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The Foreclosure Deal Spares the Housing Market (So Far)
Delinquent mortgage borrowers, take note: Banks still aren’t moving very fast to kick you out of your homes.
February's foreclosure settlement between big U.S. banks and state attorneys general should have been bad news for mortgage deadbeats -- and for house prices. Having resolved charges that they had filed bogus documents to speed up repossessions, the banks should have felt free to move ahead with millions of foreclosures. They should also have started selling more repossessed houses, an influx of cheap supply that would weigh on the market.
So far, though, that's not happening. In the month of February, banks started 172,502 foreclosures, down 15 percent from January and 15 percent from a year earlier, according to data provider LPS Applied Analytics. Foreclosure sales also slowed.
Partly as a result, the average number of days since the last mortgage payment had been made on homes in the foreclosure process rose to 667, up from 660 the previous month and 253 in February 2008. In other words, the average delinquent borrower could live rent-free for nearly two years without getting evicted, assuming the borrower chose to stay in the house.
Banks might have been waiting for the settlement's final court approval, which came only in March. But some elements of the deal suggest it could take a while longer to start clearing out the foreclosure pipeline.
For one, February's agreement requires banks to provide borrowers with extensive information on the state of delinquent loans before foreclosing, including proof of the bank's right to foreclose, the complete payment history and the name of the investor holding the loan. The difficulty of obtaining such information was why many loan servicers cut corners in the first place.
The added hurdles could mean a temporary reprieve for some delinquent borrowers, and for the broader housing market. The longer the process takes, though, the larger the final losses are likely to be.
(Mark Whitehouse is a member of the Bloomberg View editorial board.)
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