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.
“...efficient reallocation of REO properties back into the market, can the housing truly heal”
THAT should have been done up front... without all the Liberals’ hysterical, dirty politics!!!
We did the first part (buy below our means) but opted for a smaller down payment to hang on to our cash. We also bought a house that, at the time, was 30k under the comparables since we felt it would depreciate at least some.
It frustrates me that in order to have a country for my son to live in, that we have to let ourselves be completely and utterly financially raped in the process.
Good post. Are you one of those “cooler heads” the article talked about?
What would you suggest if the loan servicer is not able to provide a true copy?
I think I’m cool. Does that count? :p Whatever...
Nah...I am actually rabidly mad right now. I am serious about that. Heads need to roll for this. Some of those heads are in government - and the elections couldn’t come soon enough. Many of those heads are still in the ratings firms and the banks.
My only point really was that the moral hazard extends both ways and that no amount of anger is going to force good behavior, however rational self-interest might. And seeing heads roll might just scare some folks straight...
To do that, people need to feel the pain. Avoiding that moral hazard and making that pain stick means that the government cannot interfere in favor of either side.
I think that homeowners probably have some kind of standing against the ratings agencies and the banks for the bungling of the bundling and the lying about the valuations, etc...And they have every right to sue them to the ground.
The only thing I would hope for government to do in this case is to enforce those contracts and to privately urge them to sort this mess out.
The last thing you would think the Banks would want is the SEC to come in and start to sort it out for them.
No one is threatening that yet, but watch as this thing disintegrates and we’ll see if something like that isn’t precisely what ends up on the table.
“Most foreclosures occurring now are due to unemployment. Not because an ARM reset.”
I suspect that is true but we still have massive ARM resets through mid 2012. So far, there are no trend indicators to say this mess is going to do anything but continue to get worse.
This is what any self-respecting, Andrew Cuomo / Elliot Spitzer-style attorney general or trial lawyer hopes. For those of us who aren't looking for a forgiven mortgage, an ab-fab political career or a few hundred million in contingency fee payouts, it's our worst nightmare come true.
As long as there are no jobs the mess will get worse. Here in central florida there are few jobs. To find work you might have to move. Which means walking away from the house that you cannot sell. Renting isn’t an option because there are so many houses on the market.
And then, your new employer pulls your credit, sees it’s bad (thanks to foreclosure) and fires you!
I know this is a dumb request, but please explain what securitized means. I've googled it, read about it and googled it some more. There's something I'm just not getting. Thanks.
The banks still would have received the money.
How many deficiencies would have been immediately cured?
How many fewer homes would have been under water?
How many of the troubled assets would still be troubled?
While the whole Troubled Asset Relief Program was a waste of taxpayer money, the government picked the worst possible method for dispensing the funds and did nothing to alleviate the situation in that the exact same number of assets were "troubled" the day after the money was dispensed as the day before.
That happens but IMO using credit to determine employment qualifications is over rated in most cases.
Ok, I am going to jump into this with different ideas to why the foreclosures being stalled...
1. the banks are seeing less foreclosed homes being bought by investors and are getting to close to the “red” line.
Money sitting doesn’t make money.
2. The winter will create huge problems for homes sitting with now heat. Using heat to keep them warm cost MONEY banks don’t want to spend. So better to have someone in the home than empty.
Now this paper work.. any one ever been through the paper work to buy a home? The Banks KNOW to cross the “T”s and dot the “I”s. Sounds like a lot of smoke and mirrors to me.
IF they found a mistake on some “paper” they would change the “paper” and continue on with the foreclosures.
I don’t know how the economy could have possibly faired worse than it has so far, short of a nuclear blast on NYC...
This would have been more efficient...But it still represents wealth redistribution, so I’d be opposed.
And it’s inflationary...
My guess, though less toubled, there’d still be troubles...and they’d still be direly significant.
Ending the interventions and ending the free money policies are the only way I see out.
I honestly see massive defaults in the future...No amount of printing will help it. I hope I am wrong. It could be catastrophic to our way of life.
The only thing worse, will be how the government tries to prevent it.
“Renting isn’t an option because there are so many houses on the market.”
That part I didn’t understand. Can you not find a rental?
It is, but it happens.
RE: The winter will create huge problems for homes sitting with now heat. Using heat to keep them warm cost MONEY banks don’t want to spend. So better to have someone in the home than empty.
Also consider this — if a house does not have heat during the winter, the PIPES FREEZE. I’ve seen houses where the pipes just broke down and WATER actually flooded the house and into the streets.
As Burt Bacharach used to say : “A house is not a home when there’s no one there...” (Or was it his writing partner Hal David...).
Renting it TO someone as a way to keep it and pay the mortgage.
MERS and why the bank are screwed becausse they cannot find the original mortgage note.
My questions about all this concern more than just the mortgages. If a system like MERS was used there might actually be a chain of title issue. If that happens then selling a house might become a big issue. Several title companies are already starting to make noise about issuing title policies.
I’m so glad that I have a nice abstract of title sitting in my filing cabinet showing the complete history of both the land and the house I live in. That and I no longer have a mortgage to pay.
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