Posted on 10/15/2010 7:07:26 AM PDT by WebFocus
ust how bad is "Foreclosure-Gate" going to get? This is the million-dollar question and the answer is as frightening as its implications: Nobody knows.
For anyone who's been living under a rock for the past three weeks, let's recap. Three weeks ago, Ally Bank (formerly GMAC), dropped the bomb that it was investigating potential problems with how its foreclosure paperwork was being processed and halted foreclosure proceedings in 23 states. Within days, other big lenders like JPMorgan Chase (JPM) and Bank of America (BAC) made similar announcements. Bank of America has now stopped foreclosures in all 50 states, just yesterday 50 state attorney generals launched an investigation into basically the entire mortgage servicing industry, and it seems that the rabbit hole is deepening daily.
All this less than a month before one of the most important mid-term elections in recent memory.
The housing market, already swooning, is slowly grinding to a halt, as uncertainty spreads from transaction to transaction. The most immediate fear is that buyers of bank-owned (or REO) properties will go away, removing an essential layer of demand for battered real estate markets around the country. If lenders didn't foreclose properly, buyers could find themselves without clean title, opening a Pandora's box of risks.
That having to give back a recently purchased home would be an extraordinarily rare event isn't important; in times of great uncertainty, confidence is the only thing that matters. This is the lesson to be learned from the financial crisis of 2008-2009, where the fear of default, not necessarily the default itself, torpedoed firms like AIG (AIG), Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers, Wachovia (WFC) and others.
If all this renewed talk of gloom and doom in housing is unnerving, it should be. If not quashed in short order, the situation could quickly spin out of control. If homebuyers en masse lose faith in the system of property ownership, title, and transfer, we'd all of a sudden arrive at a very scary place. Home prices follow sales volume, and if sales dry up in a meaningful way, especially in markets dominated by distressed sales, prices would collapse.
For an administration whose stated housing policy is to prop up prices, this is an unacceptable outcome.
Policymakers, who for months have been fighting for legislation to slow the flood of foreclosures, find themselves in the uncomfortable position of defending the economic and social value of an efficient process for repossessing homes. Foreclosure is the housing market's natural -- albeit unpleasant -- cleansing mechanism. Without it, impaired assets cannot be cleared and a sustainable floor in prices cannot be found.
There is, however, a silver lining to all this.
If you assume for a moment that the resolution for the so-called Foreclosure-Gate is not Armageddon, that cooler heads will prevail, it could end up being a massive blessing in disguise. For almost three years now, Washington has attacked the housing market Medusa by simply chopping off heads, leaving the body to regenerate more. Loan modifications have been a woeful failure while tax credits and other stimulus have proven transitory measures at best. But now faced with the specter of losing foreclosure, there's a chance policy makers will wake up to the stark reality that only through repossession, through the efficient reallocation of REO properties back into the market, can the housing truly heal.
The sad part of this is, many of us (many here, myself included) won’t be able to take advantage of the bargain-basement prices on these houses, due to having another home, that is now 100 grand upside down that they can’t sell.
Sure. Not disputing that, but it doesn’t help the situation, now, does it?
The best way for the banks to help is unravel all this paper right now.
Banks don’t want you to fail. They can’t run your business and they don’t want to be stuck with your assets...They want the loans to be paid so they can make loans in the future. That’s what banks do. They make their money lending money.
God help us all if there is a government conspiracy to take the land and these assets. Nothing would more surely cause a revolution in this country than the wholesale seizure of land, assets and other real property.
No, but your statement was factually incorrect. The first round of foreclosures was due to arm resets and speculators who were floating the money based on rapid increase in value.
Those happening now were people who were strong enough financially to make it this far but through unemployment or reduced income have not been able to sustain their payments. They most likely qualified in a fairly normal manner for their mortgage based on being employed.
The govt already owns all these houses. Around 90% of all mortgages are controlled by Fannie Mae and Freddie Mac.
People are currently losing homes due to unemployment.
Makes me think of this line from The Matrix:
“What do you need?”
“Guns. Lots of guns.”
You say that like it’s a bad thing...
;^P
If at the end of a mortgage, by pay off or foreclosure, the original note is not returned, the property has a clouded, or toxic title. Subsequent buyers cannot get title insurance, and will walk away from buying your property.
Anyone glossing over this little 'detail' is likely ashamed to admit that they are paying premium 'real money' toward their home investment that has the possibility of a steep discount in value from a clouded title that they are unaware of. This would be a good time to ask your loan servicer for a true copy of the original note to your property.
“Happily, the election is very near and if Republicans really do win big, particularly if Christine O’Donnell wins in Delaware...”
Oh man, this would be a nail in the coffin, but - sadly - I don’t see it happening. There are too many voters who vote SOLELY like it’s a popularity contest.
That’s what it would come to...
And everyone with an Obama sticker...Well...Just saying...Lines would be drawn.
I was lumping a lot of different loan packages into my statement of ARMs. Many people had drastically reduced interest rates or no interest for the first few years of the loan. Once the loan resets to a normal structure they cannot afford the payment.
But I agree that unemployment is the problem today. If you aint working you cannot afford anything.
You left out the will to use them.
Bank of America Downgraded by Bond Market on Foreclosures: Credit Markets
http://www.nytimes.com/2010/10/15/business/15bank.html?_r=2&src=twt&twt=nytimesbusiness
Yeah - I’m not happy with the loss of equity in my home either. Luckily I did two things during my last move: bought way below my means and put a boatload of cash down. I saw this mess coming.
I feel bad for everyone who gets the shaft in this deal. It’s going to be a lot of people. BUT...
Failure to properly address this problem could easily lead to a bigger breakdown in the banking system. That would be the real tragedy. There would be a lot more at stake then.
I agree. Securitization, however, is not a crime. If they lose the paperwork, whatever, that house should rightfully belong to the owner, IMHO.
Now, after the securitization, the lying about the value of those various tranches...The intentionally misleading guidance is something that has merit.
Demanding the title paperwork, demanding the original loan paperwork and the entire chain of custody is exactly what is needed to unravel this mess.
Instead of throwing up their hands or demanding that the government ‘do something’ there’s no reason why banks, home-owners, private groups can’t band together to form a process to make this happen, and later use what they have learned to reset the ground rules.
One example of this kind of thing - similar but different - is the American Society of Mechanical Engineers. They are not government but they set the standards. You want to violate the standards and no one wants to do business with you, or you have to get the client to agree to waive these specifications specifically in any contract.
Fixing the blame never fixes the problem. Fixing the problem, fixes the problem.
“Good article. It states the true nature of the problem, and not the bogus sideshow that innocent up-to-date mortgage payers are are being thrown out of their houses enmasse. Or that homebuyers are somehow paying the wrong people, and might lose their homes.”
Whew - lately I’ve been thinking I’m the only person here who thinks that!
We are in the market to buy and I am finding this to be a blessing. Banks now have significant motivation to get rid of their REO holdings. The faster they do the less likely they will have a problem with the property. Investors also are looking hard at bank holdings and seeing them as even greater liabilities to the banks than ever before. So, banks have every incentive to dump these properties before even more problems arise.
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