The Foreclosure Aftershock
Experts Predict 4-5 Million New Foreclosures Due To Hit In The Coming Month
According to quite a few experts, among them Moody’s, Standard & Poors, and a number of independent financial analysts, the recent upswing in home prices and downturn in housing inventory could be nothing more than the result of banks and mortgage servicers delaying the inevitable by holding off on foreclosing on millions of loans that are currently in default.
Currently, there are an estimated 7.7 million homes whose mortgages are in delinquency, but are not being reported as REO (Bank Owned) properties on the market yet. Depending on who you ask, an estimated 4-5 million of these will be bank owned properties for sale within the next year.The reason for the current new wave of foreclosures is largely attributed to the failure of the Government’s “Making Home Affordable” program, launched a year ago this week. According to a recent New York Times article, the program…
“has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program has raised false hopes among people who simply cannot afford their homes. As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.”
The Times is certainly not the only institution who attributes political pressure and bureaucratic procrastination to the delay in foreclosures recently, and what looks to be the inevitable aftershock to the foreclosure quake we saw starting in 2007. Accroding to a Standard & Poors report on Wednesday…
“We believe that the recent reversal in housing prices is the result of a temporary constriction in the supply of foreclosed homes on the market. This temporary constriction ensued because servicers have completed fewer foreclosures due to court delays, servicing backlogs, and political pressure to keep borrowers in their homes. However, there is a rapidly growing shadow inventory of properties where borrowers are delinquent but foreclosure has not been completed. Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market.”
Is there anything that can be done, or for that matter should be done, to stop the coming tidal wave of new foreclosures? There are many that argue the fact that people, and for that matter banks, who gambled on risky loans, shouldn’t get special treatment, and for that matter taxpayer money, to bail them out of a bad bet. Then there are some who say to let them all fail would be catastrophic to our economy and society, that in order to hold onto the lifestyle we know & love that we have to bail them out, even if they might not deserve it.
From a sheer economic standpoint, the point can be argued both ways as well. On the one hand, a new wave of foreclosures will drive home prices down and make them a more attractive purchase for prospective homeowners and investors alike. On the other hand, perhaps another huge blow to housing prices and the balance sheets of the “Too big to fail” financial institutions of the world could be the final straw that causes the financial Armageddon that so many in government and big business warned us of from the start of the collapse. As with so many things in the past few years, we can be sure of two things… that the choice will certainly be the lesser of two evils, and that we definitely have some interesting times ahead… So stay tuned.
Jon Maddux
About Jon Maddux
