Two years ago, as part of the NY foreclosure process, the state began requiring that banks and borrowers attend settlement conferences before a foreclosure takes place. While the conferences are popular with borrowers and have succeeded in helping some families keep their homes, banks have been reluctant to participate. That, and recent revelations that some lenders have improperly submitted foreclosure documents, has prompted judges to take a harsher stance with lenders. The foreclosure process typically begins after a borrower misses three consecutive monthly payments and ends once the lender repossesses the home or the borrower brings the loan current. Nationwide, there were 2.1 million mortgages in some stage of foreclosure as of October, according to research firm LPS Applied Analytics.
The average loan in foreclosure had been in default for 492 days as of October, up from 289 days at the end of 2005, according to LPS. In New York, the waits are even longer. As of October, the average NY foreclosure timeline has increased to 604 days. ”We try and help as many people as we can,” says New York Supreme Court Judge Michael Ajello. “We set up a conference and I try and persuade and cajole the banks to reduce the payments,” he says. But the banks, he adds, “are not very cooperative.” The Mortgage Bankers Association, which represents some of the nation’s biggest banks, said that banks aren’t trying to be uncooperative but in many cases loan modifications won’t help borrowers because they are unable to meet payments regardless. Staten Island’s Richmond County Supreme Court now hosts settlement conferences four days a week—double that of last year—with about 40 borrowers scheduled to appear each day.
For homeowners looking to remain in their homes, this may seem like a good development. However, since the NY foreclosure timeline is taking longer, it means that any missed payments make it that much harder to work out a deal with the lender. Also, with the large number of foreclosure cases still pending, it also adds to what’s called shadow inventory. Shadow Inventory are houses that are not yet on the market for sale but will be eventually. With an ever-increasing shadow inventory, it inevitably means an increase in the supply of houses available for sale which, in turn, means a future drop in housing prices. If an agreement is made with a bank for a lower interest rate, it means homeowners will be paying even more for a asset that is worth less. Even if you need to sell within the next five years, you may still be looking at a short sale.