Does Judicial Foreclosure Slow Housing Recovery?

Is the New York housing market (click to see Total Mortgage’s low New York mortgage rates) worse than the housing market in California?  Based upon media reports, it seems hard to believe, but according to a report from data provider 1010data (that I learned about via this Housingwire.com article by Christine Ricciardi), it is.

According to the report, mortgage delinquencies in subprime and Alt-A mortgages in New York are running around 44 percent, while California is only at about 38 percent.  This is despite the fact that unemployment is around 12 percent in California, and only 8 percent in New York.

1010data says that the reason New York is in worse shape than California is because New York is a judicial foreclosure state, while California is a non-judicial foreclosure state.  As a result of this, it takes lenders 15 months to liquidate a mortgage in California while it takes 21 months to liquidate a mortgage.  The difference is due to the time it takes for a foreclosure trial in a judicial state.

Jonah Green, the head of mortgage analytics at 1010data was quoted in the article as saying:

“California is more likely to recover before New York in any meaningful way because the first step is to get that supply down.  If you don’t get that supply down, it prolongs recovery.”

This is very likely true.  I’ve been making the argument for months that the excess supply of homes (and the lack of demand for them) is the number one hurdle to a housing market recovery (and virtually guarantees falling home prices in 2011).  The housing market definitely needs to bottom out before it will recover.

However, in light of the foreclosure fraud/robo-signing mess, I can’t see that judicial foreclosure is a bad thing, even if it prolongs the recovery process (just to be clear, I don’t believe that 1010data or Jonah Green are against judicial foreclosure based upon what I have read).  Some judges have been at the forefront of bringing to light some of the foreclosure fraud that has occurred recently.  A process like judicial foreclosure exists in order to safeguard the rights of homeowners.  There is bound to be a trade-off of speed in exchange for a more thorough foreclosure review process. Based upon all the foreclosure problems recently, it is a trade-off I am willing to make (this of course assumes that the judges are doing their jobs properly, which has not been the case in some states).  What do you think?  Let me know in the comments section below.