Foreclosures Taking Loooooonger

507 days…that’s how long it takes (on average) for a home to go to foreclosure after the owner stops making payments, according to an article in the USA Today.  LPS Applied Analytics, a mortgage industry research firm, says that in December 2010 the nationwide average was 410 days, and that by January the figure had jumped to 507, or approximately 17 months.  That’s a 24% increase in just one month!  I believe this is an indication that the process will continue to take longer, at least over the next few months while banks continue to iron out issues uncovered during the robo-signing mess.

I wrote about this same statistic back in early December (click here for the article).   The interesting thing is why this is happening.  According to the article:

Banks and mortgage servicers, who collect payments for lenders, are taking more time to complete foreclosures because of huge volumes of defaulted mortgages. Other factors include time-consuming reviews for loan modifications and additional delays that followed revelations late last year about improperly filed foreclosure documents in tens of thousands of cases.

I agree with the idea that the robo-signing fiasco had something to do with this…but there’s more to it than that.  Realize that banks have the option of when to take the “writedown” on bad debts.  So by delaying the foreclosure (and therefore the re-sale of the foreclosure), the bank can delay the accounting loss.  Even though banks almost always make more money when approving a short sale, they may prefer to prolong the process because they would be forced to take the writedown at the time of the sale.

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