Chart via Wall Street Journal.
We’ve seen some good signs. The number of new foreclosures has peaked nationally. New foreclosures are extremely high but at least they aren’t growing for the first time in years.
Chart via Business Insider.
However, what hurts home prices is not the number of new foreclosures but the next step, the number of foreclosures that hit the market.
The graph on top shows the banks are not getting on top of that problem and they are falling further and further behind in processing foreclosures.
Banks Encouraging Strategic Defaults
And the slow pace of bank foreclosures increases the benefits from strategic defaulting.
Sure, the banks delay booking their previous losses by foreclosing slowly but they also increase the number of rent-free months strategic defaulters get which encourages more strategic defaults and so on.
The fact that banks don’t have to book their losses until they foreclose, greatly encourages banks to foreclose as slowly as possible. And that’s why I think these foreclosure freezes will drag on, because the freezes allow the banks an excuse to further delay booking their enormous real estate losses. Maybe the bankers can get another year of million dollar bonuses!
Delaying foreclosures is like printing money for the management of Chase and GMAC.
- More on strategic defaults from the Wall Street Journal. One mortgage borrower in eight in Arizona is more than 90 days late on payments, according to the article, but that’s a lot better than Florida or Nevada!
- And here’s one Phoenix real estate agent who hasn’t paid his mortgage in 32 months. “He found banks often fail to follow the state statutory requirement when they foreclose on homes in Arizona.”