Foreclosure Fiasco Spreads Uncertainty
REBECCA ROBERTS, host:
This is WEEKEND EDITION from NPR News. I'm Rebecca Roberts.
The home foreclosure process continues to be a growing source of anger and frustration for many homeowners. This past week, Bank of America extended its moratorium on foreclosures to all 50 states. The bank is reviewing the paperwork it used to repossess houses across the country. Other lenders have suspended foreclosure activity in 23 states. Some lawmakers are calling for a national moratorium and state attorneys general are ramping up investigations.
As NPR's Yuki Noguchi reports, it's causing a lot of uncertainty.
YUKI NOGUCHI: It's either much ado about not much or it's the thing that will stop tens, maybe hundreds of thousands of foreclosures cold. Banks claim the problem that has caused them to suspend much of their foreclosure activity is nothing more than a minor procedural error: someone in charge of handling loans signed affidavits saying they had reviewed the documents when in fact they had relied on other people to do the work. They claim that they haven't found any substantive problems in the loans they have reviewed so far.
But is that really the case? Maybe, says Ronald Mann, a law professor at Columbia University.
Professor RONALD MANN (Law, Columbia University): The volume of mistakes is impossible to assess from the outside.
NOGUCHI: The crucial issue is whether the sloppiness that tripped up the banks is just the tip of the iceberg. If so, it might call into question the validity of perhaps hundreds of thousands of foreclosures. And if that's the case, Mann says, we as a country are, you might say, in a house of pain.
Mr. MANN: I think that raises the prospect that you have a house that somebody owns that they think they bought after a foreclosure and they can't be sure that they have clear title to it. I think it poses a risk for title insurance companies. I think it poses a risk for banks that will have sold homes that they perhaps didn't actually own.
NOGUCHI: For the sake of argument, let's say it doesn't unfold that way, that most of the suspended foreclosures will stand. In that case, much of the doomsday scenario goes away. But it doesn't mean the process goes unaffected.
Mr. MANN: I think it's likely that these investigations are going to slow foreclosures even after any moratorium ends, largely because judges are likely to be more skeptical than they have been in the past about the propriety of the way that banks have handled their paperwork.
NOGUCHI: More delays means delinquent homeowners might be able to stay in their homes longer. Meanwhile, pending sales of foreclosed homes face potential limbo. And that, according to Rick Sharga, does not bode well for a housing market that is still trying to recover.
Mr. RICK SHARGA (Vice President, RealtyTrac): It would probably stretch out the housing market downturn for another quarter or so while these issues are dealt with.
NOGUCHI: Sharga is vice president of RealtyTrac, a research firm. He says the likeliest effects would be that foreclosures would go down in the short term, only to accelerate next year.
While the industry tries to answer some of the questions that still remain in these investigations, last week members of Congress railed on the mortgage industry, calling for freezes and federal investigations. Just as they were winding up, an ill-timed bill Congress passed proposing to make it easier for lenders to foreclose on homeowners hit President Obama's desk. He vetoed it on Thursday.
Yuki Noguchi, NPR News.