David Streitfeld reports for The New York Times,
In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.
Across the Hudson it would take 49 years to clear New Jersey’s foreclosure backlog. In nonjudicial foreclosure states like Nevada and California the backlog is not as great–3 years in California, 2 in Nevada. Everyone has heard stories about people who have not made a mortgage payment in months and haven’t heard a peep from their lender.
“If you were in foreclosure four years ago, you were biting your nails, asking yourself, ‘When is the sheriff going to show up and put me on the street?’ ” Herb Blecher, an LPS senior vice president told the NYT. “Now you’re probably not losing any sleep.”
The robo-signing scandal has put a crimp in the major banks’ ability to take title around the country and now new foreclosure cases and repossessions are down by nearly a third nationally since last fall, while in New York, foreclosure filings are down 85 percent since September.
The sheer number of defaults has overwhelmed the banking system and, Streitfeld writes,
Judges these days are also more inclined to scrutinize requests for eviction rather than automatically approve them. The so-called foreclosure mills — law firms that handled many of the suits for the banks — are in retreat under law enforcement pressure. And some analysts suggest that banks are reluctant to take too many houses onto their books at any one moment for fear of flooding a shaky market.
In Dade County Florida the average time to foreclose is up to 738 and counting, with the average in most of the country ranging from 220 to 585 days, even including nonjudicial states.
With millions not paying on their mortgages while still having a roof over their head, one can only guess to what extent this is propping up retail sales and the like.
Until the malinvestment in housing is cleared there can be no real recovery. When will that be? Somewhere between 2 and 62 years.
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This is astounding. I’m guessing this also puts property tax collections in legal-limbo-land. No wonder the banks aren’t foreclosing; they’d have to clear the tax liens. And local governments, without the steady flow of checks from escrow agents, are unable to pay maturing bonds.
“Until the malinvestment in housing is cleared there can be no real recovery. When will that be? Somewhere between 2 and 62 years.”
Testify.
Actually in most cases the bank still pays the taxes or else they would lose the house to whoever paid the delinquent tax bill.
Of course the taxes paid along with penalty fees and interest etc is added to the borrower’s balance, so it increases as these items are added.
In recourse states the bank will sell the house for whatever they can get, but the borrower still owes the difference between what the bank got and the amount of the loan with all of the fess added to it.
This is going to end very badly. This will bankrupt the banks and government. Judges won’t be laughing when governments go bankrupt and the Judges are suddenly without a paycheck and their pension fund vanishes into thin air. Who is paying the property tax? What happens to all the local redevelopment funds and bonds? Who will buy the property without clear title and who will pay the back taxes? Who will invest in any of these neighborhood unless they are planning on using force of arms? Will the squatters acquire the property through adverse possession? This is just the start of the depression and the revolution. We ain’t seen nothing yet.
[ "Until the malinvestment in housing is cleared there can be no real recovery. When will that be? Somewhere between 2 and 62 years." ]
The current ‘housing malinvestment’ problem is that lenders issued mortgages to people who could not pay them back … AND… lenders can’t now seize the loan collateral (houses) for mortgage default– due to sloppy lender paperwork & negligence.
So the lenders/banks/investors lost their money. That’s what always happens with bad investments.
“Clearing” that ‘malinvestment’ is a simple accounting matter of recording the market loss accurately in the books.
Of course, the banks and investment companies generally won’t yet do this because they correctly fear the accounting truth will ruin them… by revealing their insolvency. But truth will easily clear this national problem
A secondary issue is disposition of the real assets (houses)… where true ownership/title can’t now be legally determined due to sloppy record-keeping. Simple, quick solution is for the courts/government to take control of the disputed property… like normal cases of lost/unclaimed property in a state. Mortgage payers make their normal monthly payments to a court escrow account– and they get full title to the property when they pay off their mortgage… if not the court evicts them.
You were doing fine until the last paragraph. Legal title is not in dispute: the owner’s name will be on a deed at the courthouse. The problem is the ownership of the mortgage: which entity is entitled to foreclose and obtain legal title after the owner defaults on his contract with the bank? It’s not MERS, so in a number of cases nobody knows who it is. The government legally can’t (and practically, won’t) “take over” the ownership of a mortgage. You have the concepts confused.
Agreed.
It’s a nightmare out there. The market clearing process is hampered by various government and industry rules. Talk to bankers and they whine about paperwork hurdles and regs. Talk to equity guys and they say the market for cheap (ergo, potentially profitable) paper had dried up. Talk to homeowners and all they want is a negotiated deal to keep the house, albeit for lower payments. All three of these groups could make killer deals. All three will not because of Uncle Sam. ( I should note that CONNECTED bankers, equity guys and homeowners can still get killer deals. Mortals are not invited to the party – except for a few exceptionally good ones. I am constantly reminded of Dagny and Hank.)
Yet another classic example of decades of federal tampering resulting in a constipated segment of the economy. Horrible.
Also, it should be said that the banks do not want to foreclose on everything, particularly properties that are under water and behind in their property taxes – if they did they would become insolvent.
(Also, foreclosed properties tend to be trashed,and have deferred maintenance problems).
Much better to borrow from the Fed at close to 0% and “wait until house prices go up”. Even if they repossess the house, they still have to sell it. Nobody can get a loan to buy these days.
Robo-signing has screwed up the chain of title on many properties so that title insurance companies will not issue policies.
Also, it is better for Fannie and Freddie to be bailed out $20 billion at a time every quarter – over 62 years, you might not even notice!
During and just out of college I worked for a mortgage lender in Buffalo NY. My job was to shuffle loans to Fannie and Freddie as fast as possible. We pushed 98% of our loans to the government, all day every day. I have a feeling most of what is being talked about in this NYT article is mainly in Western NY. If you want to see block after block after block – 10s of thousands – of abandoned houses, spend a day in Buffalo. And read James Ostrowski’s “What’s Wrong with Buffalo?” beforehand.
Here: http://www.lewrockwell.com/ostrowski/ostrowski99.1.html
Interestingly though, my job there made me wonder what exactly I was getting paid to do all day long. My need to answer that question eventually led me to Murray Rothbard’s books on banking, and to the Mises Institute. Neat how that works sometimes.
Thank you for the link. Great piece. So many gems – too many to mention.
Thanks again.
|”The government legally can’t (and practically, won’t) “take over” the ownership of a mortgage…” –The Anti-Gnostic |
The government would not legally “take-over” the mortgage note (ownership) — a jurisdictional court would merely supervise continued collection/retention of mortgage payments under terms of the original note in an ESCROW account… until the true note-owner could be legally identified. Once identified, the true owner gets the escrow proceeds and resumes normal mortgage-note ownership.
If the true owner of the mortgage-note can not be identified within a year or so — then ‘ownership’ of that mortgage-note would transfer to the state government. That’s generally what happens when a lone homeowner dies intestate without heirs– the state gets the real estate/equity. Courts routinely deal with unclaimed and lost property.
Note that this problem only arises in legal foreclosure court proceedings… where the plaintiff can’t prove legal ownership of the mortgage-note (apparently a huge problem under MERS). Nowadays, the alleged holders of defaulted mortgage-notes certainly know beforehand whether they can actually prove their mortgage-note ownership in court… and should unburden the courts from frivolous foreclosure petitions if they can’t easily prove their case — they should honestly take the loss and record it properly in their formal accounting books.
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