Economy Watch: Massachusetts High Court Rules against Banks in Foreclosure Case
A Massachusetts high court affirms the stance by lower courts that banks must have their mortgage paperwork in order before making foreclosures, and Fed Chairman Bernanke defends the Fed strategy regarding QE2.
By Dees Stribling, Contributing Editor
The Supreme Judicial Court, the highest court in Massachusetts, ruled unanimously on Friday against U.S. Bancorp and Wells Fargo & Co. in a closely watched foreclosure case, U.S. Bank National Association, trustee, v. Antonio Ibanez (and a consolidated case). At the heart of the matter was whether the banks in fact owned the mortgages, and thus had the right to foreclose on them.
The court, affirming lower court rulings, said the banks couldn’t prove they had been assigned the mortgages, which had been pooled as part of a securitization, so the foreclosures weren’t valid. Essentially, the banks had asserted that while evidence that the mortgages being assigned to them might be missing, the mortgages were theirs anyway. Why? Just because.
“We agree with the judge that the plaintiffs [the banks], who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote for the court. In other words, get your paperwork in order if you want to foreclose. Though the ruling applies only in Massachusetts, plenty of other attorneys representing homeowners in other parts of the country probably plan to use its reasoning to further their cases.
Bernanke optimistic, but not going to change Fed strategy
On Friday, Federal Reserve Chairman Ben Bernanke said before the Senate Budget Committee that the U.S. economy was getting better, but not so much better that QE2 was going to stop. He did assure members of the committee, however, that “at the appropriate time, the Federal Reserve will normalize its balance sheet by selling these assets [QE2 and other earlier trillion-plus Fed asset purchases] back into the market or by allowing them to mature.”
Will the Fed help out the states, or even local governments, many of which are in such dire straits? No. “We have no expectation or intention to get involved in state and local finance,” the chairman said.
Bernanke also offered a warning about long-term federal debt: “It is widely understood that the federal government is on an unsustainable fiscal path,” he noted. “Yet, as a nation, we have done little to address this critical threat to our economy. Doing nothing will not be an option indefinitely; the longer we wait to act, the greater the risks and the more wrenching the inevitable changes to the budget will be.”
Consumer credit inches upward
Separately, the Federal Reserve said on Friday that consumer credit ticked upward in November by $1.35 billion, or an annualized increase of 0.7 percent. Since the total was up in October as well, this is the first time in over two years that consumer credit has increased more than one month at a time.
All of the gains were in nonrevolving credit, which was up at an annualized rate of 4.2 percent in November, according to the Fed–loans for cars, especially. Revolving credit contracted at an annualized rate of 6.3 percent in November.
Wall Street dropped into negative territory early in the day on Friday and stayed there, perhaps in an employment-related funk. The Dow Jones Industrial Average lost 22.55 points, or 0.19 percent, while the S&P 500 was down 0.18 percent and the Nasdaq declined 0.25 percent.