So Ally's GMAC, Bank of America and J.P. Morgan Chase are halting foreclosures in 23 states. More importantly, Fannie Mae and Freddie Mac have stepped in to outline correct foreclosure processes and are demanding lenders adhere to them. What's more, many more lenders are sure to follow the big 3's changes. That's great but what does it mean for us?
Is this a short term thing or will it take a while to fix? With the threat of civil suits, government or SEC investigations and even Justice Department prosecutions (mail fraud and wire fraud), you can bet that lenders will slow way down and make sure they get it right. The days of "robo-signing" and scant reviews of legal documents in foreclosure proceedings are gone. Even when foreclosures start up again, it will be a much slower process because (imagine this) people will have to do the work, not computers.
Why should we, as real estate professionals and homeowners, love this? Simple. Instead of releasing a glut of discounted bank-owned properties into an overcrowded winter market, lenders will be holding onto these properties longer while these technical issues are sorted out. There was recently very good news in our market and the largest threat to it was the aforementioned wave of bank owned properties hitting the market over the naturally slower winter months. These sales would depress values and make appraisals difficult during the spring market. With the advent of these lenders having to get this process fixed and halting foreclosures, that headwind has stopped blowing.
It has been said that it would be better if these foreclosures were just pushed though the system. "Just get it over with," they say. This is not the best approach, however, for someone who cares about home values, wants a soft landing for the real estate market, and a smooth recovery (in short, anyone who owns a home). When the job market recovers, we'll truly be able to exhale and trust in the health of real estate again but until then, any measure of "kicking the can" or anything that spreads this crisis out over a longer period of time is welcome.
Regardless of whether one thinks this is a good thing or a bad thing, it is what it is. Home values are less threatened as a result and the hourglass has more sand in it as we wait for fuller employment. For now, that long shadow we thought these lenders' inventory might cast won't be with us as early as anticipated. It's still high noon.
Affected states include: Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.
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