An edited version of this post by Roy Oppenheim was first published in US News and World Report’s Home Front Blog and is being redistributed on South Florida Law Blog with their permission.
Not long after the national mortgage settlement was announced, I warned clients that the training wheels would come off and foreclosures would ramp up again.
Florida, where a massive foreclosure backlog is still clogging up the courts, is leading the pack. Tampa and Miami saw the biggest increases in foreclosure activity last year, and eight of the top 20 foreclosure rates in the nation belonged to Florida towns.
But despite hard data showing that foreclosure activity is picking up again, experts have blamed a tight supply of homes for sale—including foreclosures—for sharp year-over-year increases in home prices and disappointing monthly home sales numbers.
So to paraphrase the 1960s folk singer Pete Seeger, “Where have all the foreclosures gone?”
While it has decreased, the shadow inventory–the backlog of bank-owned homes that remain off the market–is still lurking just out of our reach.
Banks never had much to lose by allowing these distressed homes to languish, and that remains true. In fact, they have a lot to lose if they put them on the market too fast. If these foreclosures were allowed to pour down instead of trickle out as they are now, banks would have to write off their losses en masse, and that simply would not benefit their balance sheets. Their capital reserves would plummet and we all know what happened the last time banks’ capital reserve took a dive.