Note: Fixed broken Wiki link.An article by American Banker showing how the banks are foreclosing on as few properties as possible in a desperate hope to not realize losses right now. This article is a must read (free registration may be required). A classic prisoner's dilemma is forming. As the old saying goes, "Don't panic. But if you do panic, panic first".
From the article (emphasis added):
Oh what a tangled web we weave...
From the article (emphasis added):
Pick up just about any city's newspaper or turn on any news show, and if the topic is real estate, the banking industry is likely being lambasted for foreclosing on troubled homeowners.
But industry data and anecdotal evidence suggest banks and servicers have been dragging out the process — not rushing to kick people out of their homes
...
"The goal is to hold off on foreclosures and take losses as slowly as possible to keep balance sheets up,"
...
The foreclosure process — and it is a process — now takes, on average, 18 months to two years, up from 15 months a year ago...plenty of signs indicate that the mortgage companies themselves are in no hurry to seize their collateral.
...
"There are borrowers who are six or eight months in default; they may have exhausted their workout options; but they're put on a forbearance plan because it's an interim to a final resolution, which is foreclosure," he said. "Banks don't want to take the losses now."
...
"Banks are believed to be carrying a lot of loans at accounting levels well above their true market value," he said. "But once a property goes into foreclosure, their options have disappeared."
...
"we do not believe that prices are actually improving for any part of the housing market, except possibly certain foreclosure markets due to a shortage of foreclosed inventory from the recent drop-off in liquidations. … This drop-off has nothing to do with fewer people becoming delinquent. … Instead, it has to do with banks and servicers reducing the rate at which they take back the properties."
...
banks now see an advantage in modifying instead of foreclosing "because it cures the delinquency and they may get par value out of the loan, if property values are stable. Even if they get [only] a few payments, if property values go up, they could do a bit better once they take out the borrower."
Oh what a tangled web we weave...
5 comments:
Would this qualify as shadow inventory? I see this happening in my small town...you can see all the brown lawns, talk to the neighbors who haven't paid in months and are still in the house, or the foreclosure process is just taking forever? People here are saying we have hit bottom but they still want $400,000 for stucco McMansions. I sure wish I knew what the next year is going to be like.
I definitely consider this the real shadow inventory (as opposed to some peoples view that the banks are sitting on already foreclosed homes not putting them on the market).
I just dont know how we can consider this bottom with the massive number of defaults not being dealt with (kicking the can down the road) and the Fed supporting the market with $1.75 trillion in various purchases using printed money. 5% rates simply wont last (imho!) and this "bottom" call is based on the uber low inventory caused by the banks letting borrowers slide and uber low rates.
Thanks for stopping by.
Are there any kind of laws that limit the length of time a bank can delay foreclosing on a home? At what point does a bank finally decide to cut the cord and take the loss? What incentive do they have to ever foreclose on a property if they are going to take a ~$150k hit on their balance sheet for each house they foreclose on?
Richie,
There are laws on how long NOD & NTS are good for before they need to be refiled.
For taking the loss it isn't a law but regulation by the regulators that says by what point they have to recognize the loss. In the article they indicated that was 180 days.. but I think the banks are still overvaluing what they have on the books.
They arent getting the borrowers to pay and the home is worth more sold than keeping the borrower in it. But they aren't recognizing the lower value at what it would sell at.
When does the 180-day clock start - the last day that the borrower made a full mortgage payment on time?
Post a Comment