Archive for Monday, October 11, 2010

Foreclosure freeze could undermine housing market

October 11, 2010


— Karl Case, the co-creator of a widely watched housing market index, was upbeat three weeks ago. Mulling the economy while at a meeting at a resort near the Berkshires, Case thought the makings of a recovery were finally falling into place.

“I’m a 60-40 optimist,” he said at the time.

Today, Case’s mood is far more subdued. In scarcely two weeks, he and other housing analysts have watched as the once-staid world of back-office bank procedures has spawned a scandal that threatens to further unhinge the housing market.

Allegations of possible mortgage fraud against financial giants GMAC, JPMorgan Chase and Bank of America read like a corporate thriller: forged documents, faked Social Security numbers, phantom titles, disappearing paper trails, “robo-signers” and mortgages sliced and diced so many times that nobody really knows who owns them.

On Friday, PNC and mortgage servicer Litton Loan Servicing joined those three financial institutions in suspending some foreclosures while they review how documents were handled. Bank of America, which had already announced a halt for 23 states, expanded the suspension to cover the whole nation. If other banks follow suit, it raises the specter of a national foreclosure moratorium.

In all, the banks will have to review the paperwork for hundreds of thousands of mortgages. On top of that, class action lawyers and state attorneys general have filed lawsuits and called for foreclosure moratoriums.

In the near term, the freezes could actually benefit both homeowners and the housing market. Homeowners would have time to live rent-free and chip away at their debt. Prices might stabilize because so many homes are penned up.

But the long-term implications are grave. Only a month ago, housing watcher Mark Zandi, chief economist at Moody’s Analytics, predicted that a housing recovery would be under way by the third quarter of next year. Now he believes the foreclosure scandal could prolong the housing depression for at least another few years.

The alleged document fraud could open up the entire chain of foreclosure proceedings to legal challenge. Some foreclosures could be overturned, others deemed outright fraudulent.

Before a housing recovery can occur, all those foreclosed properties have to be re-scrutinized by the banks and then sold. With any foreclosure-related deal open to legal challenge, that inventory could be taken off the market while the legal challenges make their way through the courts.

That’s not to mention the questions being raised about missing paper trails on mortgages owned by people who have never missed a payment. What started as simple paperwork bungling in a Pennsylvania office park now threatens to bring to a standstill the nation’s entire foreclosure machinery.

The development is especially troubling given how large the foreclosure market is. Before the scandal erupted, forecasters at John Burns Real Estate Consulting predicted that 41 percent of residential sales this year would be on distressed properties. Typically, distressed properties account for 7 percent.

Since housing is the engine that in the past seven recessions has pulled the economy out of recession, any further damage couldn’t come at a worse time.

“As far as I’m concerned, anything that slows the foreclosure process is a bad thing,” Case said this week.

The debacle injects yet more uncertainty into a frail recovery that is still trying to find its strength.


Godot 7 years, 8 months ago

Not freezing the foreclosures and not clearing the titles and ownership of the properties and not prosecuting the fraudsters will harm the housing market and our economy even more.

Godot 7 years, 8 months ago

"In recent days, amid reports that major lenders have used improper procedures and fraudulent paperwork to seize properties, some Obama administration officials have acknowledged they had been aware of flaws in how the mortgage industry pursues foreclosures.

But the officials said they could take only limited action to address the danger. In part, this was because they wanted lenders' help carrying out federal programs to modify mortgages that had fallen into default or were poised to do so. "

That would be the dismal failure called HAMP. It appears that this thugocracy of an administration was not only aware there was fraud in the registration or mortgages and foreclosures, it encouraged the practice! This administration has been instrumental in the degradation of property ownership throughout the United States. Is this what they mean by "the end justifies the means"?

Jimo 7 years, 8 months ago

HAMP is a failure. That's because it was offered like a carrot to banks.

Instead, the playing field needed to have been equalized.

You see, your buddies, like Bank of America (when they're not accepting Republican bank bailouts), can march into bankruptcy court had have all their debt restructured.

In contrast, Mr. and Mrs. Joe Sixpack - CANNOT - march into bankruptcy court and do anything to their single largest debt: their mortgage.

Solution? CRAMDOWN! Mark down the debt to a realistic level. "Why did you, Mr. Sophisticated Financial Institution, loan $XXX,XXX to these simple folks for an over-priced house? Sorry, you need to more accurately price these assets before giving away money. If there's a housing bubble, you need to cease writing mortgages until prices fall back to realistic levels of value."

monkeyhawk 7 years, 8 months ago

"We gonna get a free house and Obama is going to give us a free car." The laugh is on me since I thought those statements were so utterly absurd when I first heard them 2 years ago.

Where are these progressive socialists going to get their funding for leveling the playing field?

"Democrats in the Senate on Thursday held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401(k) plans to more "fairly" distribute taxpayer-funded pensions to everyone.

...In a nutshell, under the GRA system government would seize private 401(k) accounts, setting up an additional 5% mandatory payroll tax to dole out a "fair" pension to everyone using that confiscated money coupled with the mandated contributions. This would, of course, be a sister government ponzi scheme working in tandem with Social Security, the primary purpose being to give big government politicians additional taxpayer funds to raid to pay for their out-of-control spending.

The EPI is housed on the third floor of the building occupied by the George Soros-funded Center for American Progress, a hard-core leftist group whose flavor of socialist policy has brought you the current blend of elitist socialism and crony capitalism bankrupting the American economy. Which speaks volumes about EPI and the Democrat leadership's choice of witness."

Godot 7 years, 8 months ago

"The land title system in this nation was intentionally subverted and corrupted by both intentional act and intentional laziness, all driven by the motive of profit. Original paperwork was either shipped overseas or intentionally destroyed. In even more cases it was not conveyed as legally required by the trust documents. This has massively-corrupted the chain of title for perhaps as much as one third to one half of all residential housing units in this country and if not corrected will render these homes unmarketable in the future. This is the vastly unappreciated problem with what has been done to date." -- Karl Denninger, 10/10/2010

Translation: even if you are not threatened by foreclosure, even if you pay off your house, you may not be able to prove that you own the house. Even mortgage satisfactions have been counterfeited. You might be making a payment to a bank that does not even own your mortgage. You could pay off your house, get a satisfaction from the mortgage servicer that bought your mortgage, and then learn that the original mortgagee was never paid off, and still holds your mortgage, or that there are several investors that think they own your mortgage. That is what the Obama administration is desperately trying to cover up, because this could cause the entire banking system, the one he claims to have "saved," to blow up.

The rule of law has been declared "unimportant" by the Obama administration.

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