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Tis the Season: Lenders Stop Foreclosing

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Many large lenders and investors have stopped foreclosures for the holiday season.

"We're taking this step in support of families who have faced financial challenges and gone through a foreclosure," said Terry Edwards, Executive Vice President of Credit Portfolio Management at Fannie Mae. "The holidays are a chance to be with loved ones and we want to relieve some stress at this time of year. We encourage homeowners having difficulty to reach out for help as soon as possible."

"We are instructing our foreclosure attorneys to suspend pending eviction lockouts on foreclosed homes in order to provide a greater measure of certainty to families during the holiday season,” said Tracy Mooney, Senior Vice President of Servicing and REO at Freddie Mac.

Such statements of concern suggest that relieving borrower stress and providing financial certainty to the financially doomed are core values within the lending system. 

A cynic might disagree and wonder if the usual year-end moratorium takes place because foreclosures are difficult to complete when lots of lawyers, judges and sheriffs are out of the office.

Besides, is there really a mortgage-backed security, deed of trust or mortgage warranty that says, hey, don't worry, we won't throw your furniture on the front lawn the day before Christmas?

Forgive Us – At Least For A Few Weeks

I just finished refinancing a residential mortgage. At closing there were something like 160 pages of documentation. It's just a guess but I suspect not a single sentence said anything about a period of forgiveness during the holiday season, July 4th or borrower birthdays.

The annual forgiveness festival is simply an example of loan modification. It doesn't matter whether those days are weekdays, weekends or holiday observances, by not foreclosing as quickly as possible lender losses are actually growing because interest is not being collected for a longer period.

Lenders complain that it takes too long to foreclose, especially in those states where the loss of a home must first be approved by a judge. It's a hard argument to justify when at the same time lenders delay foreclosures voluntarily.

Lenders have been telling us since the invention of the mortgage that loan terms cannot be changed, that they are eternal and immutable, that the power of the mortgage contract is as stable and enduring as gravity. Except, of course, for adjustable-rate mortgages, where interest rates and monthly payments can go up and down according to some “independent” measure which lenders do not control, such as the LIBOR rate....

The fact is that every short sale is an example of a loan modification, a situation where a lender agrees to take something less than the amount contractually due. And every foreclosure is a forced loan modification, something a lender cannot prevent.

So Happy Holidays and best wishes for the New Year. But beware of elves who say they will stop foreclosures for the holidays. After the ball comes down in Times Square you can bet that the good financial feelings of the season will soon be gone.

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