All The Confusion About Foreclosure Procedures Is Very Confusing

As you probably have heard there is a lot of concern lately about several banks that may have improperly foreclosed upon certain homes. The big names in this fiasco are Bank Of America, JP Morgan Chase, GMAC, and PNC Financial. These banks are so concerned about whether or not they have the proper procedures in place to complete foreclosures that they have voluntarily stopped their foreclosure proceedings in many, if not all, states until they can get their act together.

However, that's about all I can figure out from this whole mess because there has been a fair amount of speculation in the media and now the politicians have jumped on this issue with wild claims - it's a great opportunity for them to pretend to stick up for the common man or woman. First, I've heard a number of media sources claim that the banks don't really know who owns these mortgages because of all the "slicing and dicing" that took place. Now, I find that to be an extremely peculiar claim for two reasons: 1) Millions of non-foreclosure homes have been sold over the past few years and somehow when the dust settles the investors get paid off and no one has raised an issue over those sales and 2) Even in a short sale, where the situation gets a bit more complicated, the loan processor always seems to manage to figure out who the investors are and those investors get paid off - not in full of course. Again, no one has raised an issue in these cases about who owns the mortgage. What this is really about is that some clever lawyers figured out a way to stop the foreclosure proceedings against their clients by drawing attention to the banks' incompetence, which is legendary. Let's face it, the people being foreclosed upon have not been paying their mortgages and the banks will ultimately prevail one way or the other. They just got the banks on a technicality. As they said in the article I just linked to "Had GMAC followed the legal requirements, [the homeowner] would have lost her home a long time ago."

The other point of confusion is that various opportunistic politicians have jumped into the fray and are calling for a wide sweeping moratorium on further foreclosures. The best example of the craziness percolating can be found in this CNBC interview with Maxine Waters, the poster child for the right to impeach other people's congressional representatives. In this video clip Maxine can be seen:

  • Proposing that lenders be required to attempt to restructure mortgages before they can foreclose. Her goal is to keep people in their homes (vs. straightening out the foreclosure mess
  • Insisting that mortgages can be restructured without costing lenders any money
  • Totally ignoring the moral hazard problem
  • Claiming that fixed rate mortgages are cheaper than adjustable rate
    mortgages and that no one can afford adjustable rate mortgages. She thinks that people's mortgage payments doubled under adjustable rate mortgages.
  • Referring to adjustable rate mortgages as "exotic products" that no one understands.
  • Lamenting that the bankers haven't accepted responsibility for creating this mess when she herself has not accepted responsibility for her role in the Fannie Mae/ Freddie Mac failures (and we will not recover our TARP funds from them)
  • Accusing lenders of comitting fraud by issuing liar loans - uhhhhh...who committed the fraud?
  • Claiming that we know the banks committed fraud by virtue of the fact that so many people are in foreclosure
  • Claiming that the banks don't know who these mortgages belong to. See the discussion above.

If not for the fact that this is actually a rather terrifying video (when you realize that this woman has been on the congressional finance committee for years) it would be highly entertaining. Unlike the typical CNBC guest, she is no match for the show anchors.

Since any kind of indiscriminate moratorium would simply delay the inevitable and create more shadow inventory it is fortunate that the Obama administration has thus far resisted the temptation to stick a monkey wrench in the works.

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