Most Delinquent Mortgages Not Going to Collections

Homeowners who are falling behind in their mortgage payments are not necessarily getting turned over to collections. Instead, there are other options available to avoid foreclosure.

With all of the problems going on in the mortgage industry, it appears that maybe being 60 days late on your mortgage payments is not as big of a concern as it used to be.

The State Foreclosure Prevention Working Group, or SFPWG, released a study this week that showed as many as 60 percent of mortgage borrowers did not have their accounts forwarded to the mortgage lender’s loss mitigation department when they are 60 days or more late on their payments. That’s an astounding figure, but understandable considering the current economic climate.

Many of the borrowers in the study had seriously delinquent accounts that lenders were not taking action on lately. Part of the reason may be because there are so many foreclosures going on right now that banks are not as quick to put a borrower through foreclosure without giving them ample time to catch up on their mortgage payments. Since October of 2007, there have been more than 2.3 million foreclosures and giving borrowers some extra time to get back on their financial feet is often the only thing needed to help them get back on track.

Nobody really wants a foreclosure. It displaces homeowners and it makes banks lose money because they often sell these homes at deep discounts. As such, being slower to foreclose on a home may be a strategic and intentional decision that banks are making in hopes of getting more money that is owed on the mortgage rather than foreclosing on them.

In addition to that, loan modifications are another option for troubled homeowners. In many cases, it can give the mortgage borrower the opportunity to get lower mortgage rates. According to the SFPWG, mortgage borrowers who modified their home loans last year are about half as likely to have seriously delinquent account six months following their modification than those troubled homeowners who modified their home loans in 2008.

This shows that homeowners are more likely to take their second chance more seriously than they do their first chance. Possibly, once they find themselves in trouble with their home loan and get help with it, they make a more concerted effort to stay out of that trouble again. Of course, many home loan modifications lower payments so this also helps mortgage borrowers stay in their homes rather than letting them become delinquent and go through foreclosure.

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