Will Foreclosure Moratoria Help Or Hurt Housing Recovery?

Foreclosure moratoria, caused by the robo-signing issue, could have positive and negative effects on the housing recovery. While it could give distressed homeowners more time to avoid foreclosure, …

Foreclosure moratoria, caused by the robo-signing issue, could have positive and negative effects on the housing recovery. While it could give distressed homeowners more time to avoid foreclosure, it could also push economic problems further into the future and delay recovery. See the following article from HousingWire for more on this.

In lieu of the robo-signing scandal that caused states and lenders suspending home foreclosures, many economists are evaluating how this temporary lull in the housing market will affect the economic recovery. Radar Logic analysts said Tuesday they are skeptical that the market will improve in the meantime.

For example, a foreclosure moratoria would give defaulted borrowers time to get current on their mortgages. However, many borrowers are unlikely to do so, Radar Logic speculates.

According to data provided by the analytics firm, a slowing in REO liquidation — less homes being taken back by the bank through foreclosure — could cause a temporary reduction in RPX motivated transactions. When motivated sales decline, prices tend to increase, as they did during the housing crisis.

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Radar Logic’s data shows that currently, motivated sales greatly outnumber other types of transactions in the 25 largest metropolitan statistical areas the firm tracks.

This means that a permanent decline in motivated sales would significantly contribute to long-term recovery in the housing market.

According to the opinion statement, the foreclosure slowdown could lead to a number of positive impacts, all other factors equal. For example, Radar Logic said the delay could give lenders time to reexamine and restructure distressed loans they would have previously slated for foreclosure, while simultaneously give borrowers time to become current on their mortgage.

“This would limit (to some extent) the expansion of banks’ distressed home inventories and thus the supply of the low-priced homes for sale,” the opinion said. This would stabilize downward pressure on home prices.

But Radar Logic concluded the delay in foreclosures could amount just a delay in the recovery process, not a cure. It said a temporary depression in motivated sales would not have the same effects as a permanent depression.

“A delay in foreclosures could have a lasting positive effect on housing markets if sales of foreclosed homes are put off to a point in the future when the overall economy is healthier, housing demand is greater, and housing markets are better able to absorb the new inventory,” the opinion said.

“It is equally possible that delaying foreclosures will simply push the economic reckoning further into the future, and any relief in the short term will be offset by pain in the middle- or long-term, with no net benefit to housing markets or the national economy.”

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