Giant mortgages, giant foreclosures
No one ever said life was fair, and when it comes to home ownership, in spite of decades trying to even the playing field, there are still plenty of players left on the benches. When it comes to bank foreclosures, if you own a property with a $1 million mortgage about to go into foreclosure, chances are you'll have more time before the bank pushes you out.
According to the Mortgage Bankers Association, for people with foreclosed loans under $250,000, banks took an average of 611 days before taking back the property. Borrowers with loans of at least one million dollars were able to stay in their homes for an average of 792 days. The question is why?
Apparently, banks tend to keep larger mortgages on their books longer than smaller mortgages. Smaller mortgages are more likely to be bundled and resold to investors as securities, while larger mortgages are held by individual banks to enhance their standing and also with the hope of gaining other business from wealthier clients.
In addition, banks view wealthy homeowners as having more options when trying to get themselves out of financial danger. Their chances of future employment or additional income and bonuses is generally better than the average middle class borrower, therefore, the banks are more likely to extend them time.
Also, banks try very hard not to foreclose on homes in any price range, since they simply do not want to maintain the property. That fact is magnified on luxurious properties that require a lot more expensive maintenance than your average three-bedroom, two-bath, 2,000 square-foot family home.
But that's not the whole story. A good part of the reason banks are slower in foreclosing on larger homes is because wealthier homeowners tend to be more sophisticated at stalling the foreclosure process. They are in a better position to hire attorneys to find a way to keep them in their home and using the court system to their advantage in delaying the inevitable. For some of these homeowners with large mortgages, it is less expensive to hire an attorney than pay the mortgage on a home that is upside down in value.
That being said there are only 0.7 percent of mortgages in foreclosure that are above $1 million compared to 71 percent less than $250,000 and 94 percent below $500,000. The perception may be that the wealthy are getting a big break, but the reality is that the majority of foreclosures are not in those price ranges.
On another note, a few weeks ago I wrote about surplus lines of insurance being proposed by the Florida legislature as a way of off loading policies from Citizens to private insurers. After the original bill was amended by consumer focused groups, that changed the bill to require a signature before a surplus lines insurer could take over the policy from Citizens, it was put on hold in the Florida House and not passed on to the governor for approval.
The sponsors of the bill felt the changes in the bill would discourage surplus companies from writing policies in Florida. The bottom line is this latest effort to downsize Citizens didn't work, so it's unlikely we'll see any changes this year.
I guess if you're looking for fairness, you won't find much of it in either banking or insurance. Come to think of it, I'm not sure where to even look.