So Much for Voluntary Foreclosure Bans?

At The Big Picture, Barry Ritholtz spares few words regarding his view of voluntary foreclosure freezes. Ritholtz says he never thought much of the idea in the first place, and he dismisses other “gimmicks” by banks to temporarily avoid foreclosures. Now that foreclosures are on the increase, he says, it proves his point that eventually, a foreclosure is going to happen anyway.

We saw foreclosure sales drop in the second half of 2008 as banks employed all manners of accounting tricks to avoid actually reporting delinquencies. We’ve previously mentioned that the voluntary foreclosure abatements were merely kicking the can down the road. So to, were the bank gimmicks like extending the date of delinquencies from 60 to 120 to 180 days. As they run out of tricks, foreclosure-related filings increased in February 2009 almost 30% from February 2008, according to RealtyTrac.

And the backlog of “seriously delinquent loans” keeps growing . . .

It’s true that foreclosure freezes probably only delayed the inevitable for many homeowners. But I’m not so sure the idea wasn’t worth trying. Part of the motivation was to buy some time to see whether loans for troubled borrowers could be modified to keep them in their homes.

One of the problems was that not all lenders, or borrowers, were genuinely interested in loan modifications. The stays became mere publicity tools for some banks, as well as short-term solutions for borrowers who knew they could never afford their homes, regardless of how their loans were modified. Eventually reality catches up to both of them, and that seems to be exactly what is happening now.