What an interesting past couple months it’s been. Prior to “foreclosuregate,” the real estate market was already struggling. We were experiencing new lows in homeownership and new residential home building start-ups, and new highs in the number of foreclosures each year. Well over a million people lost their homes in 2009, and the Federal Reserve’s Sarah Raskin fears that number may top 2.5 million this year and next.
And if that wasn’t bad enough, we’re now dealing with the real possibility that many lenders may have done shoddy work in reviewing and processing several thousand of those foreclosures. Yikes! Let’s face it . . . the banks have been overloaded the past few years, with the sheer volume of paperwork involved in all these foreclosures coming through their offices. Their systems couldn’t cope with the volume of work resulting from this serious down cycle. Evidently, they may have rushed some of the paperwork, using “robo-signers,” or employees who didn’t read all the details or weren’t qualified to do so.
The end result? A huge bottleneck. Attorneys general in most states, wanting to go through everything with a fine-tooth comb. Lawyers representing former homeowners, filing suit against banks who may have processed their foreclosures inappropriately.
Here’s the bottom line: it’s not a question of whether these people deserve to lose their homes. They do. They didn’t pay their mortgages and they won’t be allowed to take back their homes. But the ones who are still in their homes and are in the foreclosure process will buy a little time.
And in the mean time, there’s a huge shadow inventory of foreclosed homes that haven’t even been put on the market for sale yet. About 600,000 of them, according to Realty Trac, the big online foreclosure website.
Unfortunately, this mess will drag on for months to come, and what it means for investors is that the buying process will be slower. There are still excellent deals out there, and the prices are going to bump along the bottom through this year and next, and on into 2012. So the opportunities for the smart investor are endless at this point. But the wheels will be turning slower, for sure.
So, my advice would be the same as what I always told my kids when they were little and wanting immediate gratification . . . “Patience is a virtue.” It’s still a wonderful time to acquire property. We need to be patient with the process until all this foreclosuregate business gets straightened out, and by all means, make sure your loan originator dots all the i’s and crosses all the t’s!