Foreclosure Fiasco

One year ago, I started talking about Greece (Grease). Most people thought I meant the low fat vs. high fat controversy. That’s an understandable mistake; however, I was referring to the one punctuated with high-fat bloating of governmental budgets and unsustainable indebtedness. It was obvious to me that a crisis was lurking right around the corner, and that crisis quickly unfolded.

Now, an even higher event has raised its ugly head: foreclosures. For years, various institutions created mortgages and held the deeds of trust in their vaults. However, the promissory notes were sold-off in a systematic method known as securitization, a process in which a single promissory note was sliced and diced, resulting in multiple owners. As a result, it’s almost impossible to know the identity of the actual owner. That is where the problem arises. To legally foreclose, both the deed of trust and the promissory note must be in hand by the foreclosing party. This is not a question of whether owners should be foreclosed; it’s a question of the legal right to do so. Bank of America has suspended foreclosures in all fifty states. Forty attorney generals have recommended (here come the lawsuits) a total moratorium on foreclosures. The White House has taken a position that it is only a paper snafu, a reminder of when Ben Bernanke said that subprime mortgages were contained.

This problem will bring any housing recovery to a dead halt. It will create such a firestorm that even I can’t imagine, and it will make us all long for the days of Greece.

Till next time,

Bill


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