Wednesday, October 13, 2010
The Real Problem with Foreclosures
Despite all the harang over foreclosures, the efforts to stop them and the efforts of the various banks and government authorities to determine whether the foreclosures are fair and just, the real problem is being hidden from the public because it hides something much more critical than the foreclosure process. At the bottom of the process is the simple fact that it is difficult to determine who the real owners of a property are. For example, when the Bank of America forecloses on a homeowner it doesn't really know who owns that house because the original mortgage has been bundled into a CMO (Collateralized Mortgage Obligations) or other financial instrument. Chances are a bank sold that mortgage (and others) to a broker who combined it with a thousand other mortgages and sold it to an investor as a package that included a variety of properties as part of its contents. The millions of foreclosures now in the pipeline have a negative effect on that investment bundle, as well as the banks and the housing market. So the result is a triple-whammy that is likely to reverberate and result in yet another downturn in the housing market, a further deterioration of bank stocks and yet another false bottom bolstered by a terrified President and the incompetent management of Fannie Mae, Freddie Mac and HUD. Most experts will tell you that the problem with the housing market is the inability to find the bottom. As long as it is propped up by scared banks and terrified politicians the market will not settle. Until it does the average homeowner and homebuyer has no idea what the true value of any home is. The market is likely to remain unstable until we know. The mortgage and housing market must be allowed to find the bottom so we can get on the path to economic recovery.