There is a huge backlog of foreclosed homes that are clogging up real estate markets in the U.S. This situation in real estate is also slowing down any economic recovery in the U.S. in general. Unfortunately some economists think this situation will be around for several years before all those foreclosed homes clear the market.
Of course the story of how the housing bubble was created has been told many times in news outlets over the past couple of years. Like any bubble, this one started when greedy people began cutting corners on prudent loan practices. Anyone who could breathe into a mirror and create fog on the glass could qualify for a home loan. People would fabricate employment information, and little or nothing in the way of down payments was required. Consumers were desperate to get into the housing market. They saw prices skyrocketing and it looked like they would never be able to afford a home, especially in some hot markets, if they didn’t get in right away. Mix in such creative financing tricks like sub-prime loans and adjustable mortgages, and you have the recipe for a bubble bursting when an abnormal number of people defaulted on their payments.
With home prices having fallen by huge amounts in some areas, well below 50% in Las Vegas, for example, there are a lot of investors out there who would like to pick up a bargain on foreclosed homes. Unfortunately for them there are risks involved with buying up foreclosed properties at the present time. It seems that banks were playing it a little loose with the foreclosure rules, so in some cases an investor could be purchasing a foreclosed property only to find that the original owner still has ownership rights.
The recent revelation of “robosigners”, who signed off on hundreds of foreclosures in a single day without reading the associated paperwork, has highlighted the mismanagement of some banks. On top of this it now appears that a significant number of foreclosures could be stopped because banks have managed to lose the original loan paperwork. This can occur because Wall St. bankers buy up thousands of mortgages and bundle them together. They then issue bonds and sell them to institutional investors.
If a mortgage is being bought or sold five or six times with the intent of having it bundled, and with the paperwork flying across the country from one office to another, these legal ownership documents get lost. The Wall St. bankers have made tons of money on these securitization deals, but they don’t seem to care about keeping the ownership paperwork in a place where it can be located. They are probably too busy counting their millions in bonuses. These original documents are needed to prove who actually owns the property and who has the right to take it over if mortgage payments have not been made.
It appears that some homeowners may get to stay in their homes because the banks cannot produce the actual ownership documents. The extent of this problem is huge. As reported recently in a feature article in Time magazine, lost ownership documents have been reported for 400,000 homes in 2010, about 40% of the total foreclosures in the country.
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