More Owners Told to Pay Decade-Old Loans

During the Great Recession, lenders charged-off second-mortgages and sold them to investors, who are now demanding payment from surprised homeowners.

NEW YORK – Homeowners are facing large bills and even foreclosure threats from investors who own second mortgages that they haven’t thought about in over a decade – and in most cases assumed were dead.

In most cases, the demand stems from a second-mortgage loan homeowners took out during the Great Recession more than 10 years ago. With home values hitting new highs now, though, the investors who own those old second mortgages have decided it’s time to collect.

Many homeowners say they were unaware that their second mortgages still existed.

When the market hit a point where many homeowners could not pay their first mortgage, much less a second one, lenders often “charged off” these loans, deeming them unlikely to be repaid after borrowers fell behind. After that, many owners stopped receiving monthly statements, giving them the impression that the mortgages had gone away.

However, the lenders didn’t actual cancel the second mortgages – they sold them to other investors.

Now, some borrowers could lose their homes even though they’ve been consistently paying the bill they receive each month for their primary mortgages.

About 1.84% of active second mortgages originated between 2005 and 2008 are late on payments by 90 days or more. The delinquency rate on all second loans is less than half that, according to Black Knight.

The Consumer Financial Protection Bureau (CFPB) held a hearing on these second mortgages in April. The agency released guidance telling certain debt collectors that they cannot threaten judicial actions, such as foreclosures, for debts that are past a state’s statute of limitations.

“The CFPB is hearing increasing reports of debt collectors seeking to resurrect these expired second mortgages,” CFPB Director Rohit Chopra said at the hearing, where he referred to them as “zombie mortgages.”

Source: Wall Street Journal (06/04/23) Friedman, Nicole; Eisen, Ben

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