492: The number of days since the average borrower in foreclosure last made a mortgage payment.
Banks can’t foreclose fast enough to keep up with all the people defaulting on their mortgage loans. That’s a problem, because it could make stiffing the bank even more attractive to struggling borrowers.
The average age of a loan in foreclosure hit 492 days in October, and appears as if it will only loom ever-longer in the months ahead. But it’s how we got here that is the real untold story: One that is as much about an overwhelmed loan servicing function as it is about a legal system that has now become clogged with challenges from troubled borrowers.
Let’s start with real-world implications. The average borrower in foreclosure has been stuck in the default pipeline for more than 16 months, according to Lender Processing Services (LPS: 30.89 -0.87%), without making any sort of payment on their mortgage. That’s well over a year, with some states even averaging north of this number. No wonder servicers are increasingly halting principal and interest advances, deeming loans unrecoverable. At that level of severe delinquency, there is simply no cure that can restore a loan to performing.
Government intervention in an attempt to solve for the incentive problem (via HAMP and other initiatives) didn’t help, but instead dramatically increased the complexity and overhead burden expected to be borne by servicers. In other words, it made an existing problem progressively worse. Combine that with a horribly defined set of eligibility criteria, and you have the recipe for false and unfulfilled hope among tens of thousands of distressed homeowners nationwide.
In other words, people who default on their mortgages can reasonably expect, on average, to stay in their homes rent-free more than 16 months.
