Foreclosure numbers don’t tell the whole storyby Peter Miller
The government is out with its latest housing scorecard and the figures look good:
As more homeowners secure mortgage relief, fewer borrowers entered the foreclosure pipeline. Entering June, 4.4 percent of prime mortgages were at least 30 days late–a significant decline from the peak of 6.69 percent seen in 2010. Similarly, subprime mortgage delinquencies were 32.9 percent, down from 36.6 percent a year ago.
There’s no doubt that the numbers show exactly what the government reports. However, why the numbers look so good is a very different story.
Why do these numbers look so good?
Let’s start with the business of more homeowners getting relief from the government.
The usual way people get involved with government relief efforts these days is that they face foreclosure and enter the Making Home Affordable program. Indeed, to this point more than 1.6 million mortgage modification trials have been started and more than 650,000 owners have completed their trials, not re-defaulted and now have new loan terms.
This could be considered a huge success, especially compared with earlier government programs such as FHASecure and Hope for Homeowners.
How can delinquencies be any lower than last year?
It’s hard to imagine that delinquencies and foreclosures are much lower or any lower than last year.
How can that be?
We certainly haven’t had any stunning increase in jobs–the unemployment rate remains above 9 percent.
Incomes have stalled for most people if not declined. Figures from the IRS show that income fell 7.7 percent from tax year 2008 to tax year 2009.
So if the job picture is not improving and we have fewer dollars, then why do the housing numbers seem better?
The answer concerns the robo-signing mess
Lenders are not foreclosing at their former pace. It’s not that decidedly-fewer people are delinquent, it’s that the paperwork is thoroughly botched.
Here’s one example
The state’s highest court has ruled that people fighting eviction from homes they lost to foreclosure can challenge the validity of a property seizure in housing court after the fact, a decision that housing rights advocates are calling a major victory.
KC Bailey was foreclosed in 2007 and his lender sought to evict him. Bailey then argued that the eviction was improper:
Bailey claimed he learned of the foreclosure only after finding an eviction notice taped to a fence surrounding his three-bedroom Colonial, which had been in his family since 1979. The Vietnam veteran said he refused to leave because he was not given proper notice of the sale and is still living there.
It has been four years, and the borrower is still in the property and the lender still does not have possession to foreclose.
Whether one agrees or disagrees with the decision of the Massachusetts Supreme Court, the question is this:
Do we mark the Bailey property as delinquent? Foreclosed? Paid for? And are monthly payments being made while the dispute drags on?
The system is so screwed up
If lenders cannot foreclose when loans are not paid, then why would anyone originate a mortgage? And what mortgage rates would they charge?
Until the past few years, the recordation system in the United States was a bookkeeping marvel. It was rarely wrong, and when it was, virtually everyone had title insurance.
Now the recordation system is so screwed up that a lender cannot get possession of a home foreclosed during the last administration.
So, yes, the foreclosure and delinquency numbers are down, but please don’t celebrate quite yet.
Peter G. Miller is syndicated to more than 100 newspapers and operates the real estate news site, OurBroker.com.