Is Bank of America Resuming Foreclosures Too Soon?

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After halting home foreclosures in all 50 states earlier this month, Bank of America announced Monday it will resume foreclosures in 23 states. The country's largest bank is proceeding despite an ongoing scandal about the faulty ways in which banks have been documenting and processing foreclosures. Bank of America's move will likely prompt other major lenders to resume foreclosures as well. The concern among many is that banks are fast-tracking foreclosures on some two million struggling homeowners without the proper documentation. With the narrative being vulnerable homeowners vs. colossal lenders, should the Obama administration take a side?

  • Here's the Problem We're Dealing With, explains Barry Ritholtz at The Big Picture:
We do not want to create unjust enrichment for either wrongdoers or other bad outcomes. We have two bad actors here: The homeowner who is in default, and the banks/securitizes who failed to do the document creation and title management correctly. Most judges do not want to see, in civil cases, an absurd outcome. Rewarding the homeowner (free house!) or the lenders (No penalty for massive screw-ups!), a total victory would offend those principles. An example of a possible outcome in a full-blown litigation might be for the court to order the mortgage modified to the current equity value of the home, so that it punishes the lenders who failed to do their proper legal work on the documents, but does not give a home to a defaulted homeowner free. Courts of “equity” (meaning fairness, not ownership) apply these principles to avoid ridiculous outcomes.”
  • It's Too Soon to Start Foreclosing Again, writes Yves Smith at Naked Capitalism: "This does not address the underlying question we keep raising: why did the servicers and foreclosure mills rely on robo signers? We had indicated from the get go that the real issue is attempting to put the notes into the trust far too late from the standpoint of what is permitted by the pooling and servicing agreement. This problem is fundamental and remains unresolved."
  • Geithner Is Siding With Wall Street, writes Dean Baker at The Guardian:
Geithner has a new fairytale. This time, it is that if the government imposes a foreclosure moratorium, it will lead to chaos in the housing market and jeopardise the health of the recovery... The point of a foreclosure moratorium would be to ensure that proper procedures are being followed. We know that this is not the case at present. ...

A moratorium would give regulators the time needed to review servicers' processes and ensure that they have a system in place that follows the law and will not be subject to abuse. This is the same logic as the Obama administration used when it imposed a moratorium on deepsea drilling following the BP oil spill...

There has been a consistent pattern to Geithner's positions throughout this crisis. Support for the Tarp, support for Hamp and opposition to a foreclosure moratorium are all positions that benefit the Wall Street banks. I'm just saying
  • White House Is In a Tough Place, writes Ezra Klein at The Washington Post:

Asking the banks to figure this out on their own won't strike voters as terribly credible because the base of the problem here was that the banks -- and their procedures -- have not proven credible. Letting the courts decide on a case-by-case basis doesn't make for great policy. By and large, the White House has resisted entangling itself in the mortgage mess, but that seems as much an opportunity missed as a problem avoided, and now, as banks assure us that they've devised an acceptable solution, it's leaving a lot of people looking at their political leadership and wondering why Bank of America gets to make this call.

  • In the End, People Who Borrowed Money Will Still Have to Pay, writes Tim Cavanaugh at Reason:
This is not the end of the fallout over robo-signing, which has modestly been described as "the biggest scandal in human history." But the paperwork crisis will subside, not because of any attorney general and probably without the legislative malfeasance John Carney predicts here. You can correct all the cases of robo-signing, subtract all the instances of outright fraud by lenders, and repeat the supposedly shocking fact that MERS has made securitization of loans easier. But when you borrow money, those greedy fatcats still expect you to pay it back. And there are plenty of people who still owe money.

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