Jun062016

US lenders completed 6,324,545 foreclosures over the last ten years

US lenders completed 6,324,545 foreclosures over the last ten years, and it should have been worse. The mortgage and foreclosure debacle of 2008 was cut short by government intervention.

Is the mortgage and foreclosure crisis resolved or merely delayed? Most people believe the mortgage and foreclosure crisis of 2008 is completely resolved, a misperception fostered by a financial media eager to disseminate good news. Most people believe an improving economy created jobs for struggling borrowers, and those hard-working Americans cured their loans of past-due payments: all is well.mortgage-foreclosure-crisis-2.0

While the image of the noble American borrower recovering from the perils of the Great Recession appeals to our sense of collective pride, reality is somewhat less noble. Most borrowers were hopelessly overextended before the recession hit, often living as Ponzis. Lenders extended loan modifications to these borrowers to preserve the bad debts polluting the balance sheets of both bankers and borrowers.

Loan modification deals merely postponed the final resolution until a day when the value of the collateral backing these bad loans was restored. The final resolution of these can-kicked loans will be mortgage and foreclosure crisis 2.0.

Back in July of 2012, I noted that Foreclosures dominance of housing market projected to end in 2015 or 2016:

I took the long-term chart of mortgage delinquencies from LPS and projected the current rate of decline forward to the future to see when we get back to a normal rate of delinquency. The result was January of 2015 (see chart below).

Projected_foreclosure_rates_2012-5

The data series for extrapolation was two and a half years of data, and the trend is easy to define. I feel confident that unless lender behavior changes, we will see normal delinquency rates by early 2015. …

The chart above is over three years old, and the rate of decline in delinquencies occurred as projected; however, I believe we will see an echo bubble of delinquencies as the bad loans of the housing bubble era are finally resolved. The chart below is what I believe will happen:

Projected_mortgage_delinquency_rates_2014-9

Mortgage delinquencies will rise again, and they will remain elevated above historic norms for much longer than anyone currently anticipates. This will “surprise” economists and others who accept the financial media spin without understanding why and how the mortgage delinquency rates were lowered in the first place. Despite all the foreclosures we’ve already had, the problem is not over yet.

How Many Americans Have Gone Through Foreclosure?

May 31, 2016 by Brooke Niemeyer

During the Great Recession, many Americans lost their homes due to foreclosure. In fact, according to real estate data company RealtyTrac, there were 6,324,545 completed foreclosures from January 2006 to April 2016.

“It is a big number,” Daren Blomquist, Senior Vice President of RealtyTrac said in an email. “Normal would be around 250,000 bank repossessions per year. These last 10 years represented the biggest loss of home ownership and shifting of real estate wealth since the Great Depression.”

What happens to people who lose their house in foreclosure? Do they end up homeless and destitute? Do they resort to a life of crime or prostitution? Is foreclosure the end of modern civilization as we know it?

lost_in_foreclosure

People working to prevent foreclosures proffered all of these fallacious reasons why we needed to stop foreclosures and give delinquent borrowers principal reductions or free houses. The reality is, most people who lost their homes in foreclosure moved in to a nearby rental — and many were financially better off with a lower cost of housing in something they could afford.Las_Vegas_foreclosure

One of the houses my fund bought at auction in Las Vegas is still occupied by the former owners. Before they quit making payments, their obligation was for $2,200 per month, and it was due to increase. I bought their house, fixed up the problems from deferred maintenance while they were squatting, and I signed a lease with them for $1,050 per month. That was early 2011, and the former owners are still there. They didn’t have to move, and their cost of housing was cut in half. If they hadn’t defaulted, they would still be paying $2,200 per month in an underwater house, unless they obtained temporary relief from a “permanent” loan modification. I think they are better off as renters, don’t you?

Most people who lost their homes in foreclosure weren’t fortunate enough to stay in the property, but most moved to a comparable rental nearby. For most it was a practical decision; their children had friends in the neighborhood or school, and most delinquent borrowers still had jobs — contrary to the popular spin, most foreclosures were not caused by job loss but by toxic mortgages. People with jobs stay in the area to keep it; plus, with few jobs created elsewhere, most people had nowhere else to go. As a result, there were no mass migrations associated with the Great Recession.

While the 6,324,545 foreclosures over the last ten years disrupted people’s lives, for them the nightmare is over. Their credit will recover, and live will go on. What about the Millions of homeowners trapped in entry-level homes for over a decade? I think their fate is arguably worse.

Steve_and_Tasha_McLaughlin

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