FHA and VA foreclosures could more than double by next fall, executive predicts
“In the initial stages, 60% of the borrowers were defaulting on their trials,” she said. “Across our network, which I think is a pretty good sampling, we saw about 60% of these people failing because these were the steady people that just kept re-hopping on. They would make one payment, sometimes none, and get another partial claim.”
That rate has since moderated as the chronic re-defaulters cycled out, with failures dropping to 40 to 50 percent, Schmidt said. Borrowers who completed their trial plans and received modifications are now re-defaulting, and FHA’s 24-month rule is leaving some with no options.
The VA situation has a different cause. Schmidt said that since Congress canceled the Veterans Affairs Servicing Purchase (VASP) program, the partial claim program that replaced it is narrowly eligible and can only be used once in the life of a loan.
In the current rate environment, VA borrowers who defaulted on loans at 4% are being modified to a market rate of roughly 7.125% based on current PMMS calculations, meaning a borrower who could not afford the lower payment now faces a payment nearly double that amount with no reduced-payment alternative available.
“There is nothing for these borrowers,” Schmidt said. “Nothing. What about the borrower with a loss of income? What about a borrower whose spouse has passed away and lost half their income?”
