Bank of America says it's suspending sales of foreclosed houses in all 50 states. This is a big expansion of the recent foreclosure mess.
Until now, the saga has largely been limited to the 23 states that require a court order for all foreclosures. It's become clear that employees at several big mortgage companies have been signing off on foreclosure documents in those states without thoroughly reviewing them.
It's still unclear how many people (and how many homes) will be affected.
B of A and the other big lenders say that the errors are only procedural. As B of A put it in its statement today: "Our ongoing assessment shows the basis for our past foreclosure decisions is accurate."
But it's clear that the foreclosure process has been sloppy. Who knows what's hiding in the paperwork? So to the extent that the halt to foreclosures prevents people from being wrongly foreclosed on, it will be all to the good.
At the same time, though halting foreclosures also stops (for now) the painful but necessary process of reselling all the houses where owners have given up on paying the mortgage -- that is, houses where foreclosure is appropriate. Until that happens, there will still be a vast "shadow inventory" of homes hanging over the housing market.
As Harvard's Ken Rogoff told NPR today:
It would be better to get it over with, have housing prices adjust and then start going up again, and this slows it down. It creates a huge cloud of uncertainty. But at the same time, there's a fairness issue. What do you do?
If you're a prosecutor, you investigate the lenders for fraud. (That's happening in several states.) Ohio's attorney general is suing GMAC Mortgage, which is owned by Ally, a Planet Money sponsor. And today, Harry Reid called on the industry's major players to halt foreclosures in all 50 states, according to the Washington Post.