I like Barry Ritholz at the Big Picture blog. I do. I think he's a bright guy. But he's proven time and time again that he can be out of his league when it comes to anything remotely resembling mortgage servicing. Doubly so when he bases his gotcha! moments on a flawed major media piece written by reporters that can't understand the difference between "dumping properties onto market" and a foreclosure sale. His latest fly-off-the-handle post is a perfect example of a blogger in search of big headlines, but who didn't bother to read the entire story:
Consider this troubling question: Do mortgage lenders have any obligation to take over a property that has defaulted on its mortgage? The short answer, it appears, is no ...
The rest of his post essentially pulls a tsk-tsk and a wag of the finger for lenders out of the hat and says they should be ashamed of themselves for willfully not taking possession to a property. He's basing his inflammatory remarks off of a Chicago Tribune piece that purported to explore the effect of REOs on the Chicago market. I'll save my full criticism of the Tribune's horrible work on this story for later, but the story manages to start with Chicago REO as the premise and then veers recklessly into allegations that lenders are intentionally not taking title to properties in depressed markets other than Chicago. All thanks to a consumer activist named Geoff Smith, who's got a theory on those nefarious types known as lenders:
"In some cities that have low property values, where there are dense concentrations of foreclosures, you see lenders who file foreclosure proceedings but don't actually take control of the properties, because the lenders have to maintain them and pay taxes on them," he said.
But he notes that Chicago isn't one such city. In the story. And yet the reporters print it anyway. In a story that's supposed to be about REO. In Chicago. Someone needs to explain to me how a researcher -- wholly unaffiliated with servicers or investors -- would be able to divine a blanket theory for why foreclosure proceedings stall, provide no evidence for his theory, and then have it taken at face value. For the record, it's far more likely that a property has title hopelessly screwed up thanks to fraudulent activity by borrowers, and that fixing title on said property would cost more than the property is worth. Especially in places like Detroit. It's just one scenario out of many possible, but even that one is much more plausible than the less-than-lucid reasoning that says lenders are trying to skirt property taxes. I'm not suggesting lenders aren't letting properties sit in default -- they likely are, in certain instances. What I am suggesting there are good reasons for them to do so, like the reasons above. And Ritholz, of all people, should know about tax lien sales. What the lender is doing, in those uncounted cases where it decided that foreclosing would cost more than the security against it, is telling the city to go ahead and sell the tax lien. It not exactly an Earth-shattering sort of revelation, and it's better than forcing lenders to eat the losses -- because doing so only makes it less likely they'll lend in those neighborhoods that consumer advocates are now complaining about as needing more lending activity. And if the city is too slow to move on tax arrearages, how is that the lender's fault? So, perhaps, herein lies a lesson on the even Bigger Picture: things are never as simple as they seem.