quickly.

That means the price of housing is being artificially elevated by keeping the inventory of REOs and pending foreclosures low.  There is not going to be any rush of foreclosures.

In a real capitalist resolution to this mess, we would have a 1991 style wipeout where large numbers of properties get sold off to investors.  For whatever reason, this time around they are pursuing a Japanese-style, 10-year, one-tiny-drop-at-a-time workout.

There is no conspiracy theory.   Banks have a lot of defaulted mortgages.  That is a fact.  Just read their financial statements.   They aren't foreclosing most of them.   The regulators are not forcing them to foreclose.   Call it cooperation to survive.

Will E. · Answer

Just a quick comment:  I think this thread is getting into a tangent.   My main interest was to identify WHO OWNS THE MORTGAGES that are in default and not being foreclosed.    Because I assume it is the owner who is making the decision to not foreclose.   My assumption has been that most of these are owned by banks, but in reality maybe most are owned by securitizations?

If a defaulted loan is owned inside a securitization, who makes a decision to foreclose?   Is this a trustee of the securitization?   What are that trustee's financial incentives to foreclose or not foreclose?

Rob K. · Answer

I've been hearing these conspiracies for years now. Everyone talks about the tidalwave of foreclosures coming. It hasn't happened. My neighbor who claims to be a "finance expert" told me last spring that by September, the market would be flooded. Yesterday, a real estate agent that I know said BOA and Fannie were ready to flood the market with listings. I talked to another agent I know that deals in foreclosures and he said the pipeline is empty.

Everyone has an opinion. I know that in my area, HUD houses have dried up and there's not many bank owned homes either.

These rumors make everyone nervous to buy for fear of paying today's prices only to have the market crash next month after the flood of inventory.

Account Closed · Answer

In florida i've heard the lender has 5 years to collect after your last payment made or else the loan is uncollectable.   Anyone have any actual experience with this?

Am i dreaming that i can do a quit title action once the 5 years is up?

Wayne Brooks · Answer

The "holding on" conspiracy theory is just that.  It's more a matter of efficiency, and trying to do work outs/ short sales.  Fannie and Freddie account for 40% of US mtg.s.