Foreclosure Relief ... For Banks

Oh, what woe to be a realtor (or a "Realtor," as newspapers that depend on real estate ads like to capitalize it). Every month such rosy predictions, every month so many dashed hopes. This month is yet another with some of the lowest home sales numbers in a decade. Surely this has to turn around soon.

Right. Actually, things could easily be even worse. One story that I wish had run before Slate shut down The Big Money at the end of July was piece about the disaster of foreclosure "aid"--and its de facto beneficiaries. Some critics of foreclosure relief like to paint recipients as lucky duckies. The reality is that half the applicants get rejected for aid, and of those who do get it, a startling two thirds to three quarters won't be able to keep up with their payments and will find themselves facing foreclosure again within a year.

So what does this have to do with the housing market? HAMP, the federal government's main foreclosure relief program, simply stretches out the foreclosure process, extending debtors' slow bleed of resources and encouraging them to keep chasing the hope of staying in their homes until what savings they have are depleted. New Fannie Mae rules make the HAMP process a requirement for getting a mortgage in the future; what was supposed to be help for debtors has turned into a cudgel for lenders.

Banks are already doing their best to stretch out the foreclosure process; the average time from the first default notice to a bank actually taking possession of the house now stretch to more than 400 days. Barry Rithotz calls this "strategic non-foreclosure." Bankers have to hold out the threat of repossession to get as many payments as they can. But to make good on it would mean seizing even more properties and dumping them on a falling market. Yes, it's possible for the housing market to crater even more than it has. Keeping debtors on the treadmill in HAMP hell lets banks prop up the market in the great foreclosure belt. Without it, things would look even worse. As it is, things are bad enough--and since the supply of repossessed properties isn't close to drying up, they'll stay that way for a long time.