Home Is Where You Hang Your Hat

Via CalcRisk comes this disturbing WaPo article on the fact that about a million American homeowners are months, in some cases over a year behind on their home payments...but the banks can't or won't foreclose.

The backlog of seriously delinquent mortgages, which so far affects about 1 million borrowers, is a shadow over hopes for a rebound in the nation's housing markets. It masks the full extent of the foreclosure crisis and threatens to depress prices even further just as some parts of the country are hinting at recovery. For lenders, it could portend even more financial losses tied to the mortgage meltdown.

"It just means foreclosure rates are going to keep rising," said Patrick Newport, an economist for IHS Global Insight.

Rising mortgage delinquencies were at the root of the recession, and many economists say an economic recovery will be difficult until the housing market recovers and home prices stabilize.

And even though a delayed foreclosure can be a blessing for some troubled homeowners, for others, it simply prolongs the financial distress, leaving them on the hook for the condition of the property. Even if they move out, they cannot move on.

"I have even begged them for a foreclosure," delinquent mortgage-holder Charlotte Jensen said. When she realized she couldn't save her Glen Allen home last year, she filed for bankruptcy, packed up her family and moved out. Nearly a year later, Bank of America has yet to take back the home.

During the first quarter of this year, the share of all homeowners seriously delinquent on their mortgage but not yet facing foreclosure more than doubled to 3.04 percent, or about $227 billion in loans. There was a total of $97 billion in such loans during the same period in 2008, according to Inside Mortgage Finance. In more prosperous times, the rate is much lower -- it was less than 1 percent in the first quarter of 2007, according to the industry publication.

Some of the backlog reflects the inability of lenders to keep up with the swelling rolls of delinquent properties.

"Lenders are having an immensely difficult time handling the capacity. They are torn between loan modification, short sales, foreclosures, and they are finding they can't do all these things at once, and do them well, so we're seeing a lot of things falling through the cracks," said Howard Glaser, a housing industry consultant and a housing official during the Clinton administration.

And let's face it, when banks foreclose they not only have to write up the home loan as a loss , they have to then take the loss on the property as the value continues to fall. The banks actually save money by not foreclosing immediately. They're waiting for the housing market to turn around too. So much of their assets are the 30-year loan variety, foreclosings of this magnitude only cost the bank more and more.

So yes, millions of people in America are now living mortgage free. Everyone is trying to sweep the housing crash under the rug, and the problem is the rug is no longer big enough to hide the train wreck anymore. When the townships, cities, counties and states come looking for property tax revenue from these limbo homes, this is going to detonate. The housing numbers should be significantly worse than they are, the only reason they are not is because banks are overwhelmed by the backlog of foreclosures.

And it'll only get worse.