Are The Legal Foreclosure Problems Working In Banks’ Interests?

Hopefully you have been following the tempest in a teapot issue about Ally Bank and now JP Morgan delaying foreclosures because they haven’t dotted all the i’s and crossed the t’s or at least did so in a suspect manner. I’m not going to revisit the issues, you can take a look at this from Yves Smith for a good reprise of what’s going on, albeit perhaps a bit one sided.

Dan Indiviglio has a great slant on the whole tiff. He suggests that this is just what the banks need:

But in the short run, the banks might actually welcome the delay. It’s no secret that banks have been foreclosing on borrowers quite slowly since the housing market collapsed. This could be partially due to administrative difficulties involved with the huge flood of defaults. But siome market observers suspect that banks are intentionally trying to keep the inventory of homes the market sees artificially low to prevent prices from declining more quickly.

Really, these delays by JPMorgan and Ally will achieve that same end — the proceedings will take even longer. If these banks put into place new procedures that delay foreclosures further going forward, then they may benefit from not having to declare associated losses as quickly. Delays will also allow more existing inventory to sell off before introducing additional repossessed homes into the mix. And considering how weak the sales of homes have been since the government credit expired, it’s the perfect time to delay additional foreclosures from adding to the inventory.

That’s not to say that these banks are purposely instituting foreclosure reviews for the expressed purposes of delaying losses and keeping housing inventory low. It could be a coincidence that they are announcing these delays at the same time home buying demand is the weakest it’s been in at least a decade. Considering the ultra-low rate of sales, however, it’s not likely that they’re particularly bothered that it will take a little longer for these homes to hit the already bloated housing inventory.

Indeed, this might well play into their hands and at the same time take the spotlight off their foreclosure activity. But, what it will also do is string out this debacle for months if not years. The legal profession has its teeth in this now and they’re going to milk it for any money they can fin(hell of a mixed metaphor, huh.)

When what we need is to flush this mess out and get on with building a new housing market. What we’re going to get is more delay and unproductive cost thrown into the mix.

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