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[Fore-Stalling-Closure] Delaying Doesn’t Solve The Problem

One of the techniques employed to delay or ease the foreclosure problem has been to place a moratorium on foreclosures. I for one didn’t understand the concept. I still don’t. Usually the delay is 3 to 9 months.

Is that enough time to allow the homeowner to get back on their feet and start making payments again?

The economy is eroding (and now officially a 1-year recession [1]), unemployment is still rising and credit is still frozen. For many it would seem to be an illusion or false hope. To some of course, the delay to keep lenders at bay is helpful and effective.

It is sort of ironic (I am seeing irony in just about everything these days) that delaying the foreclosure process was necessary by many who delayed the process (of paying for things).

Julie Satow at The Daily Beast [2] (a terrific new Tina Brown – created site) brings us evidence of the false-positive that is foreclosure moratoriums in her article: New York’s Impending Real Estate Doom [3].

Back in August, state legislators in Albany set a 90-day freeze on foreclosures that’s created a backlog of foreclosure filings. The 90-days are up next month. Banks will be bringing foreclosure filings “by the wheelbarrow,” said one court officer in Queens, where the number of filings dropped to just 60 per week from a rate of 150 per week before the law took effect.

California [4], Florida [5] and Connecticut [6] are proposing moratoriums while Massachusetts already has one.

One of the first to enact a foreclosure delay was Massachusetts. It set a three-month freeze in May, creating a backlog in foreclosures that built up to August. In the end, foreclosure filings ballooned 456% between August and September, according to RealtyTrac, a site that tracks foreclosures nationally.

It seems to me that a delay, while well-intentioned, doesn’t do anything but compress more properties into foreclosure at the end of the moratorium, ultimately creating more listing inventory at the same time, placing even more distress, ultimately, on property values.

There is some speculation that the foreclosure phenomenon in California is starting to ebb [7], perhaps because they have been seeing heavy activity for nearly two years.

And yes, like construction permits, demolition permits are plummeting [8] in New York.

And yes, we are now realizing that we have been in a recession for a full year [9] (one of the longest since the Great Depression) and we haven’t yet seen two consecutive quarters of negative GDP growth. Apparently rising unemployment, falling real personal income, falling industrial production as well as falling wholesale and retail sales declines somehow reflected a weaker economy. Call me crazy.

Aside: Noted economics blogger Tanta passed away on Sunday [10]. She was a terrific writer for one of the best financial/econ blogs out there, Calculated Risk [11]. Cancer has hit close to home in my family and it is never fair. In fact, it sucks.