Foreclosures Scandal to Delay Housing Recovery

With JPMorgan Chase and Ally Financial both calling a temporary halt to foreclosures and members of Congress questioning Fannie Mae and Freddie Mac's use of "foreclosure mills," are these just unnecessary delays for inevitable defaults? Will other major loan servicers be next in line?

RealtyTrac senior vice president Rick Sharga wasn't surprised to hear about the delays, but he does think the foreclosures are inevitable and that "these additional delays will just slow the housing recovery." He told HousingWatch that "banks and servicers have been managing inventory levels for a while." These legal moves now force them to delay foreclosures even longer. But even without these delays, Sharga thinks foreclosures will negatively impact the housing market until 2013.

Given that the banks and servicers have had since 2006 to get their act together, Sharga is amazed that they aren't further along in setting up the proper procedures for taking these foreclosure cases to court. For those homeowners threatened with foreclosure, it could mean a reprieve.

"None of the systems and processes in the industry were set up to handle the kind of volumes we're seeing today," Sharga said, but during the past five years the banks should have done more to get ready.