At what point does time stop being on our side, and start becoming the enemy?
New research from the Federal Reserve Bank of Boston suggests the clock starts ticking, at least as far as the foreclosure process is concerned, much sooner than previously imagined.
In the past five years, Massachusetts lawmakers have increased the commonwealth’s right-to-cure period – the amount of time a borrower has to prevent a foreclosure from occurring once proceedings have begun – two times. As recently as 2008, homeowners were given only 30 days to try and avoid foreclosure. In 2009, owing to a flood of foreclosure actions and the sheer enormity of troubled borrowers, that period was extended to 90 days. A year later, it was extended again, to the current 150 days.
What started out as a one-month process soon became three months, then five. It has been argued that by giving troubled homeowners the luxury of more time to plead their case or arrange their affairs, those homeowners stay in their homes longer and properties destined to foreclosure don’t all hit the market at once.
That is sound logic. As soon as a homeowner vacates their troubled property, it almost immediately begins to act as a neighborhood blight, doomed to sit vacant and neglected until it can eventually be re-sold or re-purposed.
Additionally, by spacing out the time period between foreclosure notices and foreclosure deeds, properties entering foreclosure within a few days or weeks of one another ideally won’t overlap in vacancy for as long as they might if the right-to-cure periods were shorter.
But Fed economists argue that the clock starts ticking – and neighboring home values start falling – as soon as a homeowner becomes delinquent. Nearby home values fall furthest as soon as the property enters the foreclosure process, not once it has already been foreclosed upon.
In this sense, then, lengthening the time a home spends in delinquency – from 30 days to 150 days – before its resolution, the more negative effects that distressed home exerts on its neighbors and neighborhood.
In essence, for Willen and company, arbitrary right-to-cure extensions aren’t the answer to the foreclosure crisis. Rather, they argue for a swift resolution that minimizes the overall time a property spends languishing first in delinquency, then in foreclosure.
Current foreclosure policy hasn’t exactly been all that effective in stanching the bleeding, with year-to-date foreclosure deeds up more than 8 percent this year over last. In 2010, when the right-to-cure period was bumped to 150 days, foreclosures ended the year up more than 30 percent over 2009 – despite a final quarter marked by a massive slowdown in foreclosure activity as a result of the robo-signing scandal.
As the market slowly recovers and distressed homeowners find themselves with more options to foreclosure – including lenders more willing to negotiate short sales and loan modifications – it seems likely we’re entering a period when foreclosure prevention will take a back seat to foreclosure mitigation. At this point, there are properties that will simply end up in foreclosure no matter what. Why waste months, then, trying to avoid the inevitable? We agree with Willen that it makes more sense to focus on getting those properties into other owners’ hands, rather than watch them languish in the hands of their current, troubled owners.
We think its time to lower the right-to-cure period back down to 90 days. One fiscal quarter we think is more than enough time to arrange a foreclosure alternative for those with some hope. And giving those with very little chance of avoiding a foreclosure even more time to live with their fate, at this point, seems cruel.
