Foreclosure Machinery Lubricated by Feds

Now that the federal government has lubricated the foreclosure machinery with $25 billion in settlement money, and the big banks have put the robo-signing scandal behind them, they will fire-up the foreclosure assembly line in the coming months and push through thousands of foreclosure filings, according to an article by Barry Ritholtz in The Washington Post last Sunday.

Ritholtz  wrote:

“The first data point supporting this was April’s existing-home sales. That gave us an early clue about what was to  come. During the abatement period, distressed home sales, including foreclosures and short sales, had fallen substantially. They were down to 28 percent of existing-home sales for April — significantly less than the  37 percent a year earlier.

That fortuitous set of circumstances appears to be over. Current foreclosure filings  — default notices, scheduled auctions and bank repossessions — increased in May by 9 percent, according to the RealtyTrac monthly foreclosure report.

This was right on cue. With the abatements over, foreclosure starts are creeping up again. As the foreclosure machinery ramps up, the negative ramifications they bring will expand.”

Ritholtz, author of “Bailout Nation” and the popular financial blog The Big Picture, notes that 2.8 million borrowers are 12 months or more behind on their mortgages. Citing Amherst  Securities data, Ritholtz believes almost all of these borrowers are headed  into the foreclosure assembly line.

He argued that the banks got off easy, claiming:

“Ultimately, the attorneys general settlement amounted to a mere slap on the wrist for the banks in light of the institutionalized fraud that occurred.”

Ritholtz doesn’t see an immediate housing recovery because there are still too many foreclosures, short sales, bank-owned REOs and distressed borrowers on that assembly line.

Readers, what do you think? Are the banks gearing up to re-start the foreclosure assembly line? Or have we seen the worst of the foreclosure crisis already?

Start a free foreclosure search to find pre-foreclosure short sales, scheduled foreclosure auctions and bank-owned REOs nationwide.

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