Massachusetts Politicos Foreclose on Foreclosure

NEW YORK (BankingMyWay) -- The housing market is running like a teenager's partially rehabbed mini-bike, thrusting forward in fits and starts, with a healthy dose of black smoke belching out from behind as it struggles.

And while we're on the subject of metaphors of movement for U.S. housing, how about a glacier as a stand-in for the foreclosure pipeline. In this case, not that the foreclosure pipeline is as big as one (it's bigger). We're talking about pace, as in, the U.S. home foreclosure market is processing foreclosures at a glacial pace, and that is keeping U.S. home values down.

The Jacksonville, Fla.-based real estate analysis firm Lending Processing Services says that foreclosure inventories are only down by 1% since June 2011.

Economists have long said that home sales won't gain much traction until home foreclosure inventories are pared down, and significantly so.

Month over month the foreclosure picture is not much better, according to LPS data.

With 2.06 million U.S. homes in foreclosure proceedings, that's only 2% lower than the May 2012 numbers. Sure, that 2% is moving in the right direction, but it's not moving fast enough in relation to the high foreclosure inventory numbers.

The glacial pace of foreclosures isn't going to change soon. LPS reports that the U.S. has 3.6 million residential mortgages 30 days or more past due, and possibly on the way to foreclosure.

Which brings us to Massachusetts. Not willing to sit back and wait on the glacier, the often-progressive state is taking unusual legislative steps to see that foreclosures are limited. If Massachusetts can't make the foreclosure pipeline move any faster, it can stop homes from falling into foreclosure in the first place, and in a way that banks probably didn't expect, and won't like.

On July 24, the Massachusetts House of Representatives passed legislation that would curb foreclosures, regardless of the lender's wishes, if the homeowner is eligible for a loan modification, and if the financial advantage gained from a modification would supersede what banks would earn on a foreclosure. The state's Senate followed suit on July 26, easily approving the measure. The bill should be signed into law by Governor Deval Patrick, possibly as early as next week.

The bill -- formally known as House Bill 4323 -- would force lenders to evaluate a homeowner's financial situation and prove to state financial regulators that the net value gained from a loan modification wasn't higher -- even down the road a ways -- than the financial advantage gained from a home foreclosure.