Frustrated by long delays and the seeming inability of mortgage lenders to complete the loan modification process, New York State’s courts are adopting new procedures that would allow judges to exercise more control over individual foreclosures. The measures are expected to help speed up the foreclosure process by forcing lenders to either modify loans according to the law or complete the foreclosure altogether. New York joins 19 other states taking similar measures to help bring an end to the ongoing housing crisis.
The state of Florida announced a similar program just a few days ago, although there’s is more of a legislative effort than a court effort. Nonetheless, we are seeing more and more states trying to get foreclosed and abandoned homes back on the market. As Florida lawmakers have observed, the perception of the housing market plays a fundamental role in consumer confidence. Not until consumer confidence grows is the economy likely to follow, they claim.
In New York part of the plan is to require officials from lending institutions to send representatives with some measure of authority to court proceedings. In the past, those representatives would often show up claiming to not have sufficient authority to offer loan modifications. In the meantime, they would delay in producing documents, communicating with homeowners, and generally moving the process along. New York hopes to jump start the court system and force action by giving judges the power to act when lenders won’t.
Good or Bad: a matter of opinion
Whether or not New York’s new rules are good probably depends on which side of the foreclosure you’re on. For distressed homeowners this appears to be good foreclosure news because it increases the chances of a loan modification. The assumption is that judges will favor homeowners unless some extraordinarily compelling reason exists not to. If that’s the case it should result in more modifications and fewer people actually losing their properties.
On the other hand, the increased involvement by the courts is bad for banks and mortgage lenders. Many complain they will be forced to continue servicing mortgages among people who cannot afford them. Furthermore, because many of the mortgages in question have been repackaged and resold so many times, it’s hard for the legal system to know who actually owns them. That reality is one of the big reasons for the delays in the foreclosure process. Lenders fear that they may be forced to take action on a mortgage that really doesn’t belong to them.
Hopefully a lesson learned
When all is said and done one can only hope the housing bust and foreclosure mess become a valuable lesson learned. If both lenders and home buyers will both practice fiscal discipline in the future we can avoid a repeat.