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MSNBC.com...
Foreclosures slow to
trickle as lenders shift strategy
By John W. Schoen
8/11/2011
A sharp slowdown in the pace of home foreclosures may help ease the
financial burden on bankers by helping them unload a glut of
repossessed homes more slowly and delay booking losses from the sale of
distressed properties.
But it will do little to help millions of Americans families at risk of
being tossed from their homes in the next few years.
Lenders are moving fewer U.S. homes into the foreclosure pipeline and
have curtailed new seizures, according to foreclosure listing firm
RealtyTrac. In July, fewer than 60,000 homes received an initial
default notice, down 7 percent from June and down 39 percent from July
2010.
The Federal Reserve’s highly unusual promise — to keep interest rates
low for “at least” two more years — comes as the central bank is
running out of options to reassure panicky markets.
The slowdown follows a wave of legal challenges by homeowners that has
all but shut down the machinery of bank repossession in some states.
Some homeowners are disputing the widespread practice of
“robo-signing,” in which lenders process batches of foreclosure
fillings with little or no formal review. Other homeowners have
successfully halted repossessions by questioning shoddy paperwork or
broken paper trails that don’t establish clear title to a property.
“The process has more or less ground to a halt in a lot of states that
do foreclosures through the court system,” said Rick Sharga, a senior
vice president at RealtyTrac.
The slowdown has left millions of American households in legal limbo,
prolonged the housing market’s four-year recession and delayed hopes
for a broader economic recovery.
As the housing market continues to languish, lenders are in no hurry to
remove families from their homes. Each new foreclosed property adds to
a widening surplus of unsold houses on the market, forcing bankers to
mark down prices even further to shed them from their books.
“There’s an incentive for banks to put their foreclosed inventory on
the market slowly so that it doesn’t drag down the price,” said Paul
Dales, an economist at Capital Economics who follows the housing
market. “If they were to put them on the market all at once, they would
get a lot less for them.”
Slowing the pace of foreclosures also helps lenders postpone booking
those losses, improving their apparent financial health to investors
and regulators. Though some banks write down the value of distressed
mortgages before they foreclose, accounting rules don’t require them to
fully write down the value of a repossessed property until it is sold.
The longer they postpone defaulting on a loan, the longer they can
maintain it on their books at above-market value. (In banking circles,
the practice is known as “extend and pretend.”)
Read the rest of the story with links at MSNBC.com
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