Foreclosures: Are Fewer Worse Than More?

We all know the housing market has been hurt by too many foreclosures being processed too quickly. But now that documents are being reviewed more closely and the process is taking longer -- as it well should -- some housing industry experts are saying fewer foreclosures may be even worse for the economy.

Naturally, the ones making the argument are folks who have been benefiting from the foreclosure boom-- contractors, landscapers and the like. They're complaining that their business has disappeared.

So who's right?

The evidence that fewer foreclosures are hurting the housing market, is "anecdotal," says Tom Ice of Ice Legal. "For each of those situations, how many other instances are there in which people living in or buying homes not in foreclosure have required the same services? How many instances are there where homeowners not yet displaced from their homes by foreclosure have paid for services or goods that pumped money into the economy?"

Tampa attorney Matt Weidner of Matt Weidner Law tells HousingWatch this slowdown is more of a problem for buyers and sellers.

"The foreclosure debacle is a problem...for our entire economy," says Weidner. "Fraudclosure-gate represents a serious challenge to the legitimacy of our entire system of government and way of life because it represents such a threat to the legitimacy of our government."

Another factor in the slowdown process is that everyday Americans are now acutely aware of the fraud and abuses in
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which lenders and banks were allowed to engage. They now understand that their government failed them when they did not regulate or prevent the mortgage industry from getting out of control.

As for the slowdown in foreclosures hurting the economy, Ice tells HousingWatch, "A flood of new foreclosed properties on the market will only drive down the market price -- something that the government economists actually want, because they believe that the housing market won't stabilize until prices hit rockbottom."

A recent analysis in the Wall Street Journal's analysis argues for the opposite economic effect. That effect, which it dubbed "the stealth stimulus," supposedly helps the economy because homeowners in default, but still living in their home, are using money they would normally spend on their mortgage "to make purchases they otherwise would have to forgo."

I haven't seen anyone tease out the economic effect of foreclosures (much less, the supposed foreclosure slowdown) from the effects of a generally depressed economy. The article seems to be advocating the idea that we now have what Jon Stewart jokingly called a "foreclosure-based economy." This raises the question as to what will happen when all the foreclosures finally make it completely through the system.

So which way is this trend pointing and what is the national outlook on foreclosures now that they've halted? Tough to tell, but in a recently released Congressional Oversight Panel Report Ohio, California, Arizona, New York, Connecticut and the District of Columbia have all launched their own attorney general-led investigations, so perhaps they will be the first to follow suit and halt the massive foreclosures.

One key fact in all this mess is that title insurance companies do not want to insure the titles to these properties. So no matter how many foreclosure judgments are signed, without title insurance the problem merely escalates.

April Charney, senior staff attorney at Jacksonville Area Legal Aide in Florida, has been at the forefront of these issues, hosting foreclosure defense sessions around the country to train attorneys on how to battle the courts. Her survey of REO properties in Jacksonville alone uncovered that approximately 5,000 properties are sitting vacant post foreclosure with the majority owned by Fannie, Freddie, Deutsche Bank National Trust Company, HSBC and BOA/CW.

Nationwide the number of mortgages that have merged with the mortgagee is a whopping 54 million which Charley tells HousingWatch "perhaps is what we really wanted was subsidized housing because clearly what this failure of securitization proves is that we didn't have enough buyers with the means for this."

Scarier still is the fact that Fannie Mae, which was put under conservatorship, owns more vacant property in this country than anyone else.

Let's just hope more states join the five noted above from the Congressional Oversight Panel and launch their own state investigations. That may be the only hope for clearing up the foreclosure disaster that continues to grip the country.

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