Just when the housing market was starting to heal, government steps in and makes a mess of things once again. It’s not robo-signers but robo-politicians that are are once again disrupting the marketplace. At consumers’ continued expense.
After a week’s worth of media repeating of robo-signers gone wild, here’s what I’ve not been able to find. An actual story of a robo-signed document that led to the unlawful foreclosure of a home of a consumer who was still paying their mortgage. Funny, don’t you think?
On one hand government is pushing banks to clear up the foreclosure backlog; on the other hand, it’s threatening to prosecute them for the possibility the paperwork might have some clerical errors. Fraud? Nobody will wonder when banks leave the housing sector altogether in the future, preferring risks in foreign lands far from attorneys general and politicians incredible.
The paperwork in question pertains to people who have stopped paying their mortgage. Who, by the way, have remained occupying (squatting) the house without paying compensation to the owners (banks). If you were an attorney general looking for new cases, maybe some theft cases might interest you? Alas, consumers can never be at fault these days. Only “big” companies.
That’s the real reason major banking institutions are recalling their foreclosures: Banks remember the Toyota “assumed guilty” run-away accelerator case.
Some 30 state attorney’s general are threatening to investigate – and file lawsuits – paperwork issues that haven’t resulted in provable harm to any actual consumers. It’s the same guilty-before-the-facts danger that Toyota faced just a few months ago. Toyota’s stock tanked when Congress started its investigations. Billions of market capitalization, shareholder value and retirement fund assets vanished faded in the lights trained on indignant politicians with – as it turns out – not a shred of credible evidence. Just another show trial, America’s largest employers be damned.
Banks know the same stakes apply: Even if it turns out the paperwork errors were harmless, unintentional or not fraudulent in intent, they’re better off issuing a “recall” of foreclosures rather than risk the unlimited power of government. Banks are one of the few groups actually making profits in the jobless recovery; and profit is inherently bad, didn’t you know?
Ironically, none of the state attorneys general announced investigations into home “owners” who haven’t been paying their mortgages but remain occupying the homes. No investigation needed to see that’s theft, but why quibble over facts? In the cross-hairs, in the meantime, is the housing recovery. Just as investors were starting to come off the sidelines, the market has been slammed shut – under threat of a lawsuit. Maybe it’s just another unintended consequence of government action in the marketplace?
Banks can’t keep absorbing losses forever. Homeowners aren’t the only ones taking a hit by the housing market troubles. Forcing them to sustain losses longer – through a voluntary recall induced by an involuntary threat of lawsuits – isn’t a good plan to help them clear the inventory and reach the bottom. Nor will it make them more likelyto lend to future homeowners, when paperwork, not theft, is more likely to result in legal action.
Expect the housing recovery to be delayed.
Author’s footnote, 10/14: The Wall Street Journal reports today that, “Banks and other mortgage owners stand to lose $1,000 for each month that a foreclosure is delayed, according to estimates by Paul Miller, an analyst at FBR Capital Markets. If all foreclosures are delayed for three months, that 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.” (Emphasis added.) What it failed to point out, of course, was the obvious: Those $6 billion dollars can only be paid for by taxpayers, many of whom are homeowners struggling themselves to pay their own mortgages during the recession and keep themselves out of foreclosure.