The housing crash and foreclosure crisis news cycle doesn't move as
quickly as the typical 24-hour news cycle, but it does have the same effect
of burying relevant concerns when a new scandal or lawsuit breaks.
Case in point: zombie mortgages.
Zombie mortgages are mortgages that are in default, but have yet to enter
the foreclosure process. They may also be mortgages that are in the foreclosure
process, but stalled due to one of several reasons. Zombie mortgages also
include properties where the lender has received its judgment of foreclosure
and sale, but then never make it to the auction block.
These types of mortgages represent a significant unknown quantity that
threatens the recovery of the housing market, and in turn, the recovery
of the overall economy. These properties feed directly into the shadow
inventory of homes that are in
foreclosure or are foreclosed, yet are not on the market. No matter how long lenders
wait to leak the empty homes onto an already depressed market, it continues
to be a game of extend and pretend rather than a valid solution.
The way it looks right now, we won't even hit the bottom of the market
until 2014. I don't expect to see a recovery until 2016 at the earliest.
Naked Capitalism seems to agree with me on this point.
So why are we hearing about zombie mortgages? They're nothing new,
and the term was first used as early as December 2010. There could be
several reasons. The most likely is that every time a report on the economic
recovery is issued, we become aware of the zombie mortgages again. They're
the necrotic elephant in the room.
For Illinois home owners facing foreclosure, the problem of zombie mortgages
can actually be a benefit. As the time-to-foreclosure increases in Cook
County and the other Chicago counties, we may see banks more willing to
make deals regarding
loan modifications and
consent foreclosures. Adding a foreclosure defense attorney into the mix can help increase
those timeframes, possibly goading a lender into a settlement.
In any event, if you see zombie mortgages in the news, it's not because
they're new or because we're closing in on Halloween. It's
just the news cycle combined with the fact that, like a true zombie apocalypse,
there's millions of them.