As more states come to the conclusion that they need to place at least partial moratoria on foreclosures, preforeclosures and sales of foreclosed properties (REO) in an effort to prevent the “robo-signer” phenomenon from wreaking even more havoc on potentially undeserving homeowners, real estate experts fear that this well-intended move could create a “false stability” in the housing market that will ultimately topple as prices plummet when the moratoria are lifted. “But, it would paint a prettier picture than reality heading into mid-term elections,” points out Josh Rosner, an analyst at Graham-Fisher[1].
In the short term, these state-wide moratoria (sometimes on as many as 30 lenders, as in the case of Texas, where the state’s attorney General, Gregg Abbott, asked “nearly 30 lenders” to put foreclosure processes and sales of foreclosed homes on hold while they reviewed their foreclosure process) would temporarily and artificially inflate home prices. This is because foreclosure properties make up such a big segment of the market that removing them from the equation will give them impression of scarcity. As a result, says Rosner, “we would see home prices artificially and unsustainably rise.” He goes on to say that when the moratorium ended in any given market, the “prices would fall and foreclosures would skyrocket.”
The entire problem is now feeding off itself, as many attorneys general and congressional representatives are simply requesting or demanding moratoria in their states not because there is specific evidence of wrong-doing, but in response to certain lenders (JP Morgan Chase, GMAC/Ally and Bank of America) voluntarily shutting down their foreclosure processes for review in 23 states. Out of concern for people who may have been wronged in their own states, the AGs and representatives are opting for sweeping foreclosure investigations and shut-downs rather than evidence-based action.
[1] http://stopthehype.com/real-estate-investing-storm-brews-over-foreclosure-moratorium/2229/
Discussion Point: Do you think that these widespread moratoria are the right thing to do to protect homeowners, or do you think that they are just a political ploy? Your comments are welcomed below.
While it is very likely that some homeowners have been screwed by the actions of robosigners, bottom line is that close to 100% aren’t paying their mortgages. So all we are doing is giving these folks another year or two of free rent while we the taxpayers ultimately pay for it.
Who benefits? Ah yes, the attorneys filing the suits since this is like a full employment act and the banks who will ultimately again be bailed out by the taxpayers when Congress writes yet another piece of legislature to make them whole because they will have supposedly lost so much money.
Was discussing this with an experienced investor last night. He thought that by preventing the free market from working thru the foreclosure glut, it was just delaying the inevitable (foreclosures would STILL happen — if not now, then later when moratorium lifted). The unintended consequences is that the recession is PROLONGED!
Here, here Tom D.
Yes, it’s a “shadow stimulus”. I often wonder when I go shopping or out to a restaurant how many people around me are spending money because they are living rent/mtg free.
There’s the middle-class tax cut!
I’ve seen 1st hand people living in a house for 2+ yrs whilst buying new toys, going on vacations, skimming rent,etc.
I’ve also seen genuinely decent folks trying to do the right thing by their loan commitments and getting nowhere because of the lender/servicers stupid, bureaucratic system frustrate rational solutions.
I saw the default looming back in 2005 and told everyone who would listen that this was going to be an epic crash. But didn’t anticipate at all how screwed up this thing has gotten with all the intervention that just makes things worse.
Besides the supply issues of all this shadow inventory, what happens to real estate prices when affordability of monthly payments goes down due to higher interest rates? Or maybe our rates will stay near 0 like Japan for a long time? But if rates do go significantly higher, won’t that crush values since buyers will get less loan for higher payments?
If people thought their home values had fallen, when this latest mess opens back up, they will really be crying about the mess left over.
Home values will be flatlined for a short period, the foreclosure mistakes, the very few of them, will have been taken care and then an even bigger flood will hit the market, further crushing vaules.
In the mean time Realtors are going to start crying again because even the foreclosure will not be there to be sold. When is the government going to get a clue and get out of people’s business, so the markets can stabilize and free enterprize can work us out of the recession we are still in?