New York’s Misguided Foreclosure Values
I’m not running for the Republican Party’s Presidential nomination (but, unlike House Speaker Paul Ryan I am open to being drafted at the convention) . So I can say that when it comes to housing policy Ted Cruz has a point about New York values being bad for the country. We need fewer procedural hoops and more commonsense.
A report released yesterday by NYS Comptroller Thomas P. DiNapoli provides the best evidence yet of how the state’s kneejerk reaction to the 2008 Mortgage Meltdown actually did more harm than good. As legislators debate what to do about NY’s Zombie property they should also consider making adjustments to a foreclosure process run amuck to the benefit of no one but the delinquent homeowner who often has no realistic means of paying off the mortgage. With much of the CFPB’s mortgage mitigation procedures modeled after states like California and New York there are lessons in this blog for you even if you don’t live in the Empire State.
It is remarkable just how backlogged NY’s foreclosure pipeline still is. According to the Comptroller New York state has the second highest home foreclosure rate in the nation, with 1 in 21 home mortgages in foreclosure; I t also has the fourth-slowest foreclosure process in the nation, averaging over 2.5 years per property. As the report tartly notes “ It is not surprising” that New York has a disproportionately high share of mortgages in foreclosure, relative to the rest of the country” New York has the second-highest home foreclosure inventory in the nation with 4.77 percent of mortgages in foreclosure. New Jersey led the nation at 6.47 percent.
What a coincidence that the states with two of the most convoluted foreclosure processes have the biggest backlogs.
But what is wrong with regulatory and statutory safeguards intended to crack down on banker abuses such as the dreaded Robo-Signing epidemic? Funny you should ask. According to the Comptroller the requirement mandating that lenders and attorneys personally vouch for having reviewed pertinent foreclosure records has created a “shadow docket” of cases in which foreclosures had been initiated but were essentially frozen as lawyers and lenders turned gun-shy about making personal assertions, especially about vacant property. This exacerbated the rise of vacant property that have local governments so frustrated.
New York’s judicially supervised settlement conferences provide another great example of unintended consequences. Multiple meeting replete with rescheduled conferences are the norm According to the report, these conferences don’t settle many foreclosures they simply delay them. On average they take 110 days to complete downstate and eighty upstate
In reacting to the mortgage meltdown with a phalanx of legal protections New York missed the mark. The problem was never the foreclosure process itself but the fact that too many people were given houses they couldn’t afford.
Believe it or not a more efficient foreclosure system really is in everybody’s best interest. Localities will have to deal with fewer Zombies if lenders know they can quickly access property and get it back on the market and delinquent homeowners will have more of an incentive to negotiate reasonable settlements if they know they can’t drag out the foreclosure process for years.
Here is one more quote from the report worth pondering:
“ New York’s lengthy foreclosure process offers some benefits to borrowers or other people who occupy homes while the loans are delinquent. Borrowers have a right to occupy their properties until the foreclosure process is complete. Doing so enables them to avoid the costs of mortgage, tax and home insurance payments.”
Here it is: