Will the Massachusetts Supreme Court Foreclosure ruling boost housing prices? - The Curious Capitalist - TIME.

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Posted by STEPHEN GANDEL Monday, January 10, 2011 at 6:31 pm

4 Comments • Related Topics: real estate

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On Friday, the Massachusetts Supreme Court ruled in two separate cases that banks have to
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have proof that they own a house before starting a foreclosure. In the past, banks were
allowed to start the eviction process, and often even finish it, even if they didn't have all the 1. 10 Things You Shouldn't Do On Facebook
paperwork on hand that proved they, or their investors, owned the house. Only after the 2. Everything You Need To Know About The
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bank was challenged did it have to produce evidence that it had the right to 3. In Response To Mayhem, The Nation Stands
foreclose. In Silence
4. Will Massachusetts Mortgage Ruling Boost
House Prices?
Sounds obvious, but for banks it's a big deal. At the height of the real estate boom,
5. It's Official: The iPhone 4 Comes To Verizon
mortgages were bought and sold by banks often into trusts owned by thousands of In Early February
investors. In many cases, the paperwork that detailed those transactions was sloppy. 6. Verizon's iPhone: A Marriage Years in the
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Sometimes it was lost or destroyed. The result is that many banks don't have the documents
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readily on hand to prove they own a house. If pushed, most can establish that they have the
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right to foreclose. But that's a costly process, so mostly banks have been trying to only Arizona Shootings, Makes a Passionate
Appeal For Sanity and Hope
produce that paperwork when pushed after foreclosures have already been filed. The
9. Humanity Disappoints Again, Believes
Massachusetts ruling, if followed around the country, will force banks to have “Facebook Is Ending” Rumor
all the documentation on every foreclosure before the process is started, or 10. What Can We Expect From A Verizon

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Will the Massachusetts Supreme Court Foreclosure ruling boost housing prices? - The Curious Capitalist - TIME.com 12/01/11 6:46 AM

all the documentation on every foreclosure before the process is started, or 10. What Can We Expect From A Verizon
iPhone?
risk not being able to foreclose. The rising number of foreclosures has dramatically
slowed the time it takes a bank to repossess a house from little over eight months to nearly a
year and a half. The Mass ruling could dramatically slow foreclosures further.

As a result, some real estate analysts and pundits are saying this is great news
for the housing market. Fewer foreclosures means there will be fewer houses for sale. And
less inventory should cause housing prices to rise. At least that's how the NY Times reported
it:

Reducing foreclosures in a meaningful way would act to stabilize the housing market, real
estate experts say, letting the administration patch up one of the economy's most
persistently troubled sectors. Fewer foreclosures means that buyers pay more for the ones
that do come to market, which strengthens overall home prices and builds consumer
confidence in housing.

Felix Salmon, the blogger at Reuters, agrees:

Consumer confidence is a key factor in the health of the housing market and there's an The Curious Capitalist Favorite Links
Barry Ritholtz
obvious connection from lower supply to higher prices, to higher confidence in housing as Calculated Risk
an asset class. That confidence might well turn out to be misplaced, of course. But a warm Ezra Klein
occupied home is a much happier thing, economically speaking, than a cold and empty one, James Pethokoukis
John Gapper
even if the occupiers haven't made a mortgage payment in years. Foreclosures carry a large Justin Fox
economic cost and all things being equal, the less of them there are the better. Marginal Revolution
Mark Thoma
Market Observation
My problem with Salmon and the NY Time's logic is that the inventory of foreclosed homes More Money
is not disappearing, it's just going to be delayed. It's very different. So while home buyers Paul Krugman
Planet Money
may temporarily have fewer houses to currently choose from, they will know that more Street Sweep
houses--the shadow inventory--at lower prices, are likely to be available soon. Sellers know Swampland
this as well. So it will take away the leverage they have to raise houses. Homebuyers may be
more willing to pass knowing there could be better deals down the road.

Ed Leamer of the UCLA Forecast, like me, is skeptical of this idea that a policy of "pretend
and extend" will somehow boost the housing market. He points out that sales have started
rising again in California, where there are fewer foreclosures challenged in court, than in
Florida, in which foreclosures have to be approved by judges, and take much longer. Quicker
foreclosures have lead to a healthier market. And if banks have been able to survive
foreclosures in the nation's largest and once hottest housing market, why not elsewhere.
Leamer says delaying foreclosures is worse. Banks will not start lending again until they
know the full extent of their losses in the housing market. And bank credit, and getting the
housing market off government life support, is key to restoring rising prices, or at least not
falling ones. What's more, foreclosure times have been rising all year, and more
dramatically recently. Yet, housing prices continue to fall. So if there is a benefit of delaying
foreclosures, we haven't seen it yet.

The question is what is more damaging to the housing market, inventory or uncertainty? To
believe that the foreclosure mess is good for prices you have to believe that house buyers
will bid up the prices of properties knowing that they are likely to come crashing down
again. In a market filled with flippers that can happen. But I suspect most people buying Archive
houses these days are expecting they will be there for a while. January 2011
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Will the Massachusetts Supreme Court Foreclosure ruling boost housing prices? - The Curious Capitalist - TIME.com 12/01/11 6:46 AM

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Comments (4)
Post a Comment »
1
Mr Gandle you owe me $100. Please send it promptly or I will foreclose. In your mind i do not have to really
show you proof of why, where or how. Besides I don't have "the documents readily in hand" to prove you do
and it is to expensive to get them so just send me a $100 bucks.
Thankyou
dochosvet
January 10, 2011
at 10:43 pm
Log in to Reply
1.1
Nice. Very funny. Think you missed the point of the post. I'm not making any judgment on the bank's
foreclosure practices, which have been horrendous. I am just saying you can't look at this verdict and declare
it a win for housing prices. It may be a win for people who have not gotten the due process of the law when
the bank came to take their house, but that's another story.

Stephen Gandel
January 10, 2011
at 10:49 pm
2
As it pertains to the Mass. S.Ct ruling disfavoring particularly Wells Fargo, such is GREAT news! Wells Fargo
is IRREFUTABLY engaged in real estate racketeering along with certain foreclosure mills, and so are various
other lenders. In fact, prior to the Attorney General “deals” with lenders who deliberately engage in
foreclosure fraud, some people definitely should have been jailed.
American consumers will remain hopelessly victimized by consumer fraud without intervention from all State
Attorneys General. However, limited facts and evidence can leave authorities with little choice except to
“deal” (like plea bargain?). Lawmakers, news media, and particularly investigative reporters who put their
safety on the line, are not solely responsible for a better America.
Instead of hope and / or demand that out-of-control judicial & political systems somehow right itself,
Americans need to DO our part –or at least weigh what IS our part. Pro-action accomplishes better results
than (notwithstanding any justification) posting commiserating statements or angry Internet comments about
the mortgage crisis.
The petition to the Congressional Foreclosure Panel http://t.co/riJXgou gives specific details and illustrations
about foreclosure frauds. Similar to illegal acts described in that petition, information from the public
(consumers) will go a long way in helping lawmakers to curtail and prosecute foreclosure fraud. Particularly in
light of the few grounds for successfully opposing foreclosures, reports to AG's works better than
homeowners copying / purchasing various materials from the Internet for fighting foreclosure illegalities.
Hopefully people continue signing and sharing the petition –and consider heaping upon offices of Attorneys
General, information / evidence about foreclosure-judicial wrongdoing. @ Commentary on: “Emerging
Battleground on Mortgage Abuses: Foreclosure Mills” http://t.co/riJXgou
lawgrace
January 10, 2011
at 11:21 pm
Log in to Reply
3
Delinquencies will still have a slow recovery especially for mortgages and credit card payments since the
effect of recession is still felt. Although the market is getting better, job is still elusive and housing has a long
way to go…
We help Americans find jobs and prosperity in Asia. For details, visit http://www.pathtoasia.com/jobs/
rbmatudan
January 11, 2011
at 7:27 am
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