Thursday, August 26, 2010

I Think They Mean Banks Are Likely to Dump More Real Estate on the Market

Banks have been reluctant to take the step of cleaning out bad debts hoping prices would rise. That hasn't worked out so well. Procrastination on Foreclosures, Now Blatant, May Backfire - American Banker Article
The simple reason is that servicers are not initiating or processing foreclosures at the pace they could be.

By postponing the date at which they lock in losses, banks and other investors positioned themselves to benefit from the slow mending of the real estate market. But now industry executives are questioning whether delaying foreclosures — a strategy contrary to the industry adage that "the first loss is the best loss" — is about to backfire. With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults.
11% of Californians are delinquent with their mortgages, but the number of actual court filings is down over last year. Not likely.

Too bad regulators are doing their job - making banks clean up the mess on their balance sheets.

Oh, but then the delay in foreclosure was MANDATED by the government. What a surprise, more screwing around with free markets.
With the exception of a spike in foreclosure activity that peaked in early-to-mid 2009, after various industry and government moratoriums ended and the Treasury Department released guidelines for the Home Affordable Modification Program, no stage of the process has returned to pre-September 2008 levels.
The delaying tactic is probably running out of steam. Look for more hand-wringing. Look for more interference in the market. In short, look for bigger government. [hat tip to Calculated Risk]


wickedmess said...

The local 'whisper number' is that of the people who haven't made a single mortgage payment in the last year, banks have foreclosed on less than 25% of them.

Once I heard this, I drove around our two closest and newest McMansion neighborhoods and they are less than 1/3 occupied (and most of the rest horribly maintained) yet only a very, very few have 'for sale' signs in the yard.

The shadow market is HUGE. When banks finally clear out their balance sheets we're screwed.

Zendo Deb said...

There's a graph on Calculated Risk (I love those guys!) that shows the homes delinquent or in foreclosure by number of days (30 days, 60 days, more than 90 days.)

The more than "90 days" category has been steadily growing.

The sad thing is, in days gone by, the regulators would have been insisting on foreclosure because it is the only way to make the balance sheet reflect reality. If the balance sheets are bogus, how do you know if you have enough reserve? Oh, of course we know, we don't have enough reserve.