Fall-out from the scandal known as “Robo-gate” will lengthen the time frame for clearing all the current non-agency inventory of distressed properties to four years, according to a new report today by Fitch Ratings.
Fitch said corrections by almost all of lenders who reported problems with their default processing have been completed. Most have resumed processing in most states.
However, the scandal’s impact on housing markets will be felt for years. In the future, default processing will take significantly longer than before the scandal because of additional outside scrutiny and the potential for regulation or litigation.
Though the numbers of seriously delinquent loans have slowly declined during 2010, the pace by which lenders are initiating foreclosures has slowed to a crawl. In December, less than ten percent of all seriously delinquent loans were foreclosed on. “Fitch expects the current scrutiny to cause this rate to decrease, further extending the overall time to resolve many of the loans and increasing the cost and market value losses for these properties,” said the report.
“Based on current and expected inventory, it will take four years to remove the backlog of properties and return the market to balance,” said Fitch Managing Director Diane Pendley.
With loan modification programs on the decline will, fewer foreclosures will be cancelled, Fitch also predicted. “The scenario is becoming less about whether a distressed U.S. mortgage borrower will be able to stay in their home, but when the servicer will ultimately have to foreclose on it,” Fitch said.
Since the high water mark of 86,500 modifications in April 2009, loan modifications have steadily decreased, with 36,500 modifications completed in the month of December, 2010. ‘The combined efforts of HAMP and other mortgage loan modification programs have made little more than a dent in the large volume of outstanding distressed loans,’ said Pendley.