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"It's Time To Finalize The Robo-Signing Settlement"

So says Todd Zywicki at Forbes:

[S]ome major AGs (led by California's Kamala Harris) are threatening to walk away from the settlement agreement because they think it is too lenient on the banks. Torpedoing the settlement at this stage, however, would sink the housing market still further.

It has been a year since the initial discovery of the robo-signing fiasco came to light. During that time, the average length of time it takes to foreclose on a home has skyrocketed. According to LPS Analytics, as of August 2011 the average home in foreclosure today has been delinquent for an average of almost two years, 50% longer than before the robo-signing scandal came to light. During the period the home is in foreclosure the borrower need not pay the mortgage and has no incentive to invest in upkeep of the property.

Most important, of course, allowing the non-paying resident to occupy the house indefinitely prevents it from being owned by someone else who will pay. Thus, while delay certainly aids some borrowers who are underwater, it also keeps non-paying borrowers in the house while keeping out new owners, to the detriment of those seeking homes and the operation of the housing market more generally.

The continued delay and specter of liability has haunted a housing recovery. Long, unpredictable delays ripple through the housing market, frustrating short sales, foreclosure sales, and other devices that would turn dead property into performing loans and squatting homeowners into real residents. Potential homeowners are reluctant to bid on homes in foreclosure or negotiate a short-sale in light of the continued uncertainty of the legal regime. Banks are reluctant to approve mortgages for homes in foreclosure. The result is a sagging housing recovery.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.