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Released: December 06, 2012

The Foreclosure wave that wasn’t

Source: John Gittelsohn & Prashant Gopal, Businessweek

When banks pulled back on foreclosures two years ago following a government investigation into faulty paperwork by lenders, Wall Street analysts, academics, and researchers thought the lull would be followed by a storm. They believed that once banks resolved the claims of delinquent homeowners piling up in courts and worked through their backlog of foreclosures, tens of thousands of houses would hit the market, driving down prices for years to come.

It never happened—even after the five biggest U.S. mortgage servicers reached a $25 billion settlement with federal and state regulators in February. Instead, the number of residential properties for sale in the U.S. shrank to the lowest level in a decade, while prices have appreciated at the fastest pace since 2005.

One reason she and her fellow real estate watchers got it wrong was that in the wake of the settlement, banks were compelled to cut more deals with strapped homeowners.

 

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