Lingering Foreclosure Mess Threatens Economic Recovery

Hopes for economic improvement this year are being threatened by the lingering mess of unresolved foreclosures.

Alleged foreclosure fraud committed by banks, mortgage firms and foreclosure attorneys is slowing down foreclosure proceedings which may in turn stifle the housing market's recovery in 2011, according to a new piece by Bloomberg.

Mark Zandi, chief economist for Moody's Analytics, Inc., told Bloomberg:

"The problems that have come to light in the legal process have the potential to cause more foreclosure delays," Zandi said from West Chester, Pennsylvania. "By the end of this year, the housing crash could be over, or, if we see foreclosures pushed into next year, we might not see a recovery until the end of 2012. It's very difficult to gauge how it will play out."

Despite a round of new data suggesting the economy is on the mend, such as a 1.1% increase in the Leading Economic Index in November, a stumbling housing market could put a damper on growth in 2011. The ailing housing market, formerly a driving force of the U.S. economy, reportedly sunk GDP growth .17 percentage points last year, Bloomberg notes.

Phyllis Caldwell, chief of the Homeownership Preservation Office, explained to the Congressional Oversight Panel in late 2010, that delays in foreclosure proceedings could prevent the housing market from attracting new investors, saying "foreclosed homes account for 25 percent of the total home sales and any delay in foreclosure is not good for both the buyers and sellers."

Meanwhile, the latest S&P/Case-Shiller Home Price Index showed that home prices dipped 1.3 percent nationally in October from the prior month. In a release, David M. Blitzer, chairman of S&P's Index Committee, warned that "the double-dip is almost here, as six cities set new lows for the period since the 2006 peaks."

As HuffPost Shahien Nasiripour and William Alden reported in December, millions of Americans have seen their most valuable asset decrease in value. Homeowners' equity, fell two percentage points to 38.8 percent in the third quarter, according to the new Fed data.

Comments

[grumbles]

10:41 AM on 01/14/2011

they have displaced democrats! when redistricting happens, it will be in republican favor. dems cant vote if they are foreclosed on, displaced, and have temporary homes or no home at all. remove the dems and the only voters left are repug. easy, peasy!

[guveqzero]

02:57 PM on 01/13/2011

The headlines should be: Global trade policy damaging future of United States; Outsourcing continues to damage employment market for our children; Imports threaten the future security of our country; Foreign wars continue to drain valuable resources from our economy. But, reality can only be observed in small doses.

[PostEmergent]

12:03 PM on 01/13/2011

This is very simple to resolve. Banks, follow the ^&(%%(*&) rules. My fear is that they will hold the economy hostage until they get what they want...to be able to take any piece of property on which they think the borrower might be delinquent and they think they have an interest in.

[CorkiDeCat]

09:18 AM on 01/13/2011

What recovery? Oh!? A left slant!

[jesterx]

08:21 AM on 01/13/2011

I do not trust the government and their BS anymore. It already cost me my house.

I subscribe to the FFT economic newsletter at http://www.forecastfortomorrow.com they do not lie, and have called many big events before they have happend, which I have found to be amazing, and has helped me. including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some important work.

I have been making good money with them. He is well worth a look, if you want to keep two steps ahead of the sheeple out there.

I am worried about my financial future. Is anyone else nervous out there?

[graffitijoe]

07:47 AM on 01/13/2011

The ecolomy is not going to recover this year or next year. The housing market still has a long way to fall and many jobs that were lost are never coming back. Now that the City and State Governments are broke (or worse!) and the Federal Government is going to be forced to cut back - it's going to get worse still before it gets better.

[Its-All-Good]

07:46 AM on 01/13/2011

Recovery?.. defaulting, or bailed out government budgets, higher gas prices, double record of foreclosures, food prices and an expected 6-8 additional drop in home prices.. with stimuli running out this spring??

Right now you will hear all positive spin while things get worse... we need to believe the unemployment numbers since they have been re-figured for our perceived benefit..

[arkymorgan]

07:36 AM on 01/13/2011

Ummm. People have lower-paying jobs, less fulltime work and more people are unemployed. In addition to the foreclosures due to massive bank fraud, and the re-valuation of massively inflated property values, you start to see more foreclosures because fewer people can make their payments. This leads to more houses being worth less, no one is going to build new ones so the building trades lose more workers, who now can't pay _their_ mortgages, and all the non-essential stuff like new cars and computers and tvs are not being bought either, so more jobs are lost, and more people are working for less and then...

How does this NOT translate into worsening economy?

[sculptor]

11:58 PM on 01/12/2011

I don't buy it. I think the reasoning is backward. If the foreclosed properties are in legal limbo and there is a moratorium on further foreclosures then shouldn't that drive the price on the remaining available housing stock up? Even though this is admittedly a temporary effect, it still is in the opposite direction of that which the pundits predict.

Hmm... does this mean since my reasoning is better than these regular pundits that I'm a super pundit??? ;-)

[tapeatsbill]

12:36 AM on 01/13/2011

Word to the super pundit!!

[martman1]

06:53 AM on 01/13/2011

Hey, I was going to say that. You beat me by only seven hours.

[Mormon4Truth]

11:28 PM on 01/12/2011

Banks are still lying. In Ohio, JP Morgan lied to a judge, telling him to stop paying his loan. Now he is pissed.

http://blog.cleveland.com/metro/2011/01/judge_peter_sikora_hopes_media.html

[jackinthegreen]

11:05 PM on 01/12/2011

America is just at the beginning of a Japanese-style "lost decade" - all because we have tried to prop up the housing bubble. http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

[deadfed]

10:57 PM on 01/12/2011

if you want to look at MERS website, my blog's published a link to where you can type in an address and get the claimed servicer and investor on the loan...look for the MERS logo...

http://deadfed.com/

[CanadjunBeef]

09:37 PM on 01/12/2011

Well, the feds decided to bail out the banks instead of the borrowers, which is what allowed the housing collapse to happen and to continue, driving and keeping America into its longest and deepest recession. Lack of compassion has consequences.

[bipolarbears60]

11:56 PM on 01/12/2011

It's not even a compassion issue. If homeowners that were underwater were each given say a one time "gift" of a hundred grand, most would be able to get current with their mortgage, make up for the lost value (at least partially) and have SOME leverage to refinance with a traditional 30 yr mortgage at a lower fixed rate. That banks would still get the money, only it would pass thru the homeowner first, and stabilize most of the market. People get to keep their homes and the banks get much needed capital. I never understood why it wasn't done this way.

[walstir]

01:56 AM on 01/13/2011

It was done that way because it provided the government at least a possibility of getting its bailout loans back. If the money had been gifted to defaulting borrowers rather than loaned to banks; it would become permanent rather than temporary debt. According to Wikipedia, the bigger banks such as JPMorgan Chase & Co., Morgan Stanley, American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp., BB&T Corp, Wells Fargo & Co. and Bank of America repaid TARP money. Most banks repaid TARP funds using capital raised from the issuance of equity securities and debt not guaranteed by the federal government.

[Bluedrgn]

03:06 AM on 01/13/2011

Although it may have stabilized the market, it would't have been "fair" in the least... do you only gift $100K to those badly under water? Why should they be rewarded for making a bad investment, or buying more house then they could afford? Do you give it to all home owners? How could you justify such a gift when you have "renters" that can barely feed their families, etc.

What I think they should have done was force the banks to refinance the "balloon" morgages back down to a resonable rate (say.. 6%) as a condition of the bailout money they recieved.

[Kai-HK]

09:31 PM on 01/12/2011

Unintended consequences. By failing to protect the property rights of banks in the quest to get the delinquent squatters out of the houses they no longer pay for, they are hampering the repair of the economy that would happen. We need to amp up the foreclosures and get the free loaders off the bank-owned properties as soon as possible so the economy can get back to business.

Kai

[CanadjunBeef]

09:38 PM on 01/12/2011

Yes, I am so very concerned about the property rights of banks.

[Kai-HK]

05:40 AM on 01/13/2011

As you should be.

[Acharn]

11:23 PM on 01/12/2011

So you're saying we should just allow the banks to seize any property they claim to have a lien on? Without making them show that they actually have a lien? Without making them show that the occupiers are behind on their payments? Without making them show that the occupiers of the property actually owe money on that property? Or owe money and the property in question was pledged as security for the debt? That the banks can send people in to any house, change the locks, and steal any property inside that they want to? Without showing that they actually have a claim on that house?

I agree that America has not been concerned about the rule of law since 2000, but this is a little farther than I thought we were ready to go. Have you no regard for property rights?

[Sundialsvc4]

11:38 PM on 01/12/2011

Indeed. The laws concerning mortgages, in particular, were designed to protect against ... precisely THIS. Because a house is much more than a piece of tangible property: it is someone's only HOME. This is what makes S-E-C-U-R-I-T-I-E-S F-R-A-U-D all the more(!) egregious in this circumstance.

[Kai-HK]

06:19 PM on 01/13/2011

Make sure they do it right, but let them do it and do it quickly. These few reports of erroneous evictions out of millions? Deal with it, make it right, then move on. I see the mistakes more as the exception than as the rule and have yet to see anything in the media that makes me believe otherwise.

[slogward]

08:54 PM on 01/12/2011

Foreclosed folks don't spend much. They used to borrow a lot, but they don't these days.
So they don't count.

http://hat4uk.wordpress.com/2011/01/11/lets-stop-bashing-bankers-lets-starve-them-instead/