...According to LPS Applied Analytics, 2 million households are in foreclosure, with another 2.37 million badly delinquent and awaiting foreclosure.Nearly all foreclosure cases are handled on paper submissions -- there are no trials. But with suspect affidavits, judges will order full trials -- which could add a full year of delay, on top of the current average of 478 days between the first missed payment and a foreclosure sale.
During the delays, borrowers will stay in their houses without paying interest, while banks pay real-estate taxes and even upkeep. Since we're talking hundreds of thousands of cases, lenders are in for some pretty staggering losses.
Which means you are. Fannie Mae and Freddie Mac (which have already eaten $148 billion in taxpayer funds over the last two years) own or guarantee about half of all mortgages -- $5.5 trillion worth. The taxpayers also guarantee many other loans via the Federal Housing Administration (which is now insuring one in three new mortgage loans). And taxpayers own a majority stake in GMAC since advancing $17 billion to save the mortgage giant during the financial crisis.
One way or the other, the majority of these fresh losses will end up on Uncle Sam.
This problem will also make foreclosed homes much harder to sell -- because any subsequent buyer will be vulnerable to a legal claim that his title is bad. One title company, Old Republic National Title, has already stopped insuring houses sold at GMAC foreclosures.
Buyers will drop their bids on foreclosed homes, worried that they're buying a pig in a poke. And distressed sales now make up one in three sales nationally -- and more in states at the center of the mortgage meltdown, such as California.
Even people who've bought houses at past foreclosure sales -- before this problem emerged -- could have trouble selling now, especially with buyers finding it harder to get title insurance.
Banks, forced to review million of files, will have to charge higher interest rates to cover their increased costs. That could cause a further slide in home prices...
What can be done? Stephen B. Meister, the author of this New York Post article, gives some suggestions at the conclusion. Read the whole piece here. (Hat tip: Lucianne.com)
