At first glance, it might appear to be a welcome story. After years of decline in the housing market, there has been a significant dip in foreclosure filing rates. However the real reason behind the dip isn’t economic recovery…it’s a backlog of work at banks across the nation. A visual Cause Map helps illuminate what is really going on.
Foreclosure filings have dropped 25% in the last six months of 2010. This normally would mean that fewer properties require foreclosure. Banks usually notify homeowners within days of the first missed payment. After multiple missed payments, the Notice of Default is finally sent to the homeowner, about 2 months after the initial missed payment. If the homeowner doesn’t pay up, that’s followed soon after by a foreclosure filing. In most states, eviction can happen in as little as 120 days.
However in today’s economy, banks are slower to take on new foreclosures. One of the major causes – a huge backlog of vacant properties – has made banks reluctant to notify newly delinquent homeowners. The initial notification process has slowed down, but so has the entire foreclosure process. Banks hope that by delaying the process, homeowners may be able to resume payment – the preferred outcome. In some states, foreclosures are averaging well over 900 days. Banks are in the business of managing money, not property.
There’s another reason behind the processing delays. Last fall banks were brought to court for robo-signing, a practice where law firms were automatically signing off on all foreclosure paperwork. The practice meant that many applicants were illegally kicked out of their homes. Many of the largest banks and lenders suspended processing to determine how robo-signing was occurring and stop it. It turns out that law firms, in an effort to get through the mountains of paperwork, were rubberstamping the foreclosure filings without due diligence to ensure everything was in order.
Delayed foreclosures are beneficial to families facing eviction, however often it is simply delaying the inevitable. Many economists believe that the economy will continue to struggle until the housing market recovers. In the meantime, the foreclosure crisis will drag on until banks can close out these dysfunctional loans.