Two Reasons Why Home Foreclosures are Stalling
The home foreclosure process is grinding to a virtual standstill at a lot of banks. I gave some reasons why I thought foreclosures were going slowly in two posts recently. One reason I mentioned - before anyone else was talking about it - was the simple fact that bank's really aren't staffed up to process the number of foreclosures they're facing. It's just a lot of paperwork for their foreclosure departments to handle.
But my basic point was that banks were keeping houses out of foreclosure. The foreclosure process was kind of grinding on below the surface, sort of quietly. No one was in any rush because the banks aren't looking to show defaulted loans on their books, in addition to the fact that they're not staffed adequately to process the foreclosures quickly.
But now some major banks like JP Morgan and Bank of America have announced that they are slowing, and might eve stop, their foreclosure processing. It seems that too many mistakes are being made.So these banks need to get to the bottom of this before they keep processing mortgages incorrectly.
Now let's concede that one reason for all this is probably just the fact that the foreclosure departments are overwhelmed. It's probably a combination of the volume of paperwork along with what I suspect is an incredibly long list of reviews and signatures that are required under whatever existing regulations govern the foreclosure process. What I'm saying is that maybe some of this is just the people in charge screwing things up and the banks saying they've got to fix things before they screw things up even more.
So the first reason may simply be that too many mistakes were made and the banks want to correct them. We'll call that the "innocent" reason.
But I think there could easily be a second - and not so innocent - reason these foreclosures are being put on hold. Banks may be slowing things down so they don't have to recognize losses on their book too fast. The more losses they recognize, the worse their balance sheets will look.
Of course, I think lots of us know that the banks' balance sheets don't look good - in fact their balance sheets may very well show that they are, in fact, bankrupt businesses. Then again, we don't really know because 1) the rules of accounting have been changed so that the banks don't have to recognize a lot of the losses they've experienced from defaulting mortgages 2) regulators don't publish the results of real audits of banks' books like you'll find with other businesses. So we're just making an educated guess.
But if the foreclosures go through, and the properties are ultimately sold off at a loss, then there will be no more hiding. The bank will have to recognize the loss. Accounting rule changes won't help them anymore.
So when you look at what what's really going on - at least what seems to make sense to me - it's easy to see why these banks may be stopping the foreclosure process right now. In fact, I was wondering what they were going to come up with to slow things down even more than they were going before. And now it looks like the banks found something.
And who's going to question them? I have no idea what the regulations are that govern the foreclosure process. And outside of what we're told - that someone signed a form without really knowing what they were signing - I don't really know whether this signing thing is really a legitimate reason to stop the process. In fact, one of the parties with signing responsibility already said that the job of reviewing the document was someone else's job. His signature was just saying that the appropriate people had signed off - the ones who were responsible for actually reading through the document.
Now, if all this is starting to sound like someone's not being completely honest with us about what's really going on, well, that sounds about right to me. And I suspect that if this issue is pushed by the press or the regulators overseeing the banks involved (imagine the regulators actually doing a thorough job?), we'll start hearing other reasons why the process had to be stopped. We'll have to see.
Meanwhile the home foreclosure process slows down even as more and more Americans default on their mortgages.
LATE BREAKING NEWS: Bank of America announced on Friday that they were halting their processing of foreclosures!
But my basic point was that banks were keeping houses out of foreclosure. The foreclosure process was kind of grinding on below the surface, sort of quietly. No one was in any rush because the banks aren't looking to show defaulted loans on their books, in addition to the fact that they're not staffed adequately to process the foreclosures quickly.
But now some major banks like JP Morgan and Bank of America have announced that they are slowing, and might eve stop, their foreclosure processing. It seems that too many mistakes are being made.So these banks need to get to the bottom of this before they keep processing mortgages incorrectly.
Now let's concede that one reason for all this is probably just the fact that the foreclosure departments are overwhelmed. It's probably a combination of the volume of paperwork along with what I suspect is an incredibly long list of reviews and signatures that are required under whatever existing regulations govern the foreclosure process. What I'm saying is that maybe some of this is just the people in charge screwing things up and the banks saying they've got to fix things before they screw things up even more.
So the first reason may simply be that too many mistakes were made and the banks want to correct them. We'll call that the "innocent" reason.
But I think there could easily be a second - and not so innocent - reason these foreclosures are being put on hold. Banks may be slowing things down so they don't have to recognize losses on their book too fast. The more losses they recognize, the worse their balance sheets will look.
Of course, I think lots of us know that the banks' balance sheets don't look good - in fact their balance sheets may very well show that they are, in fact, bankrupt businesses. Then again, we don't really know because 1) the rules of accounting have been changed so that the banks don't have to recognize a lot of the losses they've experienced from defaulting mortgages 2) regulators don't publish the results of real audits of banks' books like you'll find with other businesses. So we're just making an educated guess.
But if the foreclosures go through, and the properties are ultimately sold off at a loss, then there will be no more hiding. The bank will have to recognize the loss. Accounting rule changes won't help them anymore.
So when you look at what what's really going on - at least what seems to make sense to me - it's easy to see why these banks may be stopping the foreclosure process right now. In fact, I was wondering what they were going to come up with to slow things down even more than they were going before. And now it looks like the banks found something.
And who's going to question them? I have no idea what the regulations are that govern the foreclosure process. And outside of what we're told - that someone signed a form without really knowing what they were signing - I don't really know whether this signing thing is really a legitimate reason to stop the process. In fact, one of the parties with signing responsibility already said that the job of reviewing the document was someone else's job. His signature was just saying that the appropriate people had signed off - the ones who were responsible for actually reading through the document.
Now, if all this is starting to sound like someone's not being completely honest with us about what's really going on, well, that sounds about right to me. And I suspect that if this issue is pushed by the press or the regulators overseeing the banks involved (imagine the regulators actually doing a thorough job?), we'll start hearing other reasons why the process had to be stopped. We'll have to see.
Meanwhile the home foreclosure process slows down even as more and more Americans default on their mortgages.
LATE BREAKING NEWS: Bank of America announced on Friday that they were halting their processing of foreclosures!
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