Some Lenders More Willing to Foreclose

While lenders “don’t want to be in the business of owning real estate,” there are situations in the current mortgage market where they are more likely to foreclose than they might have been in recent years, a panel of experts said Wednesday at the American Bankruptcy Institute’s Subprime Webinar.

“Lenders are sophisticated in dealing with foreclosures and workouts, so they will try to work with people who come to them with a reasonable debt repayment plan,” said Prof. Anthony M. Yezer of the George Washington University Department of Economics. “However, many of borrowers don’t contact the lenders.”

Also complicating any attempts to work out a payment plan is that many of the lenders have sold the loans in the secondary market and those investors want their returns, making workouts more difficult, said Ronald F. Greenspan, the senior managing director, west region, for FTI Consulting.

Any such repayment plans may still involve payments the borrower can’t make without changing discretionary spending habits, Greenspan added. “A lot of people are unwilling to make the sacrifices necessary to obtain the restructured debt.”

Another factor, according to Greenspan, is that the prices of real estate will continue to fall in some markets for a couple of years before stabilizing. If the borrower is planning to leave the property in that amount of time — sometimes just defaulting on the mortgage even if it has been restructured — then it is in the lender’s interest to foreclose sooner rather than later.