Federal Reserve willfully ignorant to real cause of MLS listing shortage dlvr.it/4Bhy6F Sometime in late 2011 or early 2012, lenders changed their internal policies regarding foreclosure processing on delinquent borrowers. Prior to that time, most major lenders, and in particular the GSEs, were processing foreclosures to reduce the level of shadow inventory and stop delinquent mortgage squatters from enjoying a free ride. Lenders were still slow at this processing, and the shadow inventory was enormous, but they were processing just the same. Lenders finally came to realize that continued foreclosure processing was providing a steady stream of distressed properties, and these distressed property sales were keeping prices down. They correctly reasoned that if they stopped foreclosure processing, they could greatly reduce the supply of must-sell distressed inventory and alleviate the pressure on home prices. If they could make home prices go up, they would increase the recovery on the bad loans they did process, and if they could make prices go up enough, many of the distressed borrowers could sell on their own in a conventional equity sale. In order to make this plan work, they needed everyone to be on board. If one of the major banks kept processing foreclosures while the others withheld it, the rebound effect would not reflate the housing bubble quickly enough to help out the rest. It was a classic cartel problem. Since there are only a few major banks that control most of the bad loans and servicing of bad loans, getting them to collude was easier. Further, with incentives and directives coming from many levels of government encouraging and demanding that lenders stop foreclosures, lenders were ready to comply. The result was a change in policy at all the major lenders to stop foreclosing on delinquent borrowers and instead to focus on modifying loans to get a few more payments out of these deadbeats while prices recovered. It didnt really matter to lenders that loan modification failure rates are very, very high because this solution was never intended to be permanent. Lenders merely needed to delay foreclosure processing long enough to raise prices. Then, either the owner could sell on their own, or the bank would get tougher and force them out. This is the real reason MLS inventory levels are down. The insiders at the federal reserve know why inventory is really down. They couldnt possibly be ignorant to the real causes as they helped orchestrate them. I was shocked to read
Posted on: Thu, 24 Oct 2013 08:04:29 +0000
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