Call it the housing market’s one-two punch. First, the country’s largest bank by assets halted foreclosures around the nation. Then, every attorney general in America joined to investigate allegedly defective legal documents filed by banks in thousands of foreclosures nationwide. Can the country’s already injured housing market survive another blow?
The unfolding mortgage-foreclosure crisis is just the latest round in the housing market mess. Suspicions first swirled in Florida, where a law firm is accused of forging notarized documents after pressure to swiftly file paperwork became too much for employees to handle.
Now, the nation’s biggest lenders, including Bank of America and JP Morgan Chase, have suspended foreclosures while the shoddy paperwork is reviewed.
Connecticut Attorney General Richard Blumenthal is leading the pack in the investigation. It doesn’t take much to ruffle Blumenthal’s feathers. He’s cracked down on everyone from Craigslist to credit card companies. But we all share his frustration in this foreclosure mess when we read about big banks hiring unqualified people – including hair stylists, teens and Walmart workers to handle paperwork. A former JPMorgan executive said these employees were nicknamed the “Burger King kids.”
Sure, there may be some cases where standup homeowners fell victim to paperwork glitches. But in the majority of cases, delinquent homeowners will inevitably lose their homes. Rather than put a nationwide moratorium on foreclosures, which bankers, Realtors and President Barack Obama oppose, banks should beef up their staffs with qualified staffers to review paperwork.
Otherwise, this disruptive ruckus in the housing market will drag on. Slowing foreclosures could lock out first-time buyers and throw consumers into uncertainty. The housing market is already facing a shaky future, with sales plunging after first-time homebuyer tax credits expired.
A false hope inflated the market when the government was shelling out $8,000 gifts. Experts say year-over-year home sales will be depressed for at least the next 10 months. But one perk in this economic downturn is the foreclosure market. Beleaguered homeowners’ misery has been a boon for loan processors and law firms.
Foreclosure sales accounted for one in four home sales nationwide in the second quarter, according to California-based real estate data company RealtyTrac. Last week, the firm reported the number of homes taken over by banks topped 100,000 in a month for the first time in September.
This pace of foreclosure activity will undoubtedly slow in coming months as lenders work through questionable paperwork. This will cause a chilling effect as foreclosure sales dwindle and shadow inventory of distressed property grows. Home prices have been the one bright spot in recent housing reports, but that is also at stake.
And as if government-owned mortgage giants Fannie Mae and Freddie Mac aren’t in enough hot water, the entities are also being dragged into the crisis. The giants’ have begun auditing paperwork, which could be flawed as a result of pressures to quickly process the rising tide of foreclosures. This summer, Fannie warned servicers that they could face fines if foreclosures became unreasonably prolonged.
Analysts said banks and other mortgage owners stand to lose $1,000 for each month a foreclosure is delayed. A three-month delay could lead to $6 billion in losses across the industry, with around half of those falling on Fannie, Freddie and government agencies such as the Federal Housing Administration.
And all because of a few dumb policy decisions by lenders and politicians alike.
Yes, banks should be held accountable. Yes, homeowners deserve due process. But blanket statements and one-size-fits-all policies aren’t the answer.
Problem loans should be handled on a case-by-case basis to ensure every bank and stakeholder doesn’t pay the same price. It doesn’t take a Burger King employee to figure that out.
