The Journal has a good story today reporting that some big banks are ramping up their foreclosure machines again after a temporary pause.
J.P. Morgan Chase & Co., Wells Fargo & Co., Fannie Mae and Freddie Mac all say they have increased foreclosure activity in recent weeks. Those companies say they have lifted internal moratoriums which temporarily halted foreclosures.
The paper puts that in context:
Some mortgage companies had stopped foreclosing on borrowers as they waited for details of the Obama administration’s housing-rescue plan, announced in February, which provides incentives for mortgage companies and investors to reduce borrowers’ payments to affordable levels. Others had temporarily halted foreclosures while they put their own programs in place, or in response to changes in state laws.
Now, they have begun to determine which troubled borrowers are candidates for help, and to move the rest through the foreclosure process.
And tells us what that means for the housing market and the broader economy. In a couple of words: downward spiral:
The resulting increase in the supply of foreclosed homes could further depress home prices and put additional pressure on bank earnings as troubled loans are written off.
I’ve read bits and pieces here and there about what seems to be a huge overhang of what’s called “shadow space” in the real estate business—property that’s vacant but doesn’t show up in the statistics because the owners haven’t put it on the market. With reports that the months-of-inventory housing stat is down sharply in California after a wave of buying in the last several months, I’d be interested to see somebody do some more reporting on that.
The Journal‘s story has lots of good stuff in it and it has lots of good context.
This is interesting:
The moratoriums “have to some degree postponed the realization of problems” and “may help bank earnings in the first quarter” by delaying charge-offs of some troubled loans, he says.
Beware the sucker’s rally, in other words.
The banks say they’re only foreclosing on those loans that have no hope of being worked out. That may be the case, since they have good incentives now with Obama’s housing bailout to try to keep people in their homes rather than take the huge loss (at least 50 percent) that comes from foreclosing.
But as the Journal points out, even with the help, many homeowners still won’t be able to afford their houses.
Many troubled loans will ultimately wind up in foreclosure because the borrower doesn’t have sufficient income to make even a reduced mortgage payment, or doesn’t respond to the mortgage company’s requests for information. “Certainly half of the loans that would have wound up in foreclosure before the foreclosure moratoriums went in place” will ultimately wind up in foreclosure, says Michael Brauneis, director of regulatory risk consulting at Protiviti Inc., a consulting firm.
More pain coming.
ADDING: Upon further reflection, I think the Journal really should have quoted somebody on the other side of the story. Talk to a borrower, call a consumer advocate—do something to make it less clinical.
And it’s always worth noting that the banks that are foreclosing on people are the ones that caused this whole mess. They sold financial products. Those products were faulty. Millions of folks are losing their homes.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.