Submitted by: Michael Lombardi
Whatever happened to good, old-fashioned capitalism?
Several days ago, Massachusetts Supreme Judicial Court voided the foreclosure of two homes by Wells Fargo & Company (NYSE/WFC) and U.S. Bancorp (NYSE/USB), because the court says the banks failed to show they owned the mortgages at the time of foreclosure.
You have to wonder if it is all a conspiracy to slow down the foreclosure of U.S. homes where the lenders are in default.
After all, three different levels of governments are investigating home foreclosures:
All 50 state attorney generals are reviewing the foreclosure process and will not have their investigations complete until the spring. The FHA (Federal Housing Administration) is examining whether lenders are using all legal options available to them before foreclosing on government-insured loans. Then there is a branch of the Justice Department (Executive Office for U.S. Trustees) that is doing its own examination of lenders and their law firms in respect to homeowners bankruptcy filings.
U.S. home foreclosure activity fell 21% in November from October, according to an Obama Administration report but they are not falling because the housing market is getting better. On the contrary, foreclosures have declined because lenders have dramatically slowed their pace of foreclosure in light of all the government investigations.
Let s call a spade a spade: If I am a bank and I lend you money on your home, and you are not paying your mortgage to me, I should have the right to come in and take the home back due to non-payment after I ve given you written warning to make good on your payments. That s how real estate has always worked. That s how capitalism works and how banks have always worked in their lending practices.
I m reading all kinds of reports that say homeowners are missing their monthly payments on their mortgages because they have caught on that lenders have curbed their foreclosures.
I wonder if it is all a ploy to get lenders to modify their mortgages (take haircuts) as opposed to foreclosing.
Is someone so smart at the White House that they said: Hey banks, you started this mess by lending people money to buy houses they could not afford! Now we are going to make it hard for you to foreclose on your mortgages, so go back and work with the homeowners to reduce the amount of their mortgages to market value. I d have to call that quite brilliant if indeed this is the plan.
But we need to respect how capitalism works. That is what America is all about. Regardless of whether a bank takes a haircut on a mortgage or forecloses, they are still taking a loss that shareholders will have to endure.
In the immediate term, stalling foreclosures will move housing prices slowly up, as less home supply hits the markets. Most home real estate auctions I follow are showing prices actually rising. Some neighborhood homes are selling at lender auctions today at five percent to 10% more than last year because less supply is on the market.
But eventually the piper needs to be paid. The housing market cannot have a meaningful bottom (or bounce in price) until all the foreclosures are washed out of the system. According to a report in The New York Times (1/9/11), More than four million households are in serious default and vulnerable to losing their homes. Until these homes come onto the market, a black cloud will hang over the U.S. housing recovery.
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