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Existing-home sales rose 2.1% in October, with the number coming in slightly above expectations, although the previous month’s numbers were revised down. Inventory has decreased 21% year-over-year (in no small part due to structural factors like trapped borrowers not putting their houses on the market, as well as artificial constraints on supply from banks keeping homes off the market).
These are relatively positive numbers for housing. But I want to highlight how analysis of trends in the market completely discount due process as a legitimate activity for borrowers.
Consider this report on mortgage delinquencies. It starts out by saying the delinquency rate has fallen. However, it immediately explains that those judicial foreclosure states are ruining everything with their double-check on the true ownership of the loan and all that nonsense:
The Mortgage Bankers Association said Thursday that 4.1% of mortgage loans on one-to-four-unit homes—about 1.9 million households—were in the foreclosure process at the end of the third quarter, down from 4.4% a year earlier and the lowest level in 3½ years.
The national average, however, masks big differences between the states. Among the 12 states with foreclosure rates that exceed the national average, 11 of them require banks to take back properties by going to court.
Foreclosure rates stood at 6.6% in those “judicial” states in September, while they have dropped sharply to 2.4% in the “nonjudicial” states where banks face fewer hurdles to foreclosure.
Are we supposed to believe that there’s a material difference among borrowers in a judicial and non-judicial foreclosure state? Are those non-judicial states filled with more “responsible” homeowners who don’t default on their loans? Of course not. The only reason the rates are lower in those states is because banks can fast-track borrowers through the foreclosure process. In states where banks have to, you know, prove that they own the loan, they increasingly have trouble doing it.
Incidentally, the one non-judicial foreclosure state with rates above the national average is Nevada, where laws in place criminalized robo-signing and force foreclosure mill lawyers to verify their mortgage recordings with county clerks. In other words, banks couldn’t legitimize their conduct in Nevada, like in other judicial foreclosure states, and therefore cannot foreclose.
Somehow this is spun as a problem of the judicial foreclosure process instead of a problem of banks who have no way to prove ownership. The WSJ article is peppered with analysts claiming that the judicial foreclosure states “mute” the housing recovery, rather than saying the banks’ inability to prove ownership of the loans is the culprit. This line about Arizona and California is indicative of the sentiment:
Arizona and California, meanwhile, served as the epicenter of the housing bust. But their nonjudicial foreclosure process has allowed banks to take back properties from delinquent homeowners and resell them more quickly to investors and first-time home buyers.
Ripping homes from people, in this context, is seen as a good thing.
I’m sure the same analysts will go back to shaking their heads at California soon. Foreclosure cancellations are spiking there, because dual tracking has been curtailed, due to new rules ushered in by the Homeowners Bill of Rights. To these housing analysts, any action taken by the state that seeks to protect citizens risks allowing recovery to flourish. Foreclosures are good, and laws to protect homeowners are bad.
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For most of the people writing about these issues, it is a morality play. Given their own affluence, it is a play which casts them as paragons of virtue and the less well off as immoral and irresponsible, therefor unworthy of material security. It continues to amaze me that they are incapable of seeing that the truly irresponsible and immoral players are the financial institutions and the capitalists they benefit.
Thanks be to God for the work you do on the broad panoply of issues on this broader issue. I depend on you to keep us inform on critical aspects of the insane mortgage crisis. You know of course that California’s Homeowners Bill of Rights legislation gives folks the option of going to court. Wonder what the stats on that are.
Thanks to you, Dr. Dick for you very wise perception.
Blessings,
A few comments:
First, I agree that these things are discussed in the media in a way that is biased against the borrower. Perhaps this is a vestige of trying, in 2008, to blame “liar loans” for the global economic collapse, rather than blaming the mortgage derivative industry. But, the Wall Street Journal in particular is going to blame the victims, not the plutocrats.
Second, I very much regret that state legislatures allowed lenders to lobby them into changing foreclosure laws.
I refer both to doing away with court oversight and to allowing deficiency judgments against the borrower, instead of limiting the lender to taking the real estate. The second point in particular let lenders go wild overvaluing property.
Third, this is not a due process issue. It is a legislative issue. Once the legislatures changed the laws, eliminating the need for lenders to go to court in order to foreclose, the arrangement between a private lender and a private borrower became a purely private one. Due process applies only to action taken by federal, state or local government.
However, as far as I know, if a borrower believes that a lender purporting to foreclose is not owed the money or is not the owner of the loan, the borrow can still go to court to seek relief from the foreclosure. That is not the same as requiring a lender to go to court in order to get authorization to foreclose, but “it’s not nothing,” either.
Finally the Wall Street journal author is a surprisingly poor writer.
No states requires mortgage lenders to take back properties, whether by going to court or by any other method. Some states, however, do require lenders to go to court in order to foreclose on a property, which is very different from requiring lenders to take back properties by going to court.
Not all mortgage lenders are banks, either. As far as I know, all mortgage lenders are subject to the same laws relating to mortgages, be they banks, mortgage companies or your cousin Al.
Does that make deficiency judgments particularly onerous? If you overstate the value of a property, then a foreclosure with a deficiency judgment is based on……….the overstated valuation?