Tuesday, October 12, 2010

Wilmer Leon: How a Foreclosure Freeze Might Affect Our Economy

How a foreclosure freeze could heat up our economy

by Dr. Wilmer Leon

Recently some of the largest mortgage servicers such as Bank of America, JPMorgan Chase and GMACMortgage have suspended their property foreclosure proceedings in many U.S. states amidst allegations of their failing to follow legal foreclosure procedures. These are some of the same institutions that received a massive federal bailout in the midst of the economic crisis.

America is on pace to top 1.2 million bank foreclosures by the end of this year. According to RealtyTrac "Lenders foreclosed on 95,364 U.S. properties in August, the highest monthly total in the history of the report and about 2 percent higher than the previous peak of 93,777 bank repossessions (REOs) in May 2010."

Reports indicate that due to this surge in bank foreclosures, mortgage company officials have not been properly reviewing all of the paperwork and in some instances have not been in possession of complete loan packages. One of the major causes of this problem goes back to the genesis of the economic crisis. When a mortgage is resold the seller and new buyer are required to execute a document called an "assignment". This document provides proof that the transaction actually took place. As these "toxic loans" were being sliced, diced, and resold as valuable parts of other financial instruments, paperwork got lost or was never processed. Now that these toxic loans are in default the mortgage servicers are trying to resell the properties without the "assignment". In real estate that's a huge problem.


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