‘Foong on Finance’ with Keat Foong: Foreclosure Fears

By Keat Foong, Executive Editor

There is now bubbling under the surface the possibility of another banking crisis, a home foreclosure-generated crisis.

Big banks that face possible legal action from mortgage bond investors for improper mortgage documentation have seen their shares drop last week. There are fears they will be forced to buy back the mortgage bonds from the investors.

The root of the problem: foreclosures have been improperly filed by the servicers, and/or servicers cannot produce the mortgage documents that they were required to keep. But there are calls for foreclosure moratoriums also because some homeowners are also being erroneously foreclosed on by the big powerful banks, or had huge fees wrongly imposed on them.

The Obama Administration does not support a national moratorium on foreclosures; we also have banks’ balance sheets to worry about if the properties cannot be unloaded.

Some say there is complete chaos generated by the housing foreclosure “mess” right now, as there is also the question of who owns the residential property if the mortgage notes cannot be produced. Says one blogger: “In most of CA, home sales have been way down lately…more and more I’m hearing people say: it’s a real mess with the banks; don’t buy now if you don’t have to…”

Another thing can be observed. The economic system is far from perfect, of course.