From Pine View Farm

Update from the Foreclosure-Based Economy (Updated) 0

Robert Kuttner of the American Prospect floats a proposal in the Boston Globe.

Here’s his summary of how the banks created this mess. Follow the link for his proposals:

Today, about one home in three carries a mortgage worth more than the underlying property, and some 7 million homeowners are at risk of foreclosure. The banking system is reeling under the weight of non-performing loans and depressed mortgage-backed securities.

To complicate the mess, during the bubble phase when lenders were on steroids, many banks neglected to do the paperwork properly. When a note (the promise to pay) or lien (the right to take the house if the loan defaults) is sold to a third party, the transfer must be fully documented.

But adrenalized banks got careless with paperwork as they sold off the loans. Today it’s not clear who, if anyone, has the right to foreclose. More and more foreclosures are tied up in court, and the average duration of a foreclosure case is now close to two years.

Meanwhile, the Obama administration’s main remedy, the 2009 Home Affordable Mortgage Program, is far too feeble. It has nudged the banks to give modest loan modifications to fewer than 700,000 homeowners — one-tenth of those at risk — and half of these are expected to go back into default. The program is voluntary for the banks, which often prefer to disguise their balance-sheet losses rather than offer homeowners enough relief to keep their homes.

Addendum, Later That Same Afternoon:

Interesting little report at Bloomberg:

Bank of America Corp. and Wells Fargo & Co., the largest U.S. mortgage firms, said they may face fines or enforcement actions from regulators amid investigations into foreclosure procedures.

Details at the link.

Responsible fiscals, indeed.


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