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CFPB Putting an End to the Growing Trend of Zombie Foreclosures

By on March 18, 2014 in Market Updates

CFPB Putting an End to Zombie Foreclosures

Zombie foreclosures are still trending, since the start of the housing crisis. There is an estimate of two million properties foreclosed that have still not yet recovered according to various sources. The Consumer Financial Protection Bureau (CFPB) now has plans to try and stop this growing trend as announced in a Common Ground Conference.

At a recent Common Ground Conference this month (March 03, 2014), Steve Antonakes, CFPB Deputy Director announced plans on the steps and measures that the CFPB will take on, in order to ensure that the trend of zombie foreclosures does not continue to increase any longer. The strategic plan would start by providing consumers the appropriate information needed in order to make a financially informed decision best suitable for them.

There has been a high volume of mortgage complaints since the CFPB decided to take in complaints from consumers, averaging 4,900 complaints each month. Perceived as the heart of the issue, mortgage loan originators are to abide by the new Ability to Repay “QM rule” (Qualified Mortgage), as stated by Steve Antonakes,

“Now, obviously, mortgage lenders do not have a crystal ball: they cannot predict if someone will lose their job or have an unexpected financial emergency. But they must look at a consumer’s income, assets, and at their debt, and must weigh them against the monthly payments over the long term. In other words, lenders must revert to responsible lending.”

On another note, the CFPB Deputy Director pointed out the mistake of mortgage businesses in the past who had failed by not thoroughly checking the qualifications of consumers, tricking borrowers into believing that they could afford a mortgage, in which led up to the millions of foreclosed properties in the midst of the housing crisis.

The next focus of this strategic plan was on the basic regulations in mortgage servicing, since servicers are the ones to administer the payments and rally up the loans, they are to work out modifications on loan terms with borrowers when necessary to prevent not just additional zombie foreclosures, but wrongful foreclosures.

Due to the high volume of foreclosures in the state of Nevada for example, there is now a Home Again Program that was initiated by the Nevada Attorney General in collaboration with counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD). Already averaging 1000 calls each month within the first year of inception (January 2014), the Home Again Nevada program has already proven to be resourceful in helping those who are:

  • Facing foreclosure
  • Seeking a loan modification in their mortgage
  • Potential first-time homebuyers
  • Individuals seeking help in credit restoration

The restriction of “dual tracking” has also been implemented this year, this restriction prevents servicers from being able to start the process of foreclosure by giving the borrower a delinquent grace period of no more than 120 days. Another benefit of this restriction also gives the borrower a chance to timely submit a completed application for loss mitigation exceeding 37 days before a foreclosure is scheduled to take place, during this time a foreclosure sale cannot occur until all options such as a loan modification, deed-in-lieu of foreclosure, or short sale is already considered on the homeowner’s end. Once a loss of mitigation is reached, unless the homeowner does not comply with the agreement then the property cannot be foreclosed on.

The CFPB Deputy Director also added, as quoted, before turning the topic to student debt,

“With the servicing rules now in effect, we have made it very clear to the industry that certain practices will simply not be tolerated. While we are looking for servicers to make a good faith effort to comply, this does not mean that servicers have the freedom to harm consumers. We expect these simple protections to help prevent needless foreclosures, which is best for the borrowers, lenders, and our entire economy.”

Zombie foreclosure properties results from a default of a mortgage, in which the lender or banker is not obligated to foreclose and take the legal title of the property but may choose to charge off the debt and walk away from the property. During these circumstances, the lender is not required to let the homeowner know the dismissal of the foreclosure. In most cases, these homeowners are not aware that they still have ownership and title to the property but have already moved out. Zombie foreclosures can have a crucial impact on a borrower’s credit, and can face penalties and fees, and in some cases homeowners may even have to face legal action.

Nevada has been struggling with foreclosure since the start of the housing crisis and has landed each month on the list of the Realtytrac’s top five states in the U.S. with the highest number of foreclosed properties. Zombie foreclosures have been haunting the housing recovery for many years now, not just in the state of Nevada but across the nation, with the help of the CFPB perhaps we may see a declining trend in foreclosures starting in 2014.

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About the Author

About the Author: Jessica Lucas is the managing editor for Mortgage Home Base, a top real estate finance blog dedicated to helping borrowers and home buyers understand the home loan process. Follow Jessica on Google +, and share your comments here. .
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