Foreclosure Radar founder and CEO Sean O’Toole doesn’t think we’re close to seeing the light at the end of the tunnel.
O’Toole spent time Thursday sharing his thoughts with me on what’s happening with all the distressed properties out there. On Thursday evening he addressed the same topic on his blog.
In our interview, he said he would expect to see about four times as many foreclosures as now are happening if lenders followed the same practices as in the 1990s.
What is keeping those foreclosure numbers down? Real estate agents and analysts have been debating that questions for more than a year. On his blog O’Toole give us his theory:
“Politicians have no appetite for allowing banks to put families on the street en masse through foreclosure, nor forcing banks to deal with the problem through bankruptcy cram-downs or other means. At the same time they realize their constituents who do pay their mortgage (or rent) simply won’t stand for a taxpayer funded bailout of their upside down neighbor.”
He also sees no benefit for banks in kicking homeowners out in large numbers or in having the government bail them out:
“For lenders, either scenario forces losses to be recognized, while thanks to mark-to-model accounting rules, and little or no pressure to foreclose from the FDIC, they can instead leave non-paying homeowner in place and push those losses into the future. Many believe that most major corporations manage earnings, what could be more perfect than getting to choose when, and if, they recognize mortgage related losses.”
In our interview, O’Toole told me: “We’ve got this kind of stalemate going where we can’t foreclose on people and we can’t bail them out.”
Yes, there have been loan modification programs, but O’Toole and many other analysts see them as simply delaying the day of reckoning, not sparing most distressed homeowners for losing their homes.
O’Toole told me he expects this “very, very strange time” to last for years. In his blog, he expanded on his outlook:
“If we aren’t willing to either kick non-paying homeowners out of their homes, or bail them out, what other option is there? The answer is clear. It’s the same thing we’ve done with national deficits for years. Trade tomorrow for today, with a policy of extend and pretend. I have no doubt this is the present policy, and that this will be the policy for years to come as we work through wiping out the trillions in excess negative equity that was created during the bubble.”
Here is the full blog. Readers, what do you think of O’Toole’s conclusion?
— Robert Digitale