Watching the foreclosure nightmare these days is like watching a public flogging while the whip master takes a coffee break in the middle of giving out 100 lashes. Please, you have to wonder, don’t stretch this out. Can’t we make this end soon?
Foreclosure has nothing good in it for anyone. People who lose their homes are dealing with anger and fear, depression and failure and humiliation. Lenders are faced with becoming property owners and managers. Communities get ravaged neighborhoods torn by travesty and stricken with blight. And, financially, of course, everyone loses.
So perhaps there was just a little bit of hopefulness in the latest foreclosure data for Massachusetts. It was, after all, the first time this year that both the number of petitions to foreclose and the actual number of properties sold at auction declined over last year.
Foreclosure petitions – the first step in the foreclosure process in Massachusetts – dropped to 1,127 in October, a near 51 percent decrease from 2,296 in October 2009. That’s the first month since January that petitions dropped below 2,000. In October, 557 foreclosure deeds were recorded, down more than 39 percent from 914 in October 2009.
Since it takes, on average, about a year in Massachusetts for a property to wend through the foreclosure process, both parts of that report have the scent of possibility. Possibly, lenders are filing fewer foreclosures, and taking fewer houses, because they’re finally figuring out a way for people to stay in their homes affordably.
That’s the rosiest way of looking at the numbers, the most hopeful way. But it’s not the most realistic way.
Loan modification programs to re-write mortgages for distressed borrowers have been woefully irrelevant. For them to truly work, the critical component is that those desperate consumers must have some way to pay for the homes they’ve bought, even at a reduced interest rate or with reduced principal. But most borrowers facing foreclosure are doing so because they are dramatically underfunded – they just don’t have enough financial resources to pay for their house. It’s why more than 90 percent of applicants don’t qualify for modifications, and why the re-default rate (in excess of 50 percent) of modified loans is so high.
There’s not a lot that can be done for people who, for whatever reason, simply haven’t been able to, and won’t be able to, afford their homes.
What’s likely is that petitions are down because lenders slowed their processes in October while they dealt with the blowback over “robo-signed” documents. While they reviewed their liability, they also likely completing many foreclosure auctions.
The robo-signing problem hasn’t gone away, but it has faded a bit from public foment. Still, we’re likely to see lenders being extra careful now with their documentation, and deciding that adding an extra month or two to the process isn’t going to make a lot of difference to them. Add to this new state laws that extend an initial notice period (sometimes called a “right to cure” period) even before a petition can be filed, and we’ve just added months and months onto the average foreclosure here.
Yes, that means that distressed homeowners can likely stay in their properties a while longer. But from a more macroeconomic level, it means that we’re stretching the foreclosure pain over a much longer timeline. It means that the real estate market will be dealing with this recurrent sore for much longer. It means neighborhoods will take much longer to heal. It means that lenders will be dealing with distressed real estate long after they should have turned their attention to more productive lending issues that could benefit us all.
Only a resurgence in the economy that brings with it good-paying, steady employment will fix this foreclosure mess for good. Until then, everything we do that makes it harder to resolve these foreclosure situations in a timely and effective manner is just another little torture added to an already torturous situation. Please, you have to wonder, can’t we just make this end soon?
