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BORROWERS STRUGGLE DESPITE EQUITY GAINS
e ongoing price recovery and rise in
positive equity around the country has been
cause for celebration among many industry
commentators—but they're not much comfort
to those who continue to struggle to pay their
mortgages, Fitch Ratings says in a new release.
While equity is an important factor in terms
of borrowers' payment behavior, Fitch reminds
readers that income and ability to pay are also key.
"It is clear that rising home prices have
had a positive influence on borrower behavior.
However, some portion of borrowers still
exhibit an inability to recover as the economy
has moderately improved," the agency said in its
analysis.
Over the last two years, Fitch estimates the
percentage of borrowers entering foreclosure
with positive equity has roughly doubled.
is trend is particularly evident in many
of the residential mortgage-backed securities
(RMBS) loans that have entered into the
foreclosure process in recent years.
"In many cases, troubled borrowers with
equity are unable to sell their properties because
the proceeds of the sale would not be enough
to cover the mortgage amount, the closing
costs, and the backlog of missed payments," the
company explained. "Loans entering foreclosure
today have missed roughly two years of payments
on average, more than double the pre-crisis, long
term average."
Complicating the matter are today's tighter
loan underwriting and origination guidelines,
which Fitch says could prevent many struggling
borrowers from tapping their home equity to
cover expenses. "Under the existing regulatory
framework, residential mortgage servicers have
many tools at their disposal to help struggling
homeowners.
However, servicers are often left with few
options other than foreclosure for borrowers who
are unable to make regularly scheduled mortgage
payments, despite their interest in remaining in
their homes," Fitch said.
"is is especially true in situations where
borrowers have equity in the property and have
payment problems even after loan modifications
involving significant rate reductions."
