This week, several sources have reported new information indicating that a colossal backlog of foreclosed properties has amassed, where banks, unable to convert the repossessed homes into sales, simply hang on to them for an indefinite period, with no discernible hope that a transaction may take place. While most Americans are keenly cognizant of the foreclosure crisis, even housing experts found themselves shocked to come across some of the newly released statistics: according to the New York Times, lenders “own more that 872,000 homes as a result of the groundswell in foreclosures, almost as twice as many as when the financial crisis began in 2007.”
In addition to demonstrating that the crisis never really ended, this figure suggests that policies aimed at prevention have not worked, and in this severe economy, middle-income families throughout the nation continue to face the constant threat of losing their most valuable asset. In Atlanta, for instance, “lenders are repossessing eight homes for each distress home they sell,” a staggering ratio. The ratio is six to one in Minneapolis, and in “once hot” markets like Chicago and Miami, whose real estate is among the most expensive in America, the ratio still remains about two to one. Indeed, if banks continue to foreclose while maintaining a systematic inability to sell, this glut is sure to continue, signaling that there really may be No End in Sight.
The Times offers two reasons for the glut: “inadequate staffs” and “delays imposed by lenders because of investigations into foreclosure practices.” While it’s difficult to comment on the former without further information, the latter cause is surprising, since such “investigations” were presumably initiated to assist foreclosure victims and therefore help families stay in their homes. Of course, if these “investigations” were effective—assuming the term refers to an overhaul of foreclosure practices—then the end result should be a decrease in lender owned homes, not the other way around.
While the paper concedes that “the biggest reason for the backlog” is that it takes longer to sell a foreclosed property than owner-owned home, the paper goes on to suggest that slowing down the foreclosure process has contributed to this stagnant market.
In contrast to this suggestion, home owners require a more drastic overhaul of foreclosure practices, not less. The writer seems to miss the point that stymieing the process often diverts foreclosure altogether, benefiting the home owner and the bank alike. Indeed, the Times would serve the public by presenting this backlog in a much more nuanced fashion. While the investigations may slow down sales in the short term, they serve a larger purpose of ensuring that faulty practices that should never have taken place began to finally desist. Moreover, while the policies encouraging the investigations have too often fallen short, they are nevertheless crucially important. It’s easy for both parties to scapegoat government programs like HAMP, but to really curtail the rise of lender owned homes, the government must strengthen aid programs, ensuring that that enforcement mechanisms exist and that homeowners have the ability to access the services of HAMP and similar programs in an efficient and understandable context.
In short, while this problem is enormous, the first step to mitigating it is to prevent foreclosure altogether, and for that, we require more government programs and yes, more investigations into unfortunate practices (take, for example, the Washington Post columnist Dana Millibank, whose home was mistakenly foreclosed upon. And as Paul Krugman points out, there’s no reason to think that this is an exception).
Unfortunately, all indications suggest that this won’t happen. Proposed cuts in HUD have already taken place, and, coupled with a federal government obsessed with spending cuts, this could only mean one thing: less foreclosure prevention help, the return of unethical lending practices, and no solution to growing stock of foreclosed homes that no one is willing to buy