You know the housing market must be bad when banks begin walking away from foreclosures.
“It is what some of us think is the next wave of the crisis,” Kermit Lind, a foreclosure law expert told The New York Times.
Banks are going through the foreclosure process but stopping at the last minute, telling the property owner they’ll still own the home after all, according to the Times.
The problem is that the bank’s cost of taking over the property, including repairs and legal fees, is more than the home’s value.
The disconcerting trend isn’t helping homeowners. Banks tell the homeowners they’re still responsible for the home’s maintenance and taxes. They’re also technically responsible for paying the mortgage but probably won’t.
Caught off guard, they’re typically left with a clunker of a home. By the time the foreclosure is almost over, the home may be abandoned and vandalized.
They’re left in a legal limbo. Sometimes the mortgage holder or servicer have gone out of business and cannot be found.
Meanwhile, rising defaults on government-insured mortgages indicate that housing is still in trouble as the economy slides toward double-digit unemployment.
At the end of February, 7.5 percent of FHA loans were seriously delinquent, or 90 days or more over due, up from 6.2 percent a year ago.
FHA lending has exploded, becoming the new subprime, after the original subprime loans disappeared in 2007. The agency doesn’t make loans itself, but insures them, meaning taxpayers will foot the bill if FHA reserves aren’t enough to cover losses.
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