Oct 3, 2009

Why banks aren't foreclosing...

You think this may not relate to you personally, but what is going on in the banking business is..... monkey business.
It involves the Mortgage Housing Crisis.

As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages

Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.…

So why do we have this shadow inventory? There are three possible causes:

First, It’s taking quite a long time to figure out which borrowers qualify for the Obama administration’s mortgage modification program. It’s also taking time to process the deluge of applications. During the wait, borrowers remain in their houses which, otherwise, would be in foreclosure. Those who don’t get the modification will ultimately face foreclosure.

Second, with so many foreclosures, banks likely just have logistical issues getting them all processed in a timely manner. There’s a heap of paperwork and other red tape involved in making a foreclosure happen. Banks have never experienced a flood of foreclosures like this, so they aren’t equipped to handle so many very quickly.

Third, banks may not want to foreclose on all of these homes immediately. A WallSreetJournal source above used the analogy of foreclosures hitting the market like “a fire hose or a garden hose or a drip.” Which do you think would be better for housing prices? The drip. The 'drip' that the bank bailout paid for...the drip that will be like the hole in the damn and will soon escalate to a gusher.....and could end up being the trigger that hits the hearts of Americans. Everyone is looking for the trigger...this may be it.

If it takes this long to figure out and use Obamas Mortgage Modification Program, my god, what will the Healthcare Reform be like?'s another experts opinion:

First, banks have had plenty of time to sort out who qualifies for a modification. In the couple of months after the modification plan was announced NODs and NTSs began to increase rapidly…indicating that the banks were able to sort through their customers quickly. However, in the last couple of months, NOD and NTS activity has fallen dramatically. There must be another reason why banks aren’t foreclosing.

Second, banks have been gearing up for the tidal wave of foreclosures for 2 years now.

Third… Banks don’t care about home prices. They care about NOT losing money. Because the government changed mark-to-market accounting rules, the link between low prices and losing money is broken.

Banks make more money by NOT foreclosing on homes. Banks are dragging out the foreclosure process for their own selfish reasons. Until the day they foreclose, the amount of money owed to them is an asset…sure, it’s an asset that isn’t paying interest payments…but it is still an asset. The day they foreclose, a $400,000 asset could become a $150,000 asset and a $250,000 loss.

Multiply that loss by 10, 20, or even 30 times leverage and there are several million dollars worth of new loans that the bank can’t make.

Faulty government programs and doctored accounting rules have produced the fiasco before us: There are roughly 4 million homes that should be foreclosed on but they won’t be any time soon. This enormous can is continuing to get kicked down the road.

Economists are predicting a recovery. They say that our various programs are making an impact. In reality, all they’ve done is kick our can of reckoning a little further down the road.


Here's an interesting tidbit:

Homeowners who 'strategically default' on loans a growing problem. The article begins: "Who is more likely to walk away from a house and a mortgage -- a person with super-prime credit scores or someone with lower scores? Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers."

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