Punchinello’s Chronicles

October 22, 2009

Fake Foreclosure Figures

Filed under: Surely a Jest? — Punchinello @ 5:10 pm
Tags: , , , , ,

There’s a famous story about statistics. A man is standing with one foot in a roaring fire, his other foot in a bucket of ice water. “On average,” he’s comfortable. Statistics are useful for describing trends, general events, and groups of information. But they don’t apply to specific situations other than to offer benchmarks for what might be typical or unusual. Yet we all are being bombarded with statistics these days, telling us how life is wonderful.

Foreclosures are another area of statistics, and they’re used by the news media to verify (or not) that the economic troubles are fading. For example, we hear that the number of foreclosures has reached its highest number in three quarters. But we also hear that foreclosures may be slowing down. Which is it?

There are some interesting stories starting to show up about how foreclosure numbers are being manipulated. Maybe it’s because “they” (the government officials) don’t want us (the common citizens) to get too worried. More likely it’s just plain ignorance and stupidity. A computer and spreadsheet are useful tools, but they’re only tools. They don’t replace human thinking. Yet.

You’ve heard about “walk-aways?” That’s when a family or homeowner can’t pay the mortgage so they just walk away. In the dead of night. They pack up a truck, turn off the lights, and leave. In some cases, it’s because the value of the home today is far less than the purchase price, and the mortgage simply makes no sense anymore. So the owners just walk away.

But how about bank walk-aways?

When you borrow money from a bank, you sign a contract to pay it back. That’s the mortgage, when it applies to money for a house. The contract says that if you don’t pay back the money, the lender (the bank) takes possession of the house (the collateral). So the bank owns the house. They become the owner. That means they have to pay property taxes, maintain the place, keep it in a condition that they can sell the house, maintain the lawn, keep the pipes from freezing, and all that good stuff.

If only a few homes are being repossessed or taken over by the bank, that’s fine. They can usually sell it quickly for back taxes. Now, however, lots and lots of houses are going into foreclosure. Lots of people are walking away from failed loans. So the banks are getting more and more homes.

The first step is for the bank to file foreclosure notice on the mortgage holder. Following the appropriate time, the sheriff’s office sends people to the address to evict the homeowners and lock the doors. The house (property) is then put up for auction at a sheriff’s auction. Anyone who’s eligible can then bid on the house. It’s a nice way to get a house for very low dollar amounts.

What happens if the bank doesn’t put the house up for auction? Suppose they file the foreclosure, but then don’t follow through? That’s when a bank “walks away” from the house.

More and more banks are halting the foreclosure process. They’re not putting up the house for auction, or they’re not going to the end of the foreclosure paperwork process. It’s too expensive to maintain property taxes on all those empty houses. They can’t afford to keep the places nice or prevent them from falling apart.

So we have an increasing number of abandoned houses and properties. In California, banks are being told to simply not foreclose, because too many foreclosed homes on the market would further lower the market prices. Banks are letting the owners live in the house, just waiting it all out. Maybe the owners will get a job, find some money, or a miracle will happen. Nobody knows.

The problem is that we learn our foreclosure statistics from only a few places. One such place is when the foreclosure is filed with the sheriff’s office. Another place is at the sheriff’s auction. Finally, we learn some numbers from property tax payment rolls. What happens if those numbers go down?

Can we say that a 40% reduction in foreclosures means that the economy is taking off again? Does it mean people are getting jobs, paying on their loans, and living happily ever after? Or does it mean that many houses and properties are simply vanishing from the current tracking systems?

It’s like unemployment. We hear that only 10% of the population is out of work. But how do we know that? What about the people that aren’t “filing for unemployment,” or who no longer have benefits? What about people who want to work full time but can only work part time? They’re working, after all, so they’re not really unemployed. What about self-employed business owners who’ve lost their business and can’t get unemployment benefits?

We likely will start to hear that with foreclosures going down, it’s a good sign for the economy. Another of those green shoots, if you will. We’ll be told that the “recession” (not depression) is turning around. Good times are about to come back, and we’ll all be happy as clams. The “proof” will be that foreclosures are at annual lows, unemployment is holding steady or decreasing, and the “slide” has come to a halt.

According to what sources? What’s the original data? Unless you actively look around, you’ll believe that with half the country standing in a fire and the other half under ice water, we, the people, are…on average…doing just fine.

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