Messy paperwork marks rise, fall of mortgage mess
There's more than a little symmetry to the mortgage disaster. The steep upward slope of housing prices up to 2007 is now matched by a mirror, downhill line. And the irregular paperwork that characterized the issuance of subprime mortgages seems to be matched by new problems as homes are foreclosed upon.
Few want to admit it, but the housing bubble was inflated to a substantial degree by mortgage-applicant fraud. People lied about their incomes to get loans they couldn't afford. True, they often seem to have done this with the knowledge and perhaps encouragement of the mortgage originators. But I haven't heard of any home buyers who took out "liar loans" who have been prosecuted. The accepted idea seems to be that they were "victims" who shouldn't be held responsible for their misbehavior. There is also the issue of criminal-justice resources: Prosecuting all those people would overwhelm the system.
Just as selling all those houses took some corner-cutting, now repossessing them seems to be associated with irregularities, too. Bank of America has halted all foreclosures because of paperwork problems. The phenomenon of "robo-signing," in which people sign foreclosure documents without verifying their contents, seems to be widespread. The Washington Post reports that today attorneys general from several states including Maryland will announce an investigation into foreclosures.
Hard to tell what the effect of a foreclosure holdup will be on the national economy. The process was already taking years. A home in my neighborhood has been vacant since 2008 -- waiting, I assume, for the bank to repossess or for the bank's overwhelmed staff to put it on the market. Perhaps foreclosure problems will make banks like Bank of America more willing to grant relief to home owners -- cut their principal and set up a payment plan instead of kicking them out of the house.