The housing market no longer needs to be told that it has been in the slumps for too long. Though it does not need another reason to be wallowing in the lows, the recent foreclosure paperwork mess has given it just that. And to make matters worse, a global rating agency predicts that the housing market will stay depressed if the foreclosure mess does not get rectified.
Because of the foreclosure delays that major banks implemented, Fitch Ratings made a prediction that the housing market insiders do not want to hear. Fitch Ratings say that the delay in foreclosure will only drag the housing market recovery time. This is according to a report the agency released earlier this week.
In September, allegations of banks not reviewing foreclosure documents before foreclosing on people have surfaced – because of this, major lenders like GMAC Mortgage and Citigroup Financial have decided to temporarily suspend foreclosures as they review their foreclosure procedures. The whole fiasco has led state attorneys general in all 50 states to launch a joint investigation. To top it all off, consumer advocacy lawyers have filed lawsuits against the lenders.
Combining the allegations, delays, investigations, and lawsuits, it is no wonder Fitch Ratings has made such prediction about the lengthening of the housing market’s recovery period. All these will mean distressed homes will take a longer time before being foreclosed. This will make the already bloated shadow inventory even more bloated.
As of September, Fitch Ratings estimate that properties in some stage of foreclosure or taken over by lenders sit at seven million. These unsold, distressed properties mean further lowering of home prices and also lesser chances of market stabilizing.
A high distressed home supply also weighs down the country’s residential mortgage-backed securities. Lenders are being slapped with higher carrying costs.
Fitch Ratings forecasts three years before these distressed properties are sold. A longer period is expected for states where courts are expected to approve foreclosures.