Foreclosure Mess: How Much Worse Can It Get?
First the loans went sour, now it's the documentation.
Oct. 5, 2010— -- Discovery of a sea of corrupt paperwork threatens to make the U.S. foreclosure epidemic--already bad--significantly worse, delaying resolution by months or years.
It's not as if foreclosures weren't a big enough mess already: In August, according to real estate data firm RealtyTrac, lenders foreclosed on 95,364 U.S. properties--the highest monthly total since May 2005, when the company first began its tracking. In 19 states the number of homes seized by lenders at least doubled: in seven states it more than tripled. The number of loans 60 days or more past due now stands at 5.2 million.
"I don't see how we come out of this," says Professor Christopher Mayer, vice dean of the Columbia Business School. Working through the problem could take two years or longer.
"It's a terrible human cost," says RealtyTrac vice president Rick Sharga, "terrible for the families and for their communities."
Foreclosures, he notes, not only depress prices of surrounding homes; they erode the municipal tax base, reducing the dollars available for local services. Safety suffers, too. "Having a vacant home in your neighborhood is a hazard," he says.
How much worse (or better) might things get? That depends, says Sharga, on variables such as job creation and the health of the overall economy. "This year there have been 1.2 million bank repossessions. If things go badly, that could turn out to be 1.4 [million] next year. Anything above that would have to be the result of some new problem."
Enter the corrupt document scandal.
In recent days major lenders--including JPMorgan Chase, Ally Financial's GMAC Mortgage unit and Bank of America--have conceded that paperwork supporting an unknown number of foreclosures contain errors ranging from wrong dates to forged or inconsistent signatures. In many cases mortgage company employees signed foreclosure documents without first verifying the information in them.
Whether sloppiness or deceit is the greater culprit remains to be determined. In response, the banks have suspended tens of thousands of pending foreclosures. Bank of America, for example, has suspended all its foreclosures in 23 states.