CNBC reports that several state Attorney Generals are “demanding a federal investigation into shoddy foreclosure procedures or ordering a freeze on foreclosures for the foreseeable future, even though [they] might not exactly have the jurisdiction to do so.”
Diana Olick, CNBC real estate reporter, writes, “I’m not going to feign surprise at any of this. It’s to be expected, especially given this particular upcoming election,” adding, “This scandal is largely about bad paperwork, not unwarranted foreclosures. Right now close to 10 percent of borrowers in this country are delinquent on their loans.”
Olick quotes Nancy Pelosi as saying, “Avoidable foreclosures end up being unnecessarily costly for homeowners, lenders and servicers, and our housing market, whose health is essential to our economic recovery.” Pelosi’s argument is that these unwarranted foreclosures should cease. And why not? If the government was able to bail out Wall Street and the auto industry because their industry-wide failure would be bad for the bottom line, why shouldn’t homeowners be privy to the same advantage?
According to CNBC, “lawmakers want to freeze all foreclosures to make sure all of them are fair because, as Speaker Pelosi writes, ‘People in our districts are hurting.’” As we’ve discussed, family homelessness has been on the rise since 2007. Guy Cecala of Inside Mortgage Finance says 5 million or more homeowners might lose their homes over the next two years, noting, “If we don’t do something to handle distressed properties more efficiently (and faster), the housing market is going to remain stuck in limbo with no recovery in sight.” However, he doesn’t believe that a foreclosure freeze will help.
Nancy Bush, of NAB Research, told The Washington Post, “For big banks, “there’s a possible nightmare scenario here that no foreclosure is valid.” The Post goes on to say, “If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities – an expensive and potentially crippling proposition.”
So, of course, fighting the foreclosure freeze is once again about protecting the banks and not the American people. Janet Tavakoli, founder and president of Tavakoli Structured Finance, suggests that because “banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.” As a result, ”Banks are vulnerable to lawsuits from investors in the [securitization] trusts.”
In reference to the federal government’s $700 billion bailout of the banks, known as the Troubled Assets Relief Program or TARP, Tavakoli predicts, “This problem could cost the banks significantly more money, which could mean TARP II.”
Mortgage lenders Bank of America, GMAC Mortgage and JPMorgan Chase have all put a moratorium on their foreclosures for review. If a foreclosure freeze is enacted nationwide and it does destroy the banks, do you think they deserve to be bailed out a second time? Or is it their turn to deal with the mess they’ve created?