If you hadn’t heard before, and I’m assuming some of you had not, many of the nation’s top banks decided a few weeks ago that they needed to stop foreclosure proceedings in order to adequately audit their foreclosure records. And they did this because they found out, with a minimum of skimming, that they had screwed several families out of their homes without performing their usual, and in some cases legally required, level of scrutiny about the foreclosure cases. The probable cause for all this was the massive influx of foreclosures. Combine that with the number of documents that typically go with the average mortgage and foreclosure proceedings and you end up with an enormous amount of paper that has to be reviewed and signed within an often legally specified time limit.
So the big banks decided to close down foreclosures for a few weeks to go over the books and figure out where they screwed up. However, that doesn’t mean that they’re letting people back into their homes. It just means that they are fixing the paperwork. And now that roughly two weeks have gone by, they’re decided to rev up the foreclosures again. Most of the banks have come out and said something along the lines of “We screwed up the paperwork, but our decisions were still valid and we stand by our foreclosures. And we’ve fixed or are in the process of fixing the paperwork” And to be fair, while the law in some states does have very specific requirements for foreclosure proceedings, most of the power for the decision rests with the financial institution and since it’s their loan and their money, it’s their call.
So more reasons you shouldn’t trust your bank, although by now you should know not to trust your bank. But you may be asking yourself, “Why can’t we pass laws to stop this kind of thing?” Well, the answer is, that we indeed could pass more laws to make foreclosure proceedings more stringent with penalties and fines going to the loaning agencies if they don’t follow the rules. The problem is that you will end up with fewer and fewer loans being issued by financial institutions. More rules of this variety for the loan process ultimately makes the loan processes riskier for the loaner. That means fewer loans, fewer mortgages, and fewer people moving from temporary housing, like apartments, into houses.
And to be fair, this huge number of foreclosures is actually a correction to a number of bad laws made during the Clinton era that allowed banks to make loans to people that they probably shouldn’t have made loans to. And the banks ultimately won out on the deal. The government told them “Make loans to these people who can’t afford the loans and we’ll take care of you.” So the banks made the loans and then when everything hit the fan the government took care of the banks. But now the public doesn’t trust the banks, so I’m not sure who really won out on this in the end. My bet would be big government supporters since the government did end up owning several large banks by the time the dust cleared, but now the banks are buying themselves back from the government. Both the government and the banks ended up looking bad in the eyes of the public. Maybe we’re not at the end of the road on this, maybe the third shoe is going to drop. I don’t know.
