Could anything be worse than the wave of foreclosures sweeping across the nation? Yes -- the same wave moving in slow motion.
The problem is that too many Americans owe more on their houses than the places are worth. Many can't keep up the payments, leading lenders to seize their homes for nonpayment -- a process that in New York now takes more than 900 days. The result is a backlog of homes in foreclosure or severe default that, in this state at least, would take decades to work off.
Foreclosure has hit hard on Long Island, where from 2008 to the end of last year, filings had been made against 36 of every 1,000 homes. Although well below the national average, that figure was twice the average for New York State. In this year's first quarter, Suffolk and Nassau had the highest rates, except for Orange County.
Ever since the housing bubble burst, Long Island, like the rest of America, has struggled to cope. Nothing has worked to stem this rising tide of foreclosures until now, at least in states like New York, where foreclosure must happen in court. In reaction to the "robo-signing" scandal, in which lenders cut legal corners to accelerate the process, New York now requires that foreclosing lawyers certify the accuracy of lender documentation. This is one reason new filings have fallen by 85 percent since September.
Slow or delayed foreclosure has its advantages. It keeps more people in their homes -- and more houses off a weak market. It may also give lenders a stronger incentive to work out loan modifications that enable some owners to stay put.
Unfortunately, a foreclosure process that takes forever won't solve the larger problem, which is to revive a U.S. housing market laboring under the shadow of 4 million homes either in foreclosure or awaiting the process. Foreclosure delays can also cause homes (and neighborhoods) to deteriorate, since the owner, anticipating eviction, has little reason to keep the place up. By holding out the prospect of months or years in a home rent-free, moreover, foreclosure delays prod even more homeowners to stop paying if they have no equity. And of course, prospective buyers will remain wary with all those potential foreclosures looming up ahead.
As to encouraging loan modifications, the track record for lenders and borrowers alike is weak. Lenders are overwhelmed by the labor-intensive process. Some homeowners default after a modification, while others, after months of joblessness, can't even qualify.
Dragging out the foreclosure process might have given the housing market time to heal itself, but that's just not happening. Sales and prices keep falling. Construction is weak or nonexistent. Homeowners who can't sell can't easily relocate to find work. And without work, homeowners in trouble can't benefit much from loan modifications.
It's time for government and lenders alike to sort out this mess. Homeowners who are genuinely good candidates must get a timely loan modification -- instead of a runaround -- so they can stay in their homes. For the rest, properly conducted foreclosures can't be allowed to take 900 days. Streamlined foreclosure might finally help housing bottom out -- and help life get back to normal. Postponing the inevitable only keeps our economy in suspended animation.