The American Foreclosure Process Has Ground To A Halt
Thursday, 17 May 2012
Something funny happened in the aftermath of the US fraudclosure settlement, in which millions of backlogged housing units were supposed to enter the foreclosure process and begin the clearing of the nearly 9 million housing units in shadow inventory: *nothing*. Because as RealtyTrac disclosed overnight, in April the US saw a mere 188,780 foreclosures events of various type (NOD, auction, REO) take place. Why is this number significant? Because it is the lowest in 5 years, despite shadow inventory in the US now being virtually the highest ever. But, but, "this is precisely what the foreclosure settlement was supposed to prevent" one may ask... That would be correct. Next question. In other words, not only did banks get away scott free from being litigated to the 7th circle of hell, but for them the "profitable" business model continues to be one where house lending is largely irrelevant. And why not: with NIMs are record lows, banks couldn't care less if the houses and marked down loans against them in the asset pool go up or down. The real money is made elsewhere: like *hedging *the IG9. In the meantime for everyone else hoping to get a true clearing price on housing and millions in units in shadow inventory being finally absorbed by the market: good luck. Not only has the foreclosure process in America ground to a complete halt but as the second chart below shows, the time to liquidation once a property enters 60 day-delinquent status just hit an all time high: that's right, the average time during which a deadbeat can occupy a home without payment if they so choose is 31 months. Thank you central planning politburo and USSA.
Time from delinquency to liquidation - all time record.
As BofA explains:
A streamlined foreclosure process should result in faster liquidations, which means a pickup in the flow of distressed inventory into the market. This would weigh on prices in the near term, but speed up the eventual recovery. However, countering the efficiency on the part of servicers are the delays by courts in the judicial states. *It takes 31 months for a loan to be liquidated once it becomes 60 days delinquent in judicial states versus 24 in non-judicial*. There have been efforts to improve the process in states like New York and Florida, but the delays remain.
And finally, what does this really mean for that most important thing - prices. Well, as the chart below shows, one splitting housing into the four constituent categories: non-distressed (i.e., no motivated seller), through short-sale, move-in ready REO, and finally damaged REO (very, very, very motivated seller), the real price for the average home is between $100k and $250k. As more and more Americans, both at the individual and institutional level become motivated sellers, the more the dark blue line will drop lower toward the orange line at the very bottom.
Sorry "housing bottom" callers: you were wrong. Again.