Assistant Professor of Real Estate Andra Ghent of ASU’s W. P. Carey School of Business talks about her research that takes a look at different mortgage laws across the nation and how they help or hinder recovery from the housing crisis.
Ted Simons: Antiquated state foreclosure laws can greatly impact the speed of the foreclosure process according to a new study that looked at why some states are recovering from the housing crisis faster than others. Here to talk about all this is the author of the study, Andra Ghent of ASU's W.P. Carey School of Business. Thanks for joining us. As far as the research, what exactly were you looking at?
Andra Ghent So we see different laws across states with very different consequences. They probably put a drag on the housing market in the recovery. So the question was, do these serve any useful purpose? Did different states design them with a Pacific purpose in mind? For the most part the finding was after doing a lot of archival work, no. They seem to be the result of individual judges rather than statutory intent. I didn't see a lot of patterns with a few exceptions.
Ted Simons: You're talking about going back hundreds of years.
Andra Ghent: Yes. That was one of the things I was very surprised by. I assumed that I would be looking primarily during the great depression when we had the last major housing crisis, but it turned out for the most part whether a state requires a judge's approval to foreclose, that's usually decided by the start of the U.S. civil war. Redemption rights go back quite a ways. It's a very long process and they are not -- there wasn't a systematic intent.
Ted Simons: You mentioned judicial involvement. How do you compare the slowness that you see, the delay, with just trying to protect against fraud?
Andra Ghent: I understand there's a big concern about fraud. I think most of that concern is quite misplaced. Even in the robo signing cases in Florida, the vast majority of cases, the borrower has not made their payments in years often. I don't think there's a lot of concern about fraud. Often it's a matter of they don't have the right paperwork. What's happened is lenders realized they didn't have the right paperwork, it was going to be too costly to retrieve it or they didn't are it and they would have to provide other forms of documentation that they owned it, so in some cases they made up the paperwork. Obviously courts cannot turn a blind eye to that, but a better system would be to not require all this paperwork or not require a judge's approval.
Ted Simons: Or streamline the process.
Andra Ghent: Absolutely.
Ted Simons: You have judicial approval, amount of paperwork required. Redemption periods prior to foreclosure, what are those and how long can they be?
Andra Ghent: There are some that are before foreclosure. Some have a waiting period, three months, six months sometimes before the lender can foreclose. That's linked with the advertising requirements before they foreclose. Then there's something after they foreclose. The lender can take possession but the borrowers has a certain right, sometimes up to a year, to say, I would like my property back. Now I have the money.
Ted Simons: The idea is if it's difficult to sell to a prospective buyer it sits and deteriorates.
Andra Ghent: That's the big concern. Some of the hope might be that you see a whole lot more renegotiation when you make it difficult for the lender to foreclose. We don't see a ton of renegotiation but the bigger issue is that when the lender gets the property back it's going to be in much worse condition because it's been that much longer without maintenance. Not only does that have an effect for the lender, it has an effect on neighboring homes. Though you may not have let your mortgage payments get behind you're still suffering because there's a vacant home that's been there for two years.
Ted Simons: we have seen a lot of that in Arizona. Where are we on the scale? Are we doing things right? Can we speed things up?
Andra Ghent: We're definitely one of the fastest states, maybe the fastest to foreclose. We're deed of trust state. Doesn't require any judicial approval for foreclosure. To some degree that may be why we're recovering quickly. Most people heard about the headlines, FHFA index, we were up 26% in home prices year over year. Even with distress sales it's over 15%. That strong recovery probably has something to do with the fact that we have cleared our foreclosure backlog.
Ted Simons: If Arizona has done it quickly and other states are slow, is this a thing where a federal law might make sense?
Andra Ghent: There's been four attempts throughout history to Harmonize mortgage loans across states. I think there's a big push for that particularly that -- mortgage market is basically a national market now. Does it really make sense to have different laws when the lenders are national lenders? I think that would make sense and would make it easier rather than have 50 sets of paperwork and servicers having different training in each state, you can nationally harmonize it, it's difficult to get that through but there is some desire just as a there has been some desire four times this century people have tried to harmonize them.
Ted Simons: Good luck.
Andra Ghent: Nobody is going to pay attention. If we don't do it now nobody is going to do it.
Ted Simons: Good to have you here. Thanks for joining us.
Andra Ghent: Thank you so much.
Andra Ghent:Assistant Professor of Real Estate, ASU W. P. Carey School of Business;
