Home foreclosures topped 100,000 in September, the first single month above the century mark. But that’s just the beginning of the problem. . .
As Paul Krugman sees it, the question is whether the U.S. economy is still governed by the rule of law.
True to form, the Obama administration’s response has been to oppose any action that might upset the banks, like a temporary moratorium on foreclosures while some of the issues are resolved. Instead, it is asking the banks, very nicely, to behave better and clean up their act. I mean, that’s worked so well in the past, right?
The response from the right is, however, even worse. Republicans in Congress are lying low, but conservative commentators like those at The Wall Street Journal’s editorial page have come out dismissing the lack of proper documents as a triviality. In effect, they’re saying that if a bank says it owns your house, we should just take its word. To me, this evokes the days when noblemen felt free to take whatever they wanted, knowing that peasants had no standing in the courts. But then, I suspect that some people regard those as the good old days.
What should be happening? The excesses of the bubble years have created a legal morass, in which property rights are ill defined because nobody has proper documentation. And where no clear property rights exist, it’s the government’s job to create them.
For R.A., there are two sides of the mess: home mortgages and mortgage securities.
a real mess has developed. A growing number of banks are halting their foreclosures while they try to figure out what has happened and establish that the proceedings are all legitimate. People already foreclosed upon are trying to determine whether they have any recourse. People who have bought or are trying to buy foreclosed properties are wondering what will happen to them or watching their deals fall through. And, more broadly, there is growing concern that this bungled process has reduced the number of mortgage modifications that have occurred, and there are calls for a new approach to the problems of struggling homeowners.All that is bad enough as it is. The situation is unlikely to inspire confidence in potential buyers, whom the housing market desperately needs. Congressional action may be necessary (which is a terrifying phrase to utter these days). And there is a very small but real chance that things could get really ugly as players in mortgage markets take a time-out while the situation is investigated—an outcome that might mean a full-stop in housing markets, except for cash purchases. . .
The other side (or perhaps I should be cautious here and say another side) concerns the mortgage securities that were recreated from these insufficiently documented mortgages. If some share of the loans that went into a particular security weren’t properly handled, then the bank that created it could be forced to repurchase it—and many of these securities are now nearly worthless. . .People are now spinning scenarios in which the mess adds up to another systemic risk crisis, complete with weekend crisis interventions and, one presumes, a nice blow to the real economy. . .
The American government, having stopped the financial market bleeding, has done almost nothing to examine and repair the gaping underlying wound. It’s amazing what a mess has been made of things, and it’s disconcerting to imagine how long it will take, at what expense, to clean up.
Is anyone actually minding the store?