It’s an absurd world. We have incentivized people to stop paying their mortgage and stay in the house as long as possible before eviction. The Wall Street Journal reports the average number of days since the average borrower in foreclosure last made a mortgage payment is 492 days. The Journal writes,
In recent months, the number of borrowers entering severe delinquency — meaning they missed their third monthly mortgage payment — has been on the decline, falling to about 700,000 in October, according to mortgage-data provider LPS Applied Analytics. But it’s still more than double the number of foreclosure processes started.
As a result, banks are taking progressively longer to foreclose. The average borrower in the foreclosure process hadn’t made a payment in 492 days as of the end of October, according to LPS. That compares to 382 days a year ago and a low of 244 days in August 2007.
In other words, people who default on their mortgages can reasonably expect, on average, to stay in their homes rent-free more than 16 months. In some states such as New York and Florida, the number is closer to 20 months.
That’s a meaningful incentive, and it’s likely to grow unless banks manage to boost their throughput. Speeding up the process won’t be easy, as demonstrated by the banks’ continuing legal troubles related to robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation.
Millions of Americans still are paying their mortgages even though they owe more than their homes are worth. The more banks’ backlog grows, the more likely they are to join it, adding to the already giant pile of foreclosures weighing on the housing market.
492 days! And it’s an average. That’s 16 months of free rent. In a McMansion, were talking $75K net of taxes! Is this the new “cottage” industry? Those who continue to pay get hosed, those who default live rent-free or get mortgage modifications. I guess we know the direction of defaults in the next few years.
I’m no fan of failing to honor obligations but … Banks made crappy loans at the peak of the market in non recourse states. At least some borrowers would have stayed in their homes and made payments if the banks were willing to negotiate even a little. Instead, banks refused to negotiate and even told borrowers to stop making payments before they would consider negotiating. Everyone now suffers. In the future credit will be hard to get except for very strong borrowers. Banks balance sheets will take larger hits than had they negotiated. House prices may fall even further than they might have.
Great points, David..
Bring back debtor’s prisons.
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