It’s a new week and a new housing crisis. Home sales are down and foreclosures and short sales are soaring. Housing starts are beginning to inch up but banks are reluctant to fund the construction needed to complete the homes. Attorneys general from 23 states are gathering data to research whether many of the largest banks were involved in fraud, including GMAC, Chase and Bank of America. Headlines all around the nation are vilifying lenders for what is now known as robo-signing.
What is robo-signing, you ask? Roughly defined, it is a practice where someone who is untrained in the mortgage processing arena, legal documents, notes and mortgages is charged with determining the accuracy of the paperwork and signing off as being fully checked, certified and notarized. In one instance, a robo-signer’s boss indicated that she had signed off on more 10,000 loans in one month. That’s about 2.5 sets of documents per minute—assuming the robo-signer worked every minute of every day for 30 days. Why can’t I get people to work for me that have that drive and determination?
Further, the papers were not always legally notarized before they were sent to judges who rubber-stamped them without, in many cases, reading them. Can you imagine the bank not verifying the information and the judge not reading the documents? This sounds vaguely familiar. Didn’t the healthcare bill get passed before anyone actually read the entire document, which affects virtually everyone in our country? To quote Nancy Pelosi, “We have to pass the bill so you can find out what is in it.” This is becoming a pattern with our government workers.
What are the effects? There is much speculation (as usual) about what to do about the mess. Delaware’s own Beau Biden is appalled. Now I ask, what is going to be done about it—and when? I suspect the sentiment is resonating among attorneys general for all 50 states.
With an important election looming in the next few weeks, the rhetoric will prove to be one of polar opposites ranting about whose fault it is—great fodder for the press. Meanwhile, what happens to all those homeowners who have gone through foreclosure? Were they legitimate?
(As an aside, I am not advocating for those who deserve to have their home foreclosed because they used their homes as an ATM or speculated on market growth continuing at a record pace.)
But are the foreclosures legal? Who is looking out for buyers who purchased a foreclosed property from the bank? Will they be able to close? Does the fully ratified contract to purchase supersede the bank’s notice of freezing foreclosure properties?
This is an interesting dilemma. The buyer is probably out of pocket for several thousand dollars and may need a place to live. What right does the bank have to stop this from occurring because of its own illegal practices?
These are hard questions. My guess is few answers will come until after the election. As a Realtor, I am spending much time trying to understand what is wrong and how it will affect homeowners and would-be homeowners. No one in government has an answer right now. Having the attorneys general involved could end up prolonging the process, further damaging an already fragile housing market.
In the late 1980s we experienced a housing crisis that had banks selling off properties at reduced rates to clear them from their books. They didn’t know how long the crisis would loom, but shortly after a year, the housing market rebounded and homes started appreciating. The banks, by selling too quickly, lost huge amounts of money. In hindsight, the banks would have recouped much of their losses if they’d held the inventory a bit longer.
Fast forward to the present. We are in a crisis that makes the ’80s pale by comparison. Recovery is several months down the road. The banks have a huge inventory just as in the ’80s. My hope is that they will get them on the market and off their books so the recovery can go forward. If they hold the properties with the hopes of recouping losses, growth could slow. When they finally put their inventory on the market, absorption rate of sales will be affected dramatically. And the glut will cause prices to change.
This brings us to a point of responsibility. Are the banks responsible for ensuring the market continues to grow? Are the banks that are working from our bailout money responsible to their shareholders? Should the government intervene?
The last point I would like to make will prove to be more frightening than the number of Snookie costumes we will endure this week. Many of us purchased or re-financed homes in the last few years. Where are our documents? Do we really own the homes we live in? Old Republic Title Company, one of the largest in the nation, informed its brokers in selected states that they will not provide title insurance on properties that are mortgaged by JP Morgan Chase Bank. Delaware is not one of the states that were listed (as of this writing), but it gives us cause to be cautious and check on the status of our paperwork.
My advice for you today is to make sure your mortgage holder has the paperwork on your home and that it is in good order. Second, call your government representative and voice your concern about the foreclosure debacle. Ask what he or she is going to do about it. We are not looking for rhetoric or a spin on the situation. We are looking for an immediate solution.
It is our money that bailed out the banks, so the banks are accountable to us for answers. After you get the information you need, use your vote to add an exclamation point. We deserve better from our elected officials. We deserve honesty. It is the Right Direction.