Banks have Adopted the Strategy of Slowing Foreclosure Operations
Photo by Lumaxart
Banks have lately adopted the strategy of slowing foreclosure operations. This helps them to postpone the posting of their losses. It improves the apparent health of their financial position to the regulators and the investors.
Some banks write down the worth of troubled mortgages prior to foreclosing. The rules of accounting do not mandate that they totally write down repossessed property’s value until its sale. The longer they delay defaulting on any loan the longer they can keep it in their books at a value that is above the market price. In banking parlance it is known as “extend and pretend”.
The foreclosure waiting line is also clogged by depressed demand for houses. It is now four years since the collapse of the housing market but there are no indications of recovery. The bankers have thus started to go slow on their foreclosure operations to match the pace of sluggish sales.
Rick Sharga of RealtyTrac said, “What we’re seeing is a saturation of distressed properties already in the market and not enough buying interest to motivate the banks to proceed with new foreclosures. So they’re just replenishing the pipeline. As they’re able to sell off what they’ve already repossessed, they repossess a new batch, put those on the market and start foreclosure proceedings on the next batch”.
Only few have been able to pull back their houses from the jaws of auction by persuading their banks to reduce the principal or to lower rate of interest so that the monthly interest came down.
But despite innumerable government programmes during these four years only a small number of borrowers have been lucky to get new loans. Even those whose loans have been modified the amount has not been sufficiently low to match their income; consequently after a delay they lose the house inevitably; even modifications are not helping.
By slowing foreclosures the bankers are managing to stop the uncontrolled plummeting of prices but it is just dragging on the pain of the house owners who are eagerly waiting for the property market to recover.
Lenders have in their books nearly 850,000 houses. Another batch of 1.1 million houses is in the initial stages of being foreclosed upon. According to estimates another lot of 3 millions houses will be swallowed by foreclosure before the market reaches stability.
