By Catherine Curan
May 7, 2017
New York homeowners are in default mode — again.
The city leads the nation in repeat foreclosure filings
And the winner in all this is the residential mortgage servicing industry, which collects monthly payments and cashes in on fees for every homeowner’s misfortune.
The number of repeat foreclosure filings in New York City far outstrips that of other major cities like Los Angeles, while New York state is No. 1 for repeat foreclosures, outpacing every other state and the US as a whole.
In a report prepared exclusively for The Post, Attom Data Solutions found that in New York City last year, roughly 4,900 — or more than half of all new foreclosures filed — were repeats, up from just 5 percent in 2008.
Statewide, 73 percent of the 49,200 new foreclosure cases — or roughly 35,916 foreclosures — over the past 12 months were repeats, up from 20 percent in 2007, according to Black Knight, which collects data reported by servicers.
Refilings, which occur when borrowers land in foreclosure more than once for the same property, can happen for a host of reasons, from a failed loan modification to a foreclosure being dismissed when the servicer can’t prove it owns the loan and later refiles the case.
Refilings are rife in eight of the top 10 neighborhoods with the highest rates of foreclosure notices in 2015, including Highbridge, Morrisania and East Tremont in the Bronx, and Brownsville and East New York in Brooklyn.
“The same owners in the same properties … are stuck in distress that never seems to resolve,” said Daren Blomquist, senior vice president at Attom, adding, “It’s more acute in New York than in other markets.”
Re-defaults, which occur when a borrower falls back into default after becoming current again on payments, are rising as servicers reach ever deeper into the pool of distressed debtors, modifying loans for borrowers with poor credit and multiple prior failed modifications, says ratings agency Fitch.
Analyzing 700,000 loans with a balance of $135 billion at modification, Fitch found a rapid rise in re-defaults on loans modified since 2014, while the cumulative default rate of loans modified in 2015 is the highest of any modification vintage since 2010.
Failed modifications are debt traps for homeowners.
The Home Affordable Mortgage Program (HAMP) put in place by former President Obama in 2009, was supposed to help troubled homeowners remain in their house while working out a new loan with their lenders.
However, in practice, it was a boom for servicers, who placed people in the program and collected fees, while providing little debt relief.
“HAMP was a [government] forbearance program that left people at the edge of the cliff,” said Damon Silvers, former deputy chair of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP).
Principal reductions on the debt could help stem the rising tide of re-defaults.
But Obama chose to structure the modification programs to protect bank balance sheets rather than force lenders to write down bad loans.
Servicers make money from servicing fees (which are about 0.25 percent of the outstanding balance on a fixed-rate Fannie Mae loan) and other related charges, including late fees. Loan modifications bring in higher fees, said forensic accountant Jay Patterson.
Servicers have an inducement to work on re-defaults since they get paid up front for modifications.
Servicers get incentive payments for doing a modification, and higher base servicing fees, thanks to the increased principal and interest payments from a capitalized modification.
Some actions have been taken against the servicers. Ocwen was hit last month with a lawsuit from the Consumer Financial Protection Bureau alleging a stunning array of abuses and violations, including illegal foreclosures.
In 2012 Ally/GMAC, BofA, CitiMortgage, Chase and Wells Fargo — the five largest mortgage servicers at the time — agreed to a $26 billion settlement with the federal government and 49 state attorneys general.