They are also worried about being able to unload the property.
Pressure on the market for distressed properties could last if delinquent borrowers are less likely to give up on their homes, according to Duane LeGate, CEO of Georgia-based House Buyer Network.
LeGate says his business dropped more than 30% the week after news of the robo-signing scandal broke, and has stayed down since. His theory: homeowners think the bank will have a tough time kicking them out in this environment, and that they can live for free for a while. He says he's got two friends who intend to do just that.
Reuters reports:
Shadow inventory is seen as one of the chief threats to the fragile housing market that is showing new signs of weakening.
Adding to the problems are errors in processing tens of thousands of foreclosure cases at Bank of America Corp, the largest U.S. mortgage servicer, and other financial institutions.
The massive failure to provide proper documentation in court has resulted in delays to an already lengthy processes of repossessing homes, leading to a backlog in paperwork and repossessions as the companies fix their procedures. The banks are also facing a nationwide probe by state attorneys general.
What's more, buyers of distressed properties have become gun shy due to the foreclosure processing problems, according to a Campbell/Inside Mortgage Finance survey of real estate agents. The poll found 14 percent of owner-occupant homebuyers and 6 percent of investors refused to view foreclosed properties in October.
And Zack's Investment Research writes:
Foreclosures have slowed recently, but that is only because of the
fraudclosure scandal, where the banks have proved to be exceptionally
incompetent in handling the paperwork related to securitized mortgages. Basically, they can't really prove that they
hold the mortgage, and thus don't have the right to foreclose.
It remains to be seen just how big a problem that will prove to be. It could just be a technical glitch that will
gum up the works for a few months, or it could be a HUGE problem that once
again undermines the solvency of the entire banking system.
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