By Mark Whitehouse
The market isn’t doing a very good job of cleaning up after the housing bust, more evidence that this is a place where government intervention could help.
Banks are taking ever longer to get houses through the foreclosure process, onto the market and into the hands of new owners. As of August, the average mortgage borrower in foreclosure hadn’t made a payment in 611 days, according to data provider LPS Applied Analytics. That's up from 599 in July and more than double the level of three years ago.
The banks' slowness has various explanations. For one, problems with documentation have prompted them to hold off on foreclosure actions and even pull some loans back out of foreclosure. Beyond that, selling the homes would require them to fully recognize losses on the attached loans -- something many banks are reluctant to do.
The longer the banks delay, the greater their losses are likely to be. As of August, some 38 percent of loans in the foreclosure process -- representing hundreds of thousands of houses -- hadn't been paid in more than two years. All those homes are stuck in a sort of twilight zone, either sitting empty or being exploited by nominal owners who have little incentive to invest in their upkeep. Many may already be worthless.
Bloomberg View has advocated principal reductions on mortgage loans as a way to realign owners' and lenders' incentives, curb losses and clear the market. It would have been better to start before things got as bad as they have, but it's still not too late to make a difference.
(Mark Whitehouse is a member of the Bloomberg View editorial board)-0- Oct/03/2011 20:26 GMT