The New York TImes - Matthew Goldstein - 30 March 2017
The number of home foreclosures is down sharply from the depths of the financial crisis, even as many of the mortgage firms involved remain the same, including Fannie Mae, Wells Fargo, Bank of America and JPMorgan Chase.
But the latest foreclosure rankings also include a number of firms that barely registered or did not exist when the crisis began a decade ago.
These new entrants include firms affiliated with the private equity giant Lone Star Funds, the mortgage lender PennyMac Loan Services, the investment bank Goldman Sachs and the mortgage firm Carrington Mortgage Services.
This changing of the guard in the foreclosure rankings, based on data compiled by RealtyTrac, reflects the new reality that most foreclosures today are not coming from mortgages written during the post-crisis period, but from soured loans written before the crisis that are in the final stages of liquidation.
Quicken Loans, for instance, one of the top originators of mortgages issued during the last few years, ranks relatively low in terms of recent completed foreclosures, according to the RealtyTrac data.
Most of these newer firms that are moving up in the foreclosure rankings are ones that have bought soured mortgages and are looking to profit by restructuring those loans and getting delinquent borrowers to start making payments again. And when those efforts fail, the firms are foreclosing on borrowers, taking back the homes and reselling them.
Firms affiliated with Lone Star, PennyMac, Goldman and Carrington all have been staple buyers of distressed mortgages, either from big banks directly or from government agencies. Lone Star, a $70 billion private equity firm based in Dallas, has been one of the largest buyers and works in tandem with its wholly owned mortgage firm, Caliber Home Loans.
“The players who are running counter to the overall trend in foreclosures are ones who have been involved in purchasing nonperforming loans over the past few years,” said Daren Blomquist, senior vice president of ATTOM Data Solutions, the parent company of RealtyTrac. He added that these new firms were “taking on the risk that the big banks want to distance themselves from as much as possible.”
Foreclosure activity in the United States stemming from the financial crisis peaked in 2010 with lenders foreclosing and taking possession of about 835,000 homes, according to RealtyTrac. Ever since, the pace of foreclosures has been on a downward trajectory. Last year there were 264,458 foreclosures — the lowest number since 2006, the data firm said.
At the big banks, the decline in foreclosures is striking.
In 2016, JPMorgan foreclosed and took the titles of 6,221 homes compared with 25,126 homes in 2010. At Wells Fargo, the number of completed foreclosures last year was 17,850, down from 57,098 in 2010. And at Bank of America, 7,756 homes were foreclosed on, compared with 43,612 in 2010, according to RealtyTrac.
The number of foreclosures is down as a result of big banks’ selling delinquent loans and modifying distressed mortgages to comply with the terms of their multibillion-dollar settlements with federal and state authorities. The settlements arose out of investigations into the banks’ sales of flawed mortgages and mortgage bonds in the run-up to the financial crisis.
In the case of Bank of America, the monitor named to oversee its $16 billion settlement recently reported that the bank had completed its obligation to provide $7 billion in so-called consumer relief as part of that deal. In a March 17 report, the monitor, Eric D. Green, said Bank of America had received credit for restructuring and lowering payments to borrowers on more than 130,000 mortgages.
Under the terms of the mortgage settlements, banks do not get credit for foreclosing on a mortgage. So some banks have dealt with their thorniest delinquent mortgages by selling them to upstart firms willing to buy loans at a steep discount on the gamble that they will have better luck restructuring them.
PennyMac, for instance, has bought nonperforming loans from Citigroup, and Lone Star has bought bundles of soured mortgages from JPMorgan Chase and HSBC.
Lone Star has also been a major buyer of delinquent mortgages sold by Department of Housing and Urban Development and Fannie Mae, the giant government-controlled mortgage finance firm.
A Goldman subsidiary, MTGLQ Investors, has emerged as one of the largest buyers of distressed mortgages from Fannie. The Wall Street bank is buying the mortgages to meet its consumer relief obligation under the terms of its $5 billion mortgages settlement with federal and state authorities.
The buying of those delinquent loans and the inability to restructure all of them is now showing up in the foreclosure ranking for those firms.
In the case of Lone Star, affiliates of the private equity firm foreclosed on 4,980 mortgages last year and 5,378 in 2015, the data shows. By comparison, Lone Star affiliates foreclosed on just 147 mortgages in 2010.
PennyMac, which was founded in 2008 with just 72 employees, foreclosed on 1,281 mortgages last year and 1,594 in 2015. The firm foreclosed on 361 home loans in 2010. Today, PennyMac employs more than 3,000 employees and is the nation’s fourth largest originator of new mortgages.
Firms buying nonperforming loans have consistently said foreclosure is the last resort. The firms all contend that they make more money by getting delinquent borrowers to start making monthly payments again, as opposed to foreclosing on and selling vacant homes.
“Our best solution is keeping families in their homes with foreclosure as the last option, as evidenced by the 6,747 loan modifications we completed last year,” said Stephen Hagey, a representative of PennyMac, a California-based mortgage firm.
But with Fannie Mae and its sister company Freddie Mac looking to sell tens of thousands of distressed mortgages in the coming year, the new mortgage firms will continue to catch up to the banks.