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Foreclosure rate slows as repossession timeline lengthens

Big banks are taking longer to push borrowers into foreclosure and through each stage of the process amid increased scrutiny.

May 12, 2011|By Alejandro Lazo, Los Angeles Times

Some economists are concerned that a slower foreclosure process will mean that the housing recovery will take longer to get going. Foreclosures tend to sell at a discount, and, when making up the bulk of sales in a market, give the perception that prices are falling. In addition, residential builders are struggling to compete with foreclosed homes. Home building has typically been an important boost to an economy exiting recession.

"Clearing this stuff out and getting this stuff over with is just essential, and so in the long run the faster these things can be resolved now, the better," said Richard Green, director of USC's Lusk Center for Real Estate. "That is the only point at which the market can resume normalcy."

But Kurt Eggert, a professor at Chapman University School of Law, said that much of the slowdown in California and other states has been intentional by banks that do not want to see another steep drop in prices. Fewer foreclosures and more mortgage modifications would be a good thing, he said.

"If servicers foreclosed as quickly as they could, and they dumped all the properties on the market, you could get a downward spiral," Eggert said. "As that happens, more and more borrowers go underwater and you could have a vicious cycle — just like the housing boom was fed by the perception that prices always go up, you could have a housing slump that is fed by the perception that prices always go down."

alejandro.lazo@latimes.com

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