In the restaurant industry, it’s widely acknowledged that the most successful waiters are those that can most quickly and efficiently turn over their tables as the night progresses. More tables turned over in a given period means more diners served, means more checks presented, means more money in tips at the end of the night.
It’s a lesson that housing policymakers don’t seem to get.
Just as waiters are irritated when diners linger over an empty coffee cup and ignore the check when it comes, lenders are equally incensed by delinquent homeowners staying in their homes for months and years, rent free, after foreclosure proceedings begin.
Waiters, of course, can rely on a good host or hostess to encourage lingering patrons to move to the bar area – or to go home.
But lenders have no such enforcer, and instead are further hamstrung by public policy that essentially encourages loitering at the expense of the kind of turnover that would help benefit the bottom line, the neighborhood and the housing market in general.
A recent public policy discussion paper published by the Federal Reserve Bank of Boston highlights the problem. It examines the effectiveness of both right-to-cure periods and judicial foreclosure processes at achieving those policies’ stated goals – reducing the number of unjust or unnecessary foreclosures.
Surprisingly – or, perhaps, not so surprisingly – the paper’s authors conclude these kinds of policies do succeed in lengthening the foreclosure timeline, but don’t succeed in reducing the overall number of foreclosures.
It’s a cold reality, but a simple one: In the vast majority of cases, those homeowners determined to be seriously delinquent and headed for foreclosure are eventually going to be foreclosed upon – no matter how much time they’re given to make things right.
Why, then, does it make sense to continue to give these homeowners the luxury of time? It’s not easy to kick anyone out of a home, we know. We’re not so heartless as to be blind to the social and emotional tolls of foreclosure.
But just as we recognize that removing someone from their home after they’ve been living there for years can be cruel, isn’t it also possible that allowing them to languish once foreclosure is inevitable is equally cruel? Why draw out the painful process even longer?
For those who argue these policies help ensure that foreclosures are completed legally, we would argue that recent case history – Ibanez and Bevilacqua come to mind – is far more effective than static policy at making sure lenders play by the rules.
Finding a way to more efficiently turn over distressed properties has a number of advantages. The faster a home is returned to productive use after foreclosure, the more value it retains – value that spreads to other homes in the neighborhood. Current loans paid by qualified, responsible homeowners mean profit for lenders – profit that inevitably is reinvested in more loans, and more development.
As more delinquent homeowners are evicted we’re certain that problems with inventory we’ve been hearing anecdotally could be resolved – more and better homes on the market attract more and better buyers.
Finally, compelling delinquent borrowers to move on creates more immediate demand for alternative housing – rental housing or more affordable, subsidized options. More demand might spur more building, which has benefits of its own. And a more diverse housing stock is something Massachusetts, in particular, desperately needs.
Policies that reward delinquent borrowers at the expense of lenders, new buyers and the market as a whole aren’t helping us end the foreclosure crisis – they’re helping us prolong it.
Rather, we need to empower the system to more quickly finalize those inevitable foreclosures, thereby allowing resources to instead be focused more proactively on those that do have a realistic shot of keeping their homes.
No more waiting around. It’s time for new policies that allow lenders to be more flexible when it comes time to collect the check.
