Turn On The Lights, Watch The Roaches Scatter Part 71

Foreclosuregate has so backed up the courts as far as processing delinquent homes that a growing number of Americans are stuck in limbo: living in their homes, but not making mortgage payments.

Some 4.2 million mortgage borrowers are either seriously delinquent or have had their cases referred to lawyers to pursue foreclosure auctions, according to LPS Applied Analytics. Of those, two-thirds have made no payments at all for at least a year, and nearly one-third have gone more than two years.

These cases can go on and on. Nationwide, it takes an average of 565 days to foreclose on borrowers in default from their first missed payments to the final auction. In New York, the average is 800 days and in Florida, where the "robo-signing" issue is particularly combative, it's 807.

If they want to fight evictions hard, borrowers can remain in their homes even longer while their cases are being worked through.

The Segals have been doing that -- in court. They bought their home in 2003 with an adjustable rate mortgage. After a few years, their monthly payments tripled to $3,000, just as their home-inspection business was cratering.

The Segals want the bank to modify the mortgage so payments are affordable, and they think the court will agree that their lender put them into a toxic loan.

"The evidence will show that we were defrauded," said Jill Segal.

It's hard to feel total sympathy for folks who had a home and plenty of equity, saw the value of their property double or triple during the Bush Bubble, and then took out hundreds of thousands of dollars against their home only to see the value crash and end up holding the bag for half a million. They should have known it was too good to last.

Others, like the Segals, got in on the underwater side and were not told by the banks about the risks of adjustable rate mortgages.  It's a lot easier sympathizing with them.  On the other hand, it's not like the banks are innocent either, making trillions off of designing a massive housing fraud bubble, then betting against that bubble and walking away with trillions more.

The problem is these 4.2 million folks stuck in foreclosure limbo, living in their homes for years without making mortgage payments, are in effect taking money right back from the banks.  That means a lot of mortgage outfits are losing money on loans they say they are getting paid on.  The banks are in fact happy to lose only a couple thousand a month per home rather than be stuck with a house that's dropping by far more than that in value per month and that they can't sell, a situation leaving the bank with no mortgage payment as income and a house losing value on the market.  It's lose-lose for them to foreclose ASAP.

Something's got to give on this.  Eventually the banks are going to say "screw this" and leave these millions of foreclosures in the hands of the government -- and the taxpayers.  When that happens, it's going to get really, really ugly for the housing market.

Foreclosures will continue to drive the next leg down in the housing disaster, and there's literally millions of them to work through.