RGJ: AB 284 will "postpone" a housing recovery by "two to three years"
There's a great article by Jason Hidalgo in the Reno Gazette-Journal that details exactly how AB 284 is delaying a recovery in the housing market. It's also a great example of how ideas have consequences and bad ideas - even with the best of intentions - have bad consequences.
Like a bogeyman lurking just behind the corner, shadow inventory has been a nagging concern for the Washoe County housing market since the real estate bubble's collapse.You can't solve Nevada's housing problems by slowing down the foreclosure process. In fact, as this article shows, slowing down the foreclosure process is making things much worse by prolonging the pain.
Now a delay in processing distressed properties is bringing shadow inventory back to the forefront, which experts say could postpone a housing recovery in the area by two to three years. ...
Back in October, a fraud law took effect that required stricter record keeping for foreclosure filings, including actual proof of ownership of the distressed property's mortgage note. Designed to combat robo-signings, the law was created through Assembly Bill 284 and threatened offenders with a felony charge. Before the housing collapse, however, many lenders bundled their mortgages into investment instruments known as mortgage-backed securities and resold them to investors, making it difficult to track ownership in some cases.
As a result, the new law dramatically reduced notices of default - the first step in the foreclosure process - as major banks stopped filing them for fear of running afoul of the stricter requirements. After averaging 506 default notices per month from January to September, the area posted 13 notices in October, 15 notices in November and 28 default notices in December, according to the Washoe County Recorder's office.
With banks hesitating to file default notices on nearly 500 distressed properties per month, experts estimate that nearly 1,500 distressed properties were added to Washoe's shadow inventory in the past three months of 2011 from delayed default notices alone.
The amount is significant, especially if banks are unable to find a way to comply with the law for several months, said Kevin Wiseman, broker-owner of Reno Rancho Realty.
"Maybe they can deal with it via short sales and take 50 to 100 homes off that list per month," Wiseman said. "But that still leaves you with 400 homes a month just sitting there until someone untangles the web of ownership (of these mortgage notes). Unless something changes, I don't see them clearing up this backlog for two to three years." (Emphasis added.)
Remember all the grief that Gov. Mitt Romney took for saying foreclosure process needs to "run its course and hit the bottom"? Politicians on both sides of the aisle criticized him, but as the above RGJ article shows, he was exactly right. Government intervention has prolonged and expanded Nevada's housing problems.
The housing bubble burst in 2007, so even if it took four years for the market to run its course and hit bottom, we'd be into the second year of a housing recovery.
Instead, we've had the Federal Reserve's continued manipulations of interest rates, the $8,000 tax credit for new home buyers, Nevada's own unconstitutional Foreclosure Mediation Program, federal subsidies to those who can't make their mortgage payments, and now, AB 284 which is delaying the foreclosure process.
And where are we at? Heading into Year Six of a distressed housing market with even hopes of a recovery years away.
The saddest things here are the scores of homeowners who could have withstood a four-year downturn but are now losing their homes, because government's interventions prolonged and deepened Nevada's housing problems. Those individuals are the real victims of laws like AB 284, but because they are unseen in the political process, short-sighted politicians pass laws that contribute to harming their lives.
Without government interference in the housing market, we'd likely be two years into a housing recovery. With multiple instances of government interference, we're six years and still years away from a rebound.