Nothing.
There’s something that people don’t understand about the severity of the current real estate market. There are a good deal of homeowners out there who are not paying their mortgages. They are two or three months behind, and no-one is holding them accountable.
So your neighbor is three months behind on his mortgage, and the bank is foreclosing on them. Why? Because the banks don’t want to book anymore bad assets. They don’t want to push any more foreclosed homes onto the market. Eventually, the man behind the curtain will come out.
We are building economic numbers that are nothing more than a fallacy. It is a delicate house of cards; and someone needs to start reinforcing the walls.
August 28th, 2009 at
in the second ‘graph did you mean “and the bank isn’t foreclosing on them”?
August 28th, 2009 at
That’s exactly what I meant Jonathan.
August 28th, 2009 at
In the short run and the long run it is good that the banks aren’t posting on these loans. If they foreclosed then the houses would become REO, be vacated, more then likely note sold any time soon and stay unsold and fall into disrepair.
By not foreclosing on them they keep the current owners in the house, the house stays maintained and hopefully the owner gets his job back and can start paying again.
As someone pointed out, in this area most of the foreclosures are due to loss of employment not dropping property values. This approach from the “banks” just give the owner more time to get back on his feet. The last thing a “bank” wants is another vacant house they have to unload at a loss.
August 28th, 2009 at
JJ you might be right, but the banks are doing themselves a terrible disservice.
When they don’t foreclose those loans are stagnant. They cannot retroactively foreclose, so those months are a total loss to them. I don’t think I need to explain why banks putting themselves into losing positions could potentially hurt the wider economy, given the previous year’s events.
August 31st, 2009 at
First off thanks for this blog – I read often and comment very rarely.
I am not in the banking business so I can only assume their thought process. But with a stagnate loan they are loosing interest income. With an unsold foreclosed home they are loosing interest income plus the added expense of the holding a vacant house and the expense of selling the home itself.
On your larger point it will be interesting to see if there might be a jump in the number of foreclosure if the banks see a loosening of the market and they think they have a better chance of moving the house at auction versus having to hold them as REO’s.
On the thought of a “retroactive foreclosure”, I believe, in most loans, as long as the owner is not completely current will all interest and principle payment the holder of the note has the right to foreclose. So if someone misses payments – but then catches up – then there would not be the right to foreclose (nor would the bank have a want to). But if the home owner misses payments but then only starts back making the prescribed payments without paying the missed interest and principle I pretty sure they would be subject to foreclosure.