Mortgage servicers play critical role in how U.S. foreclosures affect communities

by Ryan Smith03 Aug 2015
Mortgage servicers can play a critical role in whether communities experience the negative effects of foreclosure sales, according to a new study.

The study, conducted by Abt Associates senior analyst Hannah Thomas, found that the sales practices favored by mortgage servicers generally favor investor-buyers. Those buyers are generally in better shape to absord the risk of a foreclosure sale.
However, the study found that those practices could lead to higher property vacancy rates. Higher vacancy rates lead to declining property value, which in turn can lead to increases in criminal activity.

“Preserving community assets is a critical component in maintaining and improving neighborhood quality of life,” Thomas said. “There are a few simple steps we can take to ensure that our housing credit and foreclosure systems work toward building neighborhoods up rather than tearing them apart.”

According to the study, because the majority of home loans are serviced by just a few large companies, those companies tend to have a “one-size-fits-all” strategy when dealing with delinquent homeowners. As a result, foreclosed properties sell lower and have a higher vacancy risk.

Thomas made two policy recommendations to address the issue:
  • Working with homeowners to help them find mortgages they can afford and allowing them to re-purchase their foreclosed homes at current market value
  • Creating a real estate network that would connect underwater homeowenrs to buyers who are ready to close
Taking those steps, she said, could help prevent delinquent homes from becoming lender-owned.
 

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