Wednesday, October 13, 2010

Halting Foreclosures Harms Markets

Considering that banks handed out mortgages like jelly beans during the height of the real estate bubble, the latest housing news is quite predictable: Major lenders, including JPMorgan Chase and Bank of America, have suspended foreclosures in parts or all of the country because of sloppy paperwork and improper oversight of the avalanche of loans that went bad.

So, for now, some beleaguered home owners will be spared the misery of losing their homes. Further, banks will be forced to comply with the law and follow their own procedures, as they should be. People will get due process. But despite the revenge-of-the-downtrodden theme, the latest home loan fiasco seems destined only to make the nation's housing problems worse. That will be especially true if lawsuits, investigations and calls for a nationwide moratorium on foreclosures cause the entire process to grind to a halt.

There is still scant evidence that borrowers who are current in their payments are being mistakenly targeted for eviction. In the end, those who cannot afford their houses will probably still lose them — only the process will now be dragged out, preventing the real estate market from arriving at two things necessary for a recovery: a bottoming out of prices, and a sense of certainty that the market is functioning properly. Some previous buyers of foreclosed homes might even face title claims.

Even buyers and sellers that have never been in foreclosure have an interest in seeing the process start working again. Without a functioning foreclosure system, mortgage lending will continue to be sluggish, and so will the overall economy.

Source: USA Today

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