Pickens County Georgia Foreclosures: Unravelling the Mess of Moratoria, Fraud, Lawsuits, and Wall Street Arrogance.
While foreclosures in the headlines are nothing new--it seems this has been a favorite topic for traditional news media and bloggers alike (myself included), for the past couple of years--the latest headlines have spurred a whole new level of not just discussion, but possibly action as well.
In brief, the latest issue involves the improper handling of foreclosure and loan documents by several of the largest lenders in the country. Documents submitted to the courts as part of judicial foreclosure actions were supposedly not properly verified and attested to by the lenders, as required by law, essentially committing a fraud upon the court and bringing the legality of the foreclosure into question. In anticipation of the legal challenges that are certainly going to follow, a number of these banks have imposed a moratorium on foreclosures in 23 states, allowing themselves the opportunity to go back and review and fix the problem as necessary. Bank of America has extended their moratorium to all 50 states.
While there is much discussion as to the likely impact of this latest development, most of it is just blind guesswork, as no one really knows how this is going to play out. Some feel the temporary halt to foreclosures, aside from temporarily benefiting the affected homeowners, will allow real estate markets a chance to recover during the lull in activity from bank-owned REO properties that tend to inflate inventory and deflate prices. Some go so far as to say that there will be some sort of reprieve for delinquent homeowners during the moratorium, thereby undoing much of the doom-and-gloom we have been hearing about the staggering numbers of delinquencies and underwater loans across the country.
Others argue the opposite, that this is only going to delay a recovery, as potential buyers avoid purchasing foreclosed homes or sit on the sidelines altogether, until they are certain their purchase isn't going to be impacted by lawsuits. Many who were formerly "predicting" we were on our way to a recovery, now suggest this will be the catalyst for a reversal, and that the housing market will take several more years to recover.
In light of the numbers of people affected by the bank actions, current public sentiment against Wall Street, the issue being framed within words like "fraud" and "illegal", and with an important election just ahead, it is no surprise that politicos have jumped on the cause for some people-pleasing speaking points, and the attorneys general of 40 states (as of this writing) have announced the launch of investigations into the matter.
For me, only one thing is certain . . . the further uncertainty this all creates.
Many desperate homeowners likely see this as a merciful intercession on their behalf. Unfortunately, at least as it appears right now, provided the lenders can show the facts asserted in their filings were correct, they will get away with their lack of candor before the court, and the foreclosures already completed will stand. The banks are certainly going to mend their ways before completing any more judicial foreclosures, so that the issue doesn't come up again, and at the end of the day, delinquent homeowners will remain in default, with the likely end result still being that of a short sale or foreclosure. The actions of the banks, dishonest as they may be, aren't likely to remove the obligation to pay debt as agreed upon by the borrower. Of course, they may get to live "rent free" for a couple of years in the meantime, but the idea that thousands of foreclosure actions will now be reversed, is perhaps a false one.
And not all states are affected equally. Here in Georgia we have "non-judicial" foreclosures, which means the issue in the other impacted states, where foreclosure requires approval from a judge, and where the paperwork that was submitted to the court now appears "voidable", is not applicable in Georgia. This confusion about the process for borrowers in different states is likely to create misunderstandings and unwarranted lawsuits, without any real gain for distressed homeowners.
Any government action, as is usually the case, is likely to be more showcasing than problem-solving. Lenders will be (further) vilified from the podium, and some low level functionaries will be fired and/or prosecuted, but in reality the cozy relationship between politicians and the vast campaign funds proffered by the banks is likely to ensure that there is no dissembling of their power, even in the face of yet another suggestion of greed-driven ineptitude. They are after all, too big to fail. It wouldn't be surprising to see the creation of yet another government, or government-sponsored, entity to "oversee" the issue, the cost of which unnecessary, overpaid paper-shufflers will be borne by us, the taxpayer/consumer.
The decision to buy for some buyers, it's true, may be adversely swayed by what's going on . . . all of those buyers who are carefully tracking what's going on, understand the potential ramifications (if any), and are basing their decision solely on such a clinical analysis of fact and prognostication. Other buyers, those who bury their heads in the sand at the first hint of bad news and who choose not to try to understand the underlying fundamentals, may also lean on this as a reason not to buy . . . but who weren't going to buy anyway in this uncertain environment.
The rest--the majority--are going to continue to be driven by the less "newsworthy", but far more significant, factors that make up the human condition: employment, marriage, death, divorce, birth, health, education, and the other "little" things in life that play a major role in our decision to buy, or not to buy, a home. My opinion is that job security, the ability to actually get a mortgage, the overall economy, and so on, are far more likely to shape the direction of real estate markets across America, in Georgia, and right here in Pickens County, than all the frothing at the mouth of media pundits as to how the world as we know it is about to change over yet another sleight-of-hand by corporate banksters.
For me, I think the bigger concern for buyers than the doubts about whether purchasing a foreclosed property is a safe bet or not, is the further eroding of any semblance of trust borrowers have in the banking industry and mortgage process itself. With all the negative press about TARP funds, huge executive bonuses for overseeing otherwise failed banks, mishandling of short sales, toxic loan offsets, deceptive loan practices, and now this, borrowers--particularly first time buyers--have to be thinking real hard before taking the leap into entrusting their hard-earned dollars to an industry so rife with shady practices and mismanagement. My advice to clients is increasingly to avoid the big names if possible and seek out local lenders and community banks who still care about "reputation", and who don't have millions of taxpayer dollars, and Treasury Department buddies, to fall back on.
Beyond this distracting discussion of who did what and when, the disturbing (and growing) number of homeowners behind on payments, and the number of homes with negative equity around the country, hasn't changed in any way. Unless the underlying fiscal crisis is addressed in a more meaningful way, the economic landscape remains unchanged. The home saved from imminent foreclosure today, is still faced with it tomorrow . . . possibly along with the neighbor's home. All this hoopla about legal technicalities does no more than delay what is coming, making the argument about whether the moratorium is a "good" or "bad" thing rather redundant in my opinion. We still have an economic recovery to navigate.The only potential positive would be if the delay allowed for some solution to be worked out for distressed homeowners in the interim, and if Wall Street firms were finally brought to their knees by their own gross negligence, the way any other dysfunctional business would.
The reality of either taking place, is minimal. Efforts at fixing, rather than forestalling, the foreclosure crisis have proven futile, as there are too many moving parts. The only resolutions given real consideration are those in which the banks suffer minimal loss, if any, and executive salaries don't have to be cut, which solutions invariably come, once again, at cost to the taxpayer/consumer. Likewise, the idea of "negating" foreclosures as a penalty for the current improprieties is unlikely; the cost to the banks would be too steep. There will probably be some "negotiated" settlement with the government, (ala BP, in which a lowball settlement will save the banks from much greater and more costly consequences, while looking good to the consumer). Part of that settlement may entail some sort of concession for homeowners in default, but when the smoke clears, the banks will endure no undue hardship.
They are after all, too big to fail. Again.