The residential housing market's recovery continued this year, but there may be a hindrance from mortgage laws throughout much of the country.
Differences in mortgage rules vary by state, and this may be hurting the foreclosure process, according to the W.P. Carey School of Business at Arizona State University. There are many different aspects of this, as state laws have been in place for an extended period of time.
"The laws across states use different legal theories as the basis for mortgages, and they balance the rights of creditors and borrowers very differently," said Andra Ghent, assistant professor of real estate at the W. P. Carey School of Business. "The variations started early in America’s history, and they're not really based on economic reasons, but they’re still having a major influence on what’s happening now with the housing market."
Ghent argues that the fact that many of the states that don't have stringent foreclosure laws experienced a more speedy recovery, while the other states had a tendency to struggle. She outlined in the report that one of the biggest differences is that many states require a judicial process to foreclose homes, while others avoid this completely.
There are also states that give a period for borrowers to get back on-track with their payments, which actually prevents foreclosures, in some cases, Ghent noted in the report. There are also states that have large amounts of extra paperwork before a lender can complete a foreclosure, and this also takes up a lot of time.
She added that the areas that did not have the judicial processes had a better chance of getting their foreclosures completed quickly. This helps the repurchase of distressed properties occur, which will then cut down the level of distressed inventory. Once this occurs, home prices for non-distressed properties will rise, benefiting the entire market.
Mortgage refinance applications remain elevated
While foreclosure processes in much of the country can be complicated, mortgage records from the Mortgage Bankers Association showed the level of consumers trying to refinance their loans stayed at a high level for the week ending November 16. This may help some prevent foreclosure on their homes in the future.
The report showed that the refinance share of all mortgage activity was 81 percent, which was unchanged from one week earlier. Additionally, those acquiring adjustable-rate mortgages rose to 4 percent of all loan applications.