Econintersect: Congress appears to be in the process of making mortgages more difficult and expensive. This is not because of something being done; it is because of inaction, which will be discussed later in this article. At the same time, The Wall Street Journal reports that the backlog in foreclosed homes for sale, as well as in homes awaiting foreclosure, is growing. Over the past year or more the foreclosure process has been slowed because of robo-signing and documentation scandals. Banks are now again foreclosing, but cautiously.From The Wall Street Journal:
Across the U.S., the average loan that completed foreclosure in July had no payments for 599 days, up 25% from 478 days in August 2010, according to Lender Processing Services Inc.
“If the lender doesn’t have the ability to repossess the home for three or four years, it’s very hard to clear the excess supply,” says Jonah Green, director of mortgage analytics at 1010data, a technology and analysis firm in New York.
According to The Wall Street Journal, as slow as foreclosures are, they are still coming at a faster rate than previously foreclosed homes are selling. The distressed home backlog is growing.
Bills have been introduced to extend conforming mortgage rules required by government backed mortgages. From Realtor Mag:
In 2008, Congress raised the limits up to $729,750 in some areas to make larger mortgages available in high-priced housing markets. The limits will drop to $625,500 on Oct. 1 in the many areas of the country, mostly affecting housing markets on West and East Coasts.
The Conforming Loan Limits Extension Act introduced in July by Reps. John Campbell (R-Calif.) and Rep. Gary Ackerman (D-N.Y.) would allow GSEs and the Federal Housing Administration to purchase or guarantee mortgages worth as much as $729,750 in most areas. (Additionally, Reps. Brad Sherman (D-Calif.) and Gary Miller (R-Calif.) introduced a bill in May to make the loan limits permanent.)
Another bill, the Homeownership Affordability Act of 2011, introduced in August by Senators Robert Menendez (D-N.J.) and Johnny Isakson (R-Ga.) would keep the higher limits in place by increasing the guarantee fees charged on loans between $625,500 and $729,500. (Guarantee fees are charged by loan guarantors prior to bundling mortgages into securities.)
No congressional action has occurred and the October 1 deadline is at hand. The National Association of Home Builders (NHAB) has said it fears more than 17 million homes nationwide will become ineligible for more affordable federal funding if the loan limit expires.
According to Realtor Mag, Federal Reserve Chairman Ben Bernanke has said he’s confident that the private market, including investors and insurers, would step up to fill the void when the conforming loan limits expired. However, such loans would very probably have higher costs for borrowers.
The foreclosure situation and the slow sales rate are two parts of what is known as the “shadow inventory” problem for the housing market, which has been discussed at GEI Analysis.
Sources: The Wall Street Journal (here and here), Realtor Mag and GEI Analysis
