Foreclosure Freeze: Better for You or Banks?
In fact columnist, Peter G. Miller, thinks the delay in foreclosures that we've seen so far over the past year or so could have "prevented the financial system appearing significantly worse." He thinks the "national fudging process" of the banks may be able to go on a bit longer as they wait "until property values increase for real."
Right now the banks are carrying many of these foreclosed properties at a higher value than they are worth today. Once they sell them off, they'll have to report the true value of the assets they are holding.
In September 2010 the estimated shadow inventory of delinquent loans, foreclosures and bank-owned properties was 7 million in the U.S., according to Fitch Ratings. Fitch expects the liquidation timelines to continue to increase because of both modification efforts and foreclosure defects. This will result in more severe losses for residential mortgage-backed securities (RMBS), because they will have higher carrying costs and slowed cashflow. Not only are banks affected by the delays but other holders of RMBS securities also will feel the pain, they include pension funds and insurance companies.
People who are waiting to purchase foreclosure properties are finding that they either have to walk away from buy the homes have less money to spend.
Banks now have to spend money fixing their mess, which will obviously increase the costs of foreclosing on the properties. While that will hit banks' profits, they took the risk that they could get away with a faster, cheaper foreclosure process and lost the bet. They will now have to spend what normally would have been spent to properly prepare foreclosure paperwork and make sure they are not foreclosing on the wrong property or for the wrong amount.
Hopefully, this will put an end to the stories of illegal trash-outs that plague people who bought foreclosures or who found cash to save their homes from foreclosure.
So we're back to the fact that the people at the heart of this mess -- those who can't pay their mortgages and the banks who did not take proper care in making these loans -- seem to get the best of this deal. Banks can continue to hide the losses in their shadow inventory and defaulters can continue to live free, while everyone else will watch the housing recovery stall and house prices drop yet again as the healing is delayed.
Lita Epstein has written more than 25 books including "Reading Financial Reports for Dummies."
For more on related topics see these AOL Real Estateguides:
More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.