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Thursday, Oct. 15, 2009

Merced County banks reluctant to complete foreclosures

Political pressure having effect on process, firm concludes.

The number of Merced County homes falling into foreclosure remains steeply higher than a year ago, though it's not reflected in the number of homes for sale.

Banks are still filing default notices with homeowners who have stopped paying their mortgages, though the foreclosure process remains bogged down. In Merced County, 378 notices were sent to homeowners in September, down slightly from August and higher than a year ago.

Lenders just aren't in a race to finish the process and put the home up for sale. "There is a ton of political pressure on banks not to foreclose as quickly," ForeclosureRadar CEO Sean O'Toole said Wednesday.

ForeclosureRadar is a Bay Area-based firm that tracks foreclosure activity.

The firm released its monthly foreclosure report, which shows that there are more delinquent homeowners than ever before, though only some of them have gone through the entire foreclosure proceeding.

In the market, that translates to a small supply, a high demand and a lot of people living in homes they're no longer paying off. "It's a really crazy situation," O'Toole noted, "but that's what happens when you have government intervention."

The government's response has led to a situation where foreclosures will be a problem for a longer time, though the harmful effects may not be as severe, he said.

If the market had been left alone, prices would've probably declined further.

Two approaches could end the trickle of foreclosures, O'Toole noted. One would be if there was a loan modification that reduced what people owe on their principal. Another would be increased pressure on banks to do short sales, which keep the homes from going through foreclosure.

A third option would be if the government pressured banks to foreclose more rapidly. "The political will is not to bail people out," he said, "and we don't want foreclosure."

The report also concludes that there's no shadow inventory of homes kept off the market by banks. To draw the conclusion, the firm compared the homes reclaimed by the bank with the number of foreclosures resold.

Scott Oliver, an agent with Coldwell Banker Gonella Realty, said there were 237 homes Tuesday listed for sale in Merced. It's just under a two-month supply. "So basically there's nothing," he said.

Agents keep hearing that there'll be a flood of foreclosures hitting the market, he said, though it hasn't come to pass.

One reason is that the economy has stabilized and begun to improve. A flood of foreclosures could derail further recovery.

"I don't think they'll open the floodgates and say, 'Move them,'" Oliver said. "I still think they're delaying the inevitable."

Reporter Scott Jason can be reached at (209) 385-2453 or sjason@mercedsun-star.com.