About foreclosures, our housing markets, and economic recovery… oh, and lying.

Okay, so let’s start by remembering where we started on the housing and foreclosure crisis back in 2009… here’s President Obama’s delivering his speech that introduced his Making Home Affordable program on February 18, 2009.

Among other things, he says his plan will help save between 7 – 9 Million families so they can avoid foreclosure. But, that’s not all.  He also says his plan is important because of the neighbors to these families because foreclosures lead to lower home values, along with failing local businesses and lost jobs.  He says…

“In the end, the home mortgage crisis, the financial crisis and the broader economic crisis are all interconnected.  And we can’t successfully address any one of them without addressing them all.”

Quite right, and I think it’s fair to say that just about everyone would agree.

But yet… fast forward to March of 2012… about a year ago, and the foreclosure crisis was understood to be far from over.  As I recall, HAMP fell just slightly short of helping 7-9 million… or 3-4 million… or whatever we’ve changed the numbers to today.  You recall that statistic too, right?  I don’t need to go find a link, do I?

Hang on… I don’t need to go find anything… I interviewed the former Special Inspector General for the TARP program (and author of the book, Bailout), Neil Barofsky myself on a Mandelman Matters podcast, and if you haven’t listened to it yet, now is as good a time as any…  Former SIGTARP Neil Barofsky, the Last Honest Man in Washington.  If you haven’t read Neil’s book yet, you’ll find a link to Amazon there too.  It’s absolutely worth reading… twice.

Susan Wachter, a real estate professor at the Wharton School at the University of Pennsylvania, talking with Bloomberg’s Lori Rothman on March 23rd of last year says that the foreclosure crisis is still a major threat to our country’s economic recovery.

She also states clearly that, “Without Fannie, Freddie and FHA, there would simply be no (mortgage) market.”

Nobel Prize-winning economist Joseph Stiglitz, asked on October 3, 2012, what we need to do to create an economic recovery, said there were three things needed… Engage in another round of fiscal stimulus, do something about home foreclosures and address the problem of income inequality.

Then, as of July of 2012… Yale Professor Robert Shiller, who correctly predicted the current housing meltdown said that even though the crisis is now five years old, he didn’t think we were at the bottom. When asked, “If the current housing crisis was a baseball game, what inning would it be?” Shiller replied, “Maybe we’re in the fourth.”

Shiller also said that home prices may not recover “in our lifetime.”

He cited the Florida land boom in the 1920’s, where prices did not rebound for a “half century,” adding, “There are a lot of long term doubts about home prices right now.” Asked the question: If real estate does not recover “in our lifetime,” what about the banks still holding it?  Shiller responded by calling that a “dark scenario, also saying…

“A lot of people have the mistaken impression that we must be at a bottom.”

Shiller makes it very clear that our housing market not recovering is the major factor holding back our overall economic recovery.

And, as recently as ONE MONTH AGO… on January 25, 2013… Yale’s Robert Shiller, founder of the Case-Shiller Index, says that no experts think we’re headed back to any sort of boom in housing and that he believes that housing will continue to fall.  To his interviewer at the Davos Economic Conference only a month ago, he says,

“But, you’re right… the rhetoric… the cheap talk is we’re off to the races again.  But people that think about it seriously… doubt it.”

And one more thing… on March 23rd, 2012… Alex Sanchez, president and chief executive officer of the Florida Bankers Association, discussing the implications of a home foreclosure moratorium for the U.S. economic recovery, and says that a delay in foreclosures will continue to slow any U.S. economic recovery.

He also says a bunch of other things that I wouldn’t agree with, but I’m including his interview because it’s representative of what the banking industry has continued to say…

That delays in foreclosure can only delay our nation’s economic recovery.

And since there should be no question in anyone’s mind that not only have we already seen significant delays in foreclosure activity as a result of the robo-signing scandal, National Mortgage Settlement, and new state laws like Nevada’s AB 284, that essentially brought foreclosures filings to a halt in the fall of 2011, but such delays are continuing and even increasing in state’s like California, Oregon and Hawaii… as a result of those states recently passing laws that make non-judicial foreclosures impractical.

Now, I explained this situation weeks ago in my article titled, “9.9 Earthquake in Default Servicing Turns California into Judicial Foreclosure State,” and if you haven’t read it… you should.

But the crux of the matter is that because of the compensation structure for foreclosure attorneys in non-judicial foreclosure states, once a state passes a law that creates or increases the potential for monetary liability for improprieties in the foreclosure process, the lawyers contracted to handle foreclosures simply don’t want to do them without a change in their compensation.

More simply put… if you were getting $1200 to handle a foreclosure in a non-judicial state, and then that state passed a law saying that you now could end up having to pay a fine of $10,000 or more if it were determined that something wasn’t done properly… how many more of those $1200 jobs foreclosing would you want to take on?  Not too many, right?

See the problem?  So, what happens when state laws create such potential for liability, is that the bank has to switch over to a judicial foreclosure process, which they can do, but takes a year or more to renegotiate contracts and compensation structures for the foreclosure law firms.  And while those changes are being made… it makes it appear that foreclosures have slowed down dramatically in the state.

And that’s precisely what you’re seeing today in California.  In fact, just today, the Sacramento Bee reported…

Foreclosure activity – default notices, scheduled auctions and bank repossessions — in California plunged dramatically in January, according to a report released today by Irvine-based RealtyTrac.

The real estate website ForeclosureRadar.com reported a 60.5% decline in California default notices in January from December. The number of default notices “” the first formal step in the state’s foreclosure process “” fell 77.7% from December 2011. A total of 4,500 such filings were logged last month, the lowest number of default notices since at least September 2006, when the website’s records begin.

 

That number is down 69 percent from January 2012 and 35 percent from December. California had 4,386 foreclosure starts last month, down 62 percent from December and nearly 75 percent from January 2012.