12 August 2013

Maryland, delayed foreclosures, and herd immunity

The Washington Post notes that thousands of Marylanders are losing homes in a second wave of foreclosures. Others have already noted this hit. Worse yet, the Post article acknowledges that "foreclosure experts and state officials knew [it] was coming but no one wanted to see." So they knew it was coming, and did it anyway. Thanks for nothing. Like an ostrich with its head in the sand.

For what its worth, I think the Post is somewhat disingenuous in acknowledging that state officials knew the inevitable was coming. While it is true that some rhetoric acknowledged that the state was just delaying the inevitable, other statements suggested that the state was taking preventative measures.

The article does contrast the Maryland foreclosure process, which has been painfully drawn out over an average of 575 days (among the longest), with Virginia, whose foreclosure crisis has largely run its course (an average of 184 days, the shortest in the nation). I will be very curious to see economists do a post-mortem comparing Maryland's heavy-handed, interventionist approach to foreclosures vs. Virginia's hands-off approach.

What this article fails to deliver is a definitive verdict on Governor O'Malley's policies: is the second wave worse than it would have been if the state had just allowed foreclosures to happen? Or have they, as expected, made things worse?

In at least one measurable way, these policies have made things worse. Maryland's intervention has delayed the recovery of housing prices in Maryland, as predicted last year. As a result, homeowners not affected by foreclosures have felt the impact because their mortgages continue to be underwater. Delaying foreclosures in Maryland is akin to people choosing not to vaccinate their kids; as a result, the herd immunity (so to speak) suffers. I like to think of timely foreclosures acting as a firewall to the spread of more foreclosures. When foreclosures are delayed, everyone suffers through lower housing prices.

I was one of many who warned this time would come. I take no small bit of pride in acknowledging this. I would rather have been wrong. And while I an not a housing expert, I take my predictions and warnings seriously. I make them with due consideration to all of the available information. My track record stands by itself. And I have not been hesitant to admit when I have been wrong.

It is also no small bit of irony that this article came to my attention when it was tweeted by Occupy Wall Street. That loose collective appears to have the same short institutional memory as Anonymous--the Occupy movement has fought foreclosures at every turn. Now, it's somehow newsworthy that a policy that Occupy actively advocated--indeed, actively participated in favor of--comes back to kick people in the ass.
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