The Long Crisis

The financial sector has enjoyed a huge rally over the past month with many investors thinking that the worse of the financial crisis is over. With another spike in bank foreclosures getting under way that conclusion may be dead wrong.

The experiences of a young homeowner in trying to prevent foreclosure is typical of how record volumes of homeowners in distress is overwhelming the banks. “Every report says the banks are helping, and everything on the radio says they’re helping,” Cavallari said. “You call and call and call; you’re not getting a voice. You’re getting a recording.”

Cavallari, is a music composer who does scores for films. Like hundreds of thousands of Americans going through foreclosure she says the process of trying to save her home — and her $92,000 down payment — has worn her out. She recently filed for bankruptcy and is moving out of her home with her young daughter.

As foreclosures soar those who are trying to help distressed home owners are falling further and further behind. “Servicers are working hard to triage those calls and help borrowers,” said Faith Schwartz, Hope Now’s executive director. “We are working hard on that capacity issue. There a millions of people who want help, but there are also millions of people who don’t need help but might call in on other issues. So I think servicers are dealing with extraordinary call volume.”

Yvonne Mariajimenez, an attorney with the nonprofit Neighborhood Legal Services of Los Angeles County, says “In the meantime, lenders are continuing to move forward with foreclosure,” she said. “Even with thousands of people in foreclosure, we do not have anywhere near the advocates needed in order to deal with these homeowners on a one-to-one basis.”

With the three month hold on bank foreclosures having recently ended the foreclosure flood is once again underway. Another serious problem for the banks is that many of the newly bank owned vacant houses are being stripped of anything of value by gangs of thieves. One has to wonder how long the banks can hold these nearly destroyed “assets” on their books without reporting additional serious losses.

It is obvious that in order to keep further write downs off their books the banksters are rolling the reality of bad assets as far forward as possible in the hope that they will someday recover value. While the bankers can hope for a return to a “normal” real estate market it is highly unlikely that a stripped down house that has been left vacant and poorly maintained for a year or two will ever again come even close to the value assigned to it on the banks books. And while that property is on the banks books there are real expenses associated with the management of distressed properties. Property taxes and insurance quickly come to mind.

Multiply problems like this by hundreds of thousands, probably well into the millions, of cases and there could be trillions of dollars worth of a black hole to attempt to fill. Bank foreclosure woes are far from being over.

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