by David Urani
Sometimes I feel like when I am trying to analyze housing data these days I am watching one of those sleight of hand magicians. If you take your eye off the ball for a split second something is going to come out from nowhere and surprise you. We're not talking about playing cards or foam balls though, we're talking about houses. It's amazing that something so large as a house can be so hard to track. From tax credits to mortgage modification plans to foreclosure fire-sales, demand, inventory, and pricing figures are moving targets. Now there's a new caveat to look out for. This week, GMAC (a.k.a. Ally) and JP Morgan Chase (JPM) have been busted for having fast-tracked the foreclosure process without properly assessing each case.
I am not complaining that these banks are being exposed for some highly questionable behavior. In fact, the more mortgage fraudsters we can uncover the healthier the housing market can become. It irks me, however, that the resulting law suits, mortgage market reviews, and Federal attention are going to slow down the housing market cleansing process yet again.
You may or may not already be aware, but between the HAMP mortgage modification program offered by the White House and oodles of other procedural delays, the pipeline of foreclosures has been slowed down to a trickle. It's no wonder that GMAC and JP Morgan wanted to purge its foreclosure inventory, considering there are approximately 7 million homes in delinquency nationwide, according to Lender Processing Services. The most shocking aspect of the foreclosure pipeline is that on average, homeowners are spending 478 days in delinquency and that number keeps rising (it was 319 days in January 2009). That's right, homeowners are spending well over a year in their homes without having to pay for it; if that's not a bailout I don't know what is.
This "extend and pretend" effect, most of which is manufactured by the government both intentionally and unintentionally, is having the effect of putting the crash in the housing market in slow-mo. By extension, the data can become more palatable for the public to digest, with the side effect of simply prolonging the inevitable damage. Now that the GMAC and JP Morgan auto-pilot scheme has been uncovered, this housing crash is only going to take longer. JP Morgan alone now has upwards of 50,000 mortgages under review which in itself can throw a wrench into the foreclosure pipeline in the months ahead. Not to mention, there is speculation of other mortgage servicers engaging in similar practices. Senator Al Franken has even requested a review of the mortgage processing industry.
The moral of the story is that the pace of new inventory hitting the market is likely to slow. In effect, we may see some improved figures coming from the housing market, including more favorable foreclosure and supply trends. But make no mistake, if you want to properly assess the market you will need to have this situation in the back of your mind. I personally continue to have high concern for the problems in the housing market as we extend and pretend our way through this slow and agonizing housing crash.