For those of us who remember well Tanta of Calculated Risk, the current mess with GMAC and JPMorgan comes as no surprise. If you haven’t seen the story, here are some “highlights” from the Washington Post [not Times — correction from commenter]:
J.P. Morgan Chase, one of the nation’s leading banks, announced Wednesday that it will freeze foreclosures in about half the country because of flawed paperwork, a move that Wall Street analysts said will pressure the rest of the industry to follow suit.
The bank’s decision will affect 56,000 borrowers in 23 states where allegations of forged documents and signatures and other similar problems are being used to try to overturn court-ordered evictions. Yet the impact may be much broader, given J.P. Morgan’s stature in the industry. If other banks adopt the same approach, the foreclosure process in many parts of the country will grind to a halt.
. . .
The paperwork problems at J.P. Morgan mirror those uncovered last week at another large mortgage lender, Ally Financial. But J.P. Morgan’s decision is expected to have a much greater effect on the industry because it is held in high regard by its peers. By contrast, Ally, formerly known as GMAC, is still under the cloud of a $17 billion federal bailout package that it has been unable to pay back.
Both firms are investigating whether foreclosure files were improperly assembled, and whether their employees failed to review the documents even as they signed off on them. A growing number of homeowners – even those who missed their mortgage payments – are now scrambling to challenge the proceedings, weighing down an already overburdened court system.
So here’s my message to my fellow bloggers: sensationalist stories about LEGAL HANKY PANKY are fun to write and get you a lot of attention. No doubt you have frightened (or pleased) a whole bunch of people with the idea that foreclosures will all grind to a halt nationwide because one fouled-up filing by one Master Servicer of one security in one state means that “They Own Nothing!” Of course they own plenty, and they’ll end up establishing it. It might cost them an additional $20,000 or so, but that’s the punishment meted out to cost-cutters.
The difficult story to write is the one about how this happens, and what it really means, and who are the hidden victims (all those laid-off employees or non-working consultants whose bad news isn’t welcome, plus some shareholders) and hidden villains (like everyone who applauded every time some big bank announced more operational cutting and expertise-dumping).
This is going to be a big mess. A lot of homes are going to be “saved”, but I have to wonder how many of these deserve saving. I suspect for every case like one described by ZeroHedge where homes were foreclosed without borrowers being aware of it, there are a dozen cases where the borrower would have defaulted on a mortgage they can’t afford, but somebody somewhere messed up the paperwork.
The courts are going to be clogged, foreclosures will be slowed, and one more thing will slow the recovery of the housing market. I’m not advocating ignoring the cavalier behavior of banks who would foreclose on homes they aren’t positive they own, but I agree with Tanta- this isn’t a problem worth celebrating.