Lawyers, politicians ‘perfect storm’ for foreclosure crisis, subsequent double-dip

exposure at default

bank owned foreclosure

“Home buyers looking to buy out of foreclosures will step back from the market. Mortgagors considering strategic default will see less risk in doing so, thus leading to more defaults. Throw in the lawyers and the politicians and it’s a perfect storm of uncertainty, gridlock and wealth destruction. Just what we don’t need right now. ” — Jim Rickards

Senate Majority Leader Harry supports Bank of America’s decision to put a pause at foreclosures across the nation, as per the release.”I thank Bank of America for doing the right thing,” he announced, calling on various lenders to pursue the bank’s lead and expand their foreclosure moratoriums.

Bank of America would put a pause at foreclosures in all 50 U.S. states, CNBC along with the Wall Street Journal reports.

Previous week the bank, the country’s biggest in assets, declared it was uncertain foreclosures in the 23 states where foreclosures are carried out in court, saying it required to assess foreclosure documents for possible errors. Currently, the bank has extended that suspension to all 50 states as it has resolute to pause for sales of foreclosed assets, blocking a major step in the foreclosure procedure.

The conclusion turns out to be as foreclosure crisis that threatens the nation’s housing market along through larger economy.

Let’s read between the lines

The foreclosure in 95% of the cases are legitimate and inevitable. The technical legal problem here is the person signing off was rubber stamping the work done by his/her subordinate. Each case had to be reviewed by the signer. This obviously is an industry wide practice and understandable given the caseload. The banks lose out while the homeowners will be getting more free-rent time in the house. This will only prolong the duration of the housing slump in the US which is actually how the banks will be hurt the most.

Has The Foreclosure Crisis Already Triggered A Double Dip?

LL: This foreclosure fight is a very sticky situation. Not all banks are bad. Will this create more investor uncertainity?

CW: Yes. The uncertainty regarding forward earnings, revenues and particularly expenses is growing. The combinations of still record default rates and rising servicing costs related to foreclosures is making banks hyper cautious about credit. The muddle along policy of Obama and Geithner equals no net credit growth.

exposure at default

We need to understand that government intervention in the mortgage market, not the banks, caused this mess. Goes back to WWII and the New Deal. So really if you want to blame anyone, start with FDR and the Democratic Congress of the 1930s and work forward.

The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than one-fourth of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action.

JR: This will definitely create uncertainty to go along with all of the uncertainty we have already about taxes, financial rule making, cap-and-trade, currency policy and the rest. That’s important because while monetary policy may have caused the Great Depression, regime uncertainty is what kept it going so long and we’re in that mode again.

Home buyers looking to buy out of foreclosures will step back from the market. Mortgagors considering strategic default will see less risk in doing so, thus leading to more defaults. Potential buyers of servicing rights will back off. Ditto for bulk purchasers of non-performing residential portfolios. Forecasting bank earnings and therefore stock prices and the market as a whole just got much more difficult. Throw in the lawyers and the politicians and it’s a perfect storm of uncertainty, gridlock and wealth destruction. Just what we don’t need right now. Read more about this discussion at CNBC News.

Not much is better in Canada

The proof is that since the US and Canadian “stimulus plan” of billions ended, both economies have started to slide again. The ‘recovery’ was just a distortion of the extra spending. Canadian personal debt, the highest in the world, beating the US, is caused in part by low pay, high taxes and freakishly over inflated real estate.

For those who foresee a bleak housing crunch on the horizon, much opportunity will be had once obscenely high housing prices crash, but unfortunately those that bought at the market heights will be bankrupt. Unlike the US, the laws in Canada don’t allow you to just walk away.

Ultimately high housing cost has damaged Canada – the US was far cheaper at the height of their boom, and they have less land and less resources to build with. However they get paid more and taxed less, so housing was a much smaller chunk of their expenses, far far higher here. Now that housing dropped in the US it’s even cheaper down there.

All these banks swore they were so well behaved but they let Canadians become the most heavily indebted of any individuals on the planet. That has to be a recipe for disaster when interest rates climb. Not sue how Canada’s minister of Finance (Jim Flaherty) can say Canada has the greatest banking system when they let that happen.

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