Are Banks Hiding Foreclosures? - Part II
Banks are keeping houses out of foreclosure. If you read my previous posts, you'll get a sense of the ongoing housing disaster that's still sitting out there.
I'm not being a "doom-and-gloomer" here. In fact, in a recent post, I talked about an opportunity that the weak-and-getting-weaker housing market has presented. I also provided a caveat to all those hunting for bargains.
But the fact remains that foreclosures have risen and continue to rise. And this is in the face of banks purposely keeping homes out of foreclosure by letting the current owners stay in their homes even as they're not paying their mortgages. Why are banks doing this?
Well, one practical reason is that it takes time to process foreclosures. In normal times, banks aren't in a rush to foreclose on you. They'd prefer to work something out, if at all feasible. Don't forget that the bank that owns the mortgage ultimately owns the property if you don't pay the mortgage. And banks aren't in the real estate business. They're not experts in this area and, even if they have some good staff people to handle sales of foreclosed properties, that staff is generally small.
So along come all these mortgage delinquencies starting around 2007 and picking up steam ever since. In fact, as I said in my last post on the subject, you've now got people purposely not paying their mortgage - people who really can afford the payment - just to live free in their homes. They know it will take the bank a while to process the foreclosure and get them out. There are even law firms offering to represent such people and keep them living free for as long as possible.
In addition to the processing time, you've got the government getting involved with HAMP (Home Affordable Modification Program). The program encourages banks to re-structure existing mortgages so that people can afford their monthly payments. Unfortunately, what's apparently happening is that people are getting the re-structured mortgages and then defaulting anyway after about six months.
(Hmm, maybe people who go through the whole HAMP process and default all over again will wise up. Just contact one of those law firms who specialize in working with folks who just stop making their monthly payments simply to profit from the deal. Why should people who are struggling to meet their monthly payment struggle at all? Just stop paying and live free!)
Of course, lots of these defaulting loans are loans which banks sold to Fannie Mae and Freddie Mac. And there they sit, in these two bankrupt GSE's awaiting processing. (Hmm, here's a bankrupt government agency processing mortgage foreclosures. Ironic?)
Anyway, who's really interested in moving this whole process along - you know, all these foreclosures sitting out there? I can't imagine anyone's really enthusiastic about all this.
First, if a bank actually owns a mortgage, by foreclosing, they've got to recognize a loss on their books. Banks aren't really in very good shape to begin with. Their balance sheets are shaky. Recognizing losses makes the balance sheet worse - so I would imagine this isn't high on their list of priorities.
(An aside: what about all those bank profits you read about? The simple answer is that the government has decided to work with banks to manufacture profits on the books. And astute investors like hedge funds recognize the government's game here - not allowing certain banks to fail. And so they buy up the bank stocks knowing that - even though the profits are manufactured, the government will prop up the banks no matter what.)
As for the GSEs, they're processing foreclosures. Banks that are service the loans make money on that end of the deal - the processing, that is - but, again, they're working with limited staff who can only do so much in a day. (Of course, there are organizations out there now set up so banks can outsource the processing. Ah, good old American ingenuity. See, it's not dead yet!)
And everyone knows that if the flood of foreclosures were to descend on the market all at once, house prices would drop even lower and faster than they have. And falling house prices could trigger bad things for the economy as a whole - maybe an even worse recession. No one wants that, right?
So, in the end, and for as long as possible, banks, GSEs, mortgage holders - all of them have no interest in pushing foreclosures to resolution anytime soon.
By the way, as the GSEs do process foreclosures, the losses they show are being made up by the Treasury Department. Instead of showing increasing losses (remember, they're already bankrupt as it is), the Treasury steps in and "bails out" the losses - to the tune, so far, of $145 billion...and counting.
Now, don't forget: The $145 billion that comes from the Treasury isn't money they have sitting around somewhere. They have to issue treasury notes and bonds to raise the money to do this. So that means they just add it to the already exploding deficits and national debt the government is running. And you know who's ultimately going to pay for deficits and our national debt, right? Yep, you and me.
So to sum up:
Banks keep houses out of foreclosure, so the process grinds on, kind of below the surface, sort of quietly. They're not looking to show defaulted loans on their books. And they're not in the business of processing the foreclosures quickly.
People who have defaulted once, default again, slowing down the foreclosure process.
Some slick homeowners now live free and ultimately profit by saving on their mortgage payments until they're thrown out of their homes...the longer the foreclosure process takes, the better they like it since they live free longer.
Law firms slow the process down to keep these people in their homes as long as possible.
....and you and I will pay the price for all this.
You did know there was no free lunch here, right? Maybe you just didn't know you were the one paying for it...and how many people benefit from your generosity.
I'm not being a "doom-and-gloomer" here. In fact, in a recent post, I talked about an opportunity that the weak-and-getting-weaker housing market has presented. I also provided a caveat to all those hunting for bargains.
But the fact remains that foreclosures have risen and continue to rise. And this is in the face of banks purposely keeping homes out of foreclosure by letting the current owners stay in their homes even as they're not paying their mortgages. Why are banks doing this?
Well, one practical reason is that it takes time to process foreclosures. In normal times, banks aren't in a rush to foreclose on you. They'd prefer to work something out, if at all feasible. Don't forget that the bank that owns the mortgage ultimately owns the property if you don't pay the mortgage. And banks aren't in the real estate business. They're not experts in this area and, even if they have some good staff people to handle sales of foreclosed properties, that staff is generally small.
So along come all these mortgage delinquencies starting around 2007 and picking up steam ever since. In fact, as I said in my last post on the subject, you've now got people purposely not paying their mortgage - people who really can afford the payment - just to live free in their homes. They know it will take the bank a while to process the foreclosure and get them out. There are even law firms offering to represent such people and keep them living free for as long as possible.
In addition to the processing time, you've got the government getting involved with HAMP (Home Affordable Modification Program). The program encourages banks to re-structure existing mortgages so that people can afford their monthly payments. Unfortunately, what's apparently happening is that people are getting the re-structured mortgages and then defaulting anyway after about six months.
(Hmm, maybe people who go through the whole HAMP process and default all over again will wise up. Just contact one of those law firms who specialize in working with folks who just stop making their monthly payments simply to profit from the deal. Why should people who are struggling to meet their monthly payment struggle at all? Just stop paying and live free!)
Of course, lots of these defaulting loans are loans which banks sold to Fannie Mae and Freddie Mac. And there they sit, in these two bankrupt GSE's awaiting processing. (Hmm, here's a bankrupt government agency processing mortgage foreclosures. Ironic?)
Anyway, who's really interested in moving this whole process along - you know, all these foreclosures sitting out there? I can't imagine anyone's really enthusiastic about all this.
First, if a bank actually owns a mortgage, by foreclosing, they've got to recognize a loss on their books. Banks aren't really in very good shape to begin with. Their balance sheets are shaky. Recognizing losses makes the balance sheet worse - so I would imagine this isn't high on their list of priorities.
(An aside: what about all those bank profits you read about? The simple answer is that the government has decided to work with banks to manufacture profits on the books. And astute investors like hedge funds recognize the government's game here - not allowing certain banks to fail. And so they buy up the bank stocks knowing that - even though the profits are manufactured, the government will prop up the banks no matter what.)
As for the GSEs, they're processing foreclosures. Banks that are service the loans make money on that end of the deal - the processing, that is - but, again, they're working with limited staff who can only do so much in a day. (Of course, there are organizations out there now set up so banks can outsource the processing. Ah, good old American ingenuity. See, it's not dead yet!)
And everyone knows that if the flood of foreclosures were to descend on the market all at once, house prices would drop even lower and faster than they have. And falling house prices could trigger bad things for the economy as a whole - maybe an even worse recession. No one wants that, right?
So, in the end, and for as long as possible, banks, GSEs, mortgage holders - all of them have no interest in pushing foreclosures to resolution anytime soon.
By the way, as the GSEs do process foreclosures, the losses they show are being made up by the Treasury Department. Instead of showing increasing losses (remember, they're already bankrupt as it is), the Treasury steps in and "bails out" the losses - to the tune, so far, of $145 billion...and counting.
Now, don't forget: The $145 billion that comes from the Treasury isn't money they have sitting around somewhere. They have to issue treasury notes and bonds to raise the money to do this. So that means they just add it to the already exploding deficits and national debt the government is running. And you know who's ultimately going to pay for deficits and our national debt, right? Yep, you and me.
So to sum up:
Banks keep houses out of foreclosure, so the process grinds on, kind of below the surface, sort of quietly. They're not looking to show defaulted loans on their books. And they're not in the business of processing the foreclosures quickly.
People who have defaulted once, default again, slowing down the foreclosure process.
Some slick homeowners now live free and ultimately profit by saving on their mortgage payments until they're thrown out of their homes...the longer the foreclosure process takes, the better they like it since they live free longer.
Law firms slow the process down to keep these people in their homes as long as possible.
....and you and I will pay the price for all this.
You did know there was no free lunch here, right? Maybe you just didn't know you were the one paying for it...and how many people benefit from your generosity.
Comments