Top 10 states for long-term delinquent mortgage squatting

HAWAII TOPS THE LIST OF THE STATES WITH THE HIGHEST PERCENTAGE OF BORROWERS WHO REFUSE TO PAY THEIR MORTGAGES FOR THREE YEARS OR MORE. A FREE HOUSE IN HAWAII HANDSOMELY REWARDS BAD BEHAVIOR, DOESN’T IT?

by Larry Roberts, OC Housing News, September 23, 2016 (excerpt)

Millions of Americans borrowed money under unstable loan terms during the housing mania of the 00s. When these loans reset or recast to higher payments, millions of borrowers stopped paying, which precipitated the 2008 recession, causing millions more to stop paying their mortgages. The downward spiral lead to over six million foreclosures nationally.

Once these borrowers failed to make payments, banks foreclosed on them — at least at first. By late 2008, it became apparent that foreclosing on all these delinquent loans at once and reselling the properties on the open market would push prices down so far that lenders wouldn’t recover their original loan capital. Lenders responded by offering loan modifications, but many borrowers refused to pay even with more generous terms. Since lenders weren’t in a position to foreclose, and since borrowers refused to pay, millions of borrowers simply lived in the property without paying anything: they became delinquent mortgage squatters.

When faced with the prospect of living without any housing costs indefinitely or moving out to a less-comfortable rental and spending money on housing, it should surprise no one that many people chose to squat and live for free. The lingering uncertainty as to when the lender would eventually foreclose causes people emotional distress, but eliminating a monthly bill that consumes 30% to 50% of a family’s income more than makes up for it.

Most borrowers in default don’t move into a rental and move on with their lives. Those borrowers game the system for as long as possible to obtain free housing. These delinquent mortgage squatters are the legacy of stupid lending in The Great Housing Bubble.

Top 10 states for long-term delinquent mortgage squatting

So how bad is this problem? Are we talking about a few isolated cases, or is this a systemic rot? Last year I reported that 362,000 American delinquent mortgage squatters refuse loan modifications. These are the most hardcore. Black Knight reports that 2,836,000 borrowers are 30 days or more behind on their mortgages.

When Edward DeMarco ran the GSEs for the FHFA, he foreclosed on delinquent borrowers, so very few delinquent squatters’ loans pollute the residential mortgage-backed securities of agency loans. The private-label RMBSs are a different story. These loans reside on the books of investors and major banks, and this is where mortgage squatters find safe haven because the values of their properties haven’t risen enough for lenders to foreclose and recover their capital.

Keith Jurow provided me the chart below showing this is not an isolated problem.

Borrowers in Hawaii who refuse to pay their mortgages enjoy a free Hawaiian vacation. A shocking 76% of delinquent mortgage squatters enjoyed a free house for more than three years, 61% enjoyed a free house for more than five years. Wouldn’t you appreciate a free Hawaiian house in perpetuity? I would. In fact, I would list the property on AirBnB and travel the world while someone else pays to rent my free house….

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