How damaging could growing evidence of serious problems over the foreclosure process and, quite possibly, major flaws in great swathes of the documentation used in the mortgage securitization of recent years prove to be? Very, and the potential implications stretch far beyond the appalling fact that people may have been thrown out of their homes without, so to speak, due process. If there’s one thing that the economy needs if it is to move on beyond the housing and banking crises, it is the restoration of properly functioning clearing mechanisms that allow the housing market to find a “real” level and financial markets to establish a “real” price for all those toxic securities still lurking out there.
This piece from today’s Washington Post (extract follows) gives a hint of what may be to come:
Senior Obama administration officials said Friday that a nationwide moratorium on foreclosure sales may be inevitable, despite their grave reservations about the impact a broad freeze would have on the nation’s housing market and economic recovery.
Their remarks were made as pressure for a nationwide moratorium mounted Friday when Bank of America, the nation’s largest bank, halted evictions in all 50 states. Senate Majority Leader Harry M. Reid (D-Nev.), who is locked in a tight reelection campaign, called on other major lenders to follow suit.
The White House has so far resisted joining the election-season calls for action but convened two interagency meetings this week to discuss reports that banks filed fraudulent documents to evict borrowers who missed payments as well as fundamental questions about whether banks are seizing properties without having clear ownership of the mortgages.
One meeting was made up mostly of groups that regulate the housing industry, including the Department of Housing and Urban Development, the Treasury Department and the White House. The other, which involved the U.S. Securities and Exchange Commission, the Internal Revenue Service and U.S. attorneys from across the country, was focused on the question of whether financial fraud was committed.
The evils of “fraudulent eviction” are self evident, but note also the reference by the Washington Post to questions about whether “banks are seizing properties without having clear ownership of the mortgages”, a reference to legal problems that could conceivably unwind large numbers of supposedly securitized mortgages — and pose very ugly questions indeed over where the losses associated with them should lie.