Fiscal Cliff? How About the Foreclosure Cliff

The news is out that Bank of American (BoA) has $64 billion in mortgages that are at least 6 months delinquent and yet the bank hasn’t pulled the trigger on foreclosure. If that doesn’t seem like a lot, consider that $64 billion is almost half BoA’s market cap.

ZeroHedge figures,

in other words, by keeping tens of billions of mortgages off the market, Bank of America is hoping to limit the supply of houses in the market, creating an artificial shortage, in the process pushing up the prices of all other house higher, and only then to start dumping its pre-foreclosure inventory to a witless housing market.

The $64 billion, reports Bloomberg, is more than twice the amount held by its four biggest competitors combined and is 3.3% of all the mortgages it services. Competitors like Citigroup and J.PMorgan Chase have around 1% of their mortgages in this category.

Most of the loans were originated by Countrywide, the falling knife BoA caught during the financial meltdown.

Back in 2008 it took an average of 367 days for a lender to work through the foreclosure process and secure the collateral. Now, reports Bloomberg,

Mortgages on U.S. homes at the time the borrower lost the property averaged a record 728 days late in October, up from 661 days a year earlier, according to Lender Processing Services Inc. in Jacksonville, Florida.

“With delinquent mortgages you want to triage them, work out ones that can be worked out and foreclose the ones that can’t,” professor Alan White tells Bloomberg. “But if the only outcome is no outcome, it’s not helping any of the parties affected, including the economy.”

For whatever reason, BoA seems to be moving slower at clearing their foreclosure pipeline than other lenders. Some borrowers were 500 days late before receiving a default notice and modification paperwork moves slow and is often lost at BoA.

The claim that the housing crisis is over gets more common everyday. But how does this market take off with 2.5 properties nationwide in the shadow foreclosure pipeline? ZeroHedge calls the “foreclosure stuffing” by BoA, Fannie, etc. the “most obvious housing subsidy in the last four years.”

Enjoy the dead cat bounces while you can.