Day of Reckoning for Foreclosures

 

Owners of about 11 million homes, or 23 percent of households with a mortgage, owed more than their property was worth as of June 30, according to CoreLogic.
Courtesy of American Home Guides Blog

The belief has been: if we stimulate sales with a tax credit and delay foreclosures with modifications, the market would stabilize, according to Barry Ritholtz, author of “Bailout Nation.” “We’re just putting off the day of reckoning and drawing out the pain by not letting the housing market hit its bottom,” Ritholtz said.

Government policy contributed to a recent stabilization in prices that may have been an illusion, said Zach Pandl, an economist at Nomura Securities International Inc. The S&P/Case- Shiller index of home prices in 20 U.S. cities rose 4.2 percent in June from a year earlier. The measure is a three-month moving average, which means data in the month were still influenced by transactions that may have benefited from the tax incentive.

“Even if modifications fail, keeping foreclosures off the market is worth the risk of a delayed recovery,” Pandl said. “It’s too painful and too damaging to let it happen all at once.”

Another 2.4 million borrowers had less than 5 percent equity in their houses and probably would lose money on a sale after paying broker fees and closing costs.

– Courtesy of Bloomberg News