Head in sand over foreclosures
Three years on and HSBC is still feeling the pain in its US mortgage business. In the third quarter, loan impairments at its US consumer division more than doubled to $1.8 billion.
The problem is that borrowers have stopped paying their mortgages. It’s not just an issue for HSBC – more than 12% of all US homeowners are late on their mortgage payments. That’s 6.4 million people.
And those numbers will only increase. For one, the shady mortgage approvals and foreclosure practices of the banks led the regulators to stop some of them from foreclosing until they have been investigated and can prove proper conduct. That’s hindering them, and so they have no upper hand in forcing tenants to pay up.
Well, that’s what the banks are saying, anyway. Another suggestion is that banks are deliberately not foreclosing because it would mean taking such huge losses onto their balance sheets – much larger than missed payments. According to S&P/Case-Shiller home price indices, lower-tier housing across US metropolises has lost more than 50% of its value since 2006.
If banks were to foreclose, they would have to report that full loss; if they do not, then they could sell the mortgages, but they would still take the loss, and who would buy them?
This inability, or lack of will, in foreclosing properties is a dangerous situation for the US, which is teetering on the brink of another recession – if, indeed, it ever came out of the first one. If homes are not foreclosed upon, then a bottom to property prices will never be reached and potential homebuyers will stay away, fearful of finding themselves in negative equity. The bounce back up will not happen.
The lack of foreclosures is also masking the extent of the US’s economic situation. Retail sales continue to remain steady in the US, and New York’s restaurants are filled, but, in fact, millions of people across the nation would be homeless. Of course, this is not what people want, and it is something the banks would try to avoid because of yet further public bashing, but it does mean that losses are just being prolonged.
The foreclosure process cannot just be stopped by regulators or ignored by banks fearful of losses. It seems to have been pushed aside while bank regulation and sovereign crises take centre stage. Banks, the US government and regulators seem to have been waiting for the economy to bounce back and property prices to increase before addressing the problem. It was a nice idea, but the economy is far worse than it was three years ago. Can we have some renewed focus on foreclosures?