Real estate analysts are in agreement that a true recovery in the U.S. property market will not take hold until the country’s inventory of foreclosures is cut back, and while the inventory is shrinking many argue it’s not shrinking fast enough. Since things are moving so slowly with paring it down, Massachusetts legislators are getting proactive about keeping homes from slipping into foreclosure in the first place. A new bill passed in the state will keep lenders from foreclosing on homes if loan modification proves to have a greater financial advantage than the bank’s earnings, which it hopes will keep more people in their homes rather than adding to the already bloated foreclosure inventory. For more on this continue reading the following article from TheStreet.
The housing market is running like a teenager’s partially rehabbed mini-bike, thrusting forward in fits and starts, with a healthy dose of black smoke belching out from behind as it struggles.
And while we’re on the subject of metaphors of movement for U.S. housing, how about a glacier as a stand-in for the foreclosure pipeline. In this case, not that the foreclosure pipeline is as big as one (it’s bigger). We’re talking about pace, as in, the U.S. home foreclosure market is processing foreclosures at a glacial pace, and that is keeping U.S. home values down.
The Jacksonville, Fla.-based real estate analysis firm Lending Processing Services says that foreclosure inventories are only down by 1% since June 2011.
Economists have long said that home sales won’t gain much traction until home foreclosure inventories are pared down, and significantly so.
Month over month the foreclosure picture is not much better, according to LPS data.
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With 2.06 million U.S. homes in foreclosure proceedings, that’s only 2% lower than the May 2012 numbers. Sure, that 2% is moving in the right direction, but it’s not moving fast enough in relation to the high foreclosure inventory numbers.
The glacial pace of foreclosures isn’t going to change soon. LPS reports that the U.S. has 3.6 million residential mortgages 30 days or more past due, and possibly on the way to foreclosure.
Which brings us to Massachusetts. Not willing to sit back and wait on the glacier, the often-progressive state is taking unusual legislative steps to see that foreclosures are limited. If Massachusetts can’t make the foreclosure pipeline move any faster, it can stop homes from falling into foreclosure in the first place, and in a way that banks probably didn’t expect, and won’t like.
On July 24, the Massachusetts House of Representatives passed legislation that would curb foreclosures, regardless of the lender’s wishes, if the homeowner is eligible for a loan modification, and if the financial advantage gained from a modification would supersede what banks would earn on a foreclosure. The state’s Senate followed suit on July 26, easily approving the measure. The bill should be signed into law by Governor Deval Patrick, possibly as early as next week.
The bill — formally known as House Bill 4323 — would force lenders to evaluate a homeowner’s financial situation and prove to state financial regulators that the net value gained from a loan modification wasn’t higher — even down the road a ways — than the financial advantage gained from a home foreclosure.
Banks never like it when legislators curb their ability to make business decisions independent of federal and state governments, and H.B. 4323 does just that.
Yet banks won’t find too many shoulders to cry or complain on among Americans, and probably have themselves to blame. Many lenders dragged their feet as millions of homeowner applied for loan modifications, and the vast majority of those applicants were rejected, thus setting the stage for a surge of home foreclosures.
If this practice made sense for banks — able to close the books on what they view as bad debt — it wasn’t healthy for the housing market and the economy, sending more U.S. homes into foreclosure and devaluing home prices in neighborhoods and communities as a result, not even to mention pushing families out into the streets.
The move by Massachusetts at least places the onus on banks to make a strong financial case before they foreclose on a homeowner. It’s a bit of relief for struggling Bay State homeowners, and a slap in the face for banks that may have been too quick on the trigger in foreclosing on homes, and too slow — or maybe just too narrow-minded — to understand the implications to the U.S. economy.
This article was republished with permission from TheStreet.