Banks Forced to Repossess Homes Despite Collection Efforts

While some mortgage servicers are trying to work with more borrowers in the collection process, some mortgage holders are being forced down the foreclosure path.

Thanks to the decline in the real estate market over the last few years forcing more homes underwater — meaning borrowers have no equity or negative equity — combined with job losses and an unemployment rate near 10 percent, banks are increasingly taking possession of homes under default.

According to a report released Thursday by RealtyTrac, banks repossessed a record number of U.S. homes in the second quarter.

Banks took control of 269,962 properties in the second quarter, up 5 percent from the prior quarter and representing a 38 percent spike from the second quarter of last year, RealtyTrac said in its midyear 2010 foreclosure report. If that trend continues, repossessions could top 1 million this year.

But banks are still actively trying to avoid foreclosures and work with borrowers through the rehabilitation and accounts receivable management process.

“We’re trying to keep as many people in homes as we can by using a combination of federal home mortgage modification programs and some of our own programs,” Tom Goyda, spokesman for Wells Fargo, told insideARM.com. Goyda noted that Wells services one in six of the nation’s mortgages.

Since the beginning of 2009 through May of 2010, the bank’s mortgage division:

• Helped more than 2.2 million homeowners with new low-rate loans, either to purchase a home or refinance their existing mortgage.
• Assisted about 500,000 loan customers facing financial hardships through a trial or completed loan modification; 17 percent of which were under the federal government’s Home Affordable Modification Program (HAMP).
• Helped more than 100,000 unemployed customers with short-term modifications – well before the new government modification unemployment program was introduced.
• Provided more than $3 billion in principal forgiveness for customers facing financial hardship, permanently erasing on average 14 percent of the principal owed, amounting to more than $50,000 per loan for more than 55,000 customers. In addition, through loan modifications for investor-owned and Wells-owned loans, the mortgage division has deferred more than $600 million of principal for more than 8,700 customers.

Together, these programs have helped about two-thirds of borrowers more than 60 days delinquent avoid foreclosure, Michael J. Heid, co-president of Wells Fargo Home Mortgage, testified in late June before the House Committee on Committee on Oversight and Government Reform.

Goyda added that 92 percent of the loans originated under the Wells name are current. “Most are doing what is necessary to make the payments,” Goyda said. “There are a lot of options out there. But there are times after we’ve exhausted everything else that we have to move to foreclosure.”

Heid, in his testimony, added: “We also have improved our foreclosure prevention practices for customers who cannot afford to remain in their homes. We now are able to give Wells Fargo Home Mortgage loan customers – who have identified a home buyer and have provided the necessary paperwork – a short-sale decision, on average, in less than 5 days. For the loans we service where we do not have full delegated authority to make decisions, we have been able to work with the third parties who must be involved to provide a decision, on average, in less than 15 days.”

In Florida, Wells is testing a new voluntary deed in lieu practice for first-lien mortgage holders, whereby the lender gives borrowers who cannot afford their homes $10,000 to vacate their property in good condition within 30 days. This program is designed to help families avoid foreclosure and eases their transition to a new, more affordable residence. In three months, when the pilot is complete, Wells expects to be in a better position to share when and if this program will be expanded.

Other lenders have also participated in some of the federal foreclosure prevention programs. Even so, RealtyTrac predicts another 3 million home foreclosure filings this year.