Economists Argue “Anti-Foreclosure Laws Backfire”

State and federal laws that set out to prevent defaulting home owners from being evicted may actually be jeopardizing the housing recovery and even extending the slump, economists told Reuters.

More than 400 foreclosure laws were enacted nationwide last year, according to the National Conference of State Legislature. Many of these laws set out to help struggling home owners modify their loans and stay in their homes.

But some studies show that the laws may be delaying a full housing recovery. A study by Federal Reserve economists measured foreclosure outcomes from 2004 to 2011 for judicial foreclosure states — where foreclosures must receive court approval — and “nonjudicial” states, where foreclosures do not have to go through the courts.

The researchers found that judicial states “indiscriminately” slowed the foreclosure process and there appeared to be no benefits to the home owner or housing market from slowing the process. What’s more, the economists said that foreclosure protection laws also could lead to an increase in blight in neighborhoods, as delinquent home owners had less incentive to keep up their homes.

Prolonging the foreclosure process also seemed to scare off some potential buyers because it raised concerns on how “clean the title to a property was,” Lauren Lambie-Hanson, one of the economist researchers, told Reuters. Please provide your thoughts!

Source: “Insight: Evidence Suggests Anti-Foreclosure Laws may Backfire,” Reuters (June 27, 2012)

2 thoughts on “Economists Argue “Anti-Foreclosure Laws Backfire””

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