Mass Foreclosures Cause Bottle Neck between Banks and U.S. Courts
In 2008, the proliferation of sub-prime lending and over-estimated property values led to a virtual collapse of the U.S. economic system. Foreclosure rates skyrocketed, especially in
Florida where the rate of foreclosure was above 14% - around 10 points higher than the national average.
The subprime mortgage crisis forced several powerful banks into bankruptcy, while others required the help of federal bailouts to stay afloat.
Today, the housing markets are struggling to find customers. People either lack trust in the lending markets and banks, or can't afford to move into new homes. For this reason
mortgage rates are at an all-time low and still dropping.
The government established the
Making Home Affordable Act to offer mortgage refinancing plans with the hopes of keeping people in their homes. However, these restructured loans are only available to people who meet certain requirements.
In all this mayhem the banks have lost billions of dollars. Unfortunately for struggling homeowners the trends make banks anxious and trigger-happy and they have become prone to foreclosing on homes quickly to get the house back out onto the market and into the hands of someone who can make the mortgage loan payments.
The mass amount of foreclosures has caused a log-jam in the system. The root of the problem is simple - bank irresponsibility. The solution, on the other hand, is not so clear. To handle the enormous volume of foreclosure paperwork banks have employed electronic systems or unqualified employees to approve hundreds of foreclosure documents without reviewing them. On the other side of the problem, paperwork must also be filed with U.S. courts by hand and they take foreclosures and repossession very seriously.
The lag time gave lawyers the opportunity to file grievances and suits on behalf of clients who were at risk of losing their homes. Once these lawyers discovered the banks' shady tactics they raised the alarm.
Real-estate law requires paperwork to be physically filed and transferred every time a mortgage changes hands. Due to the practice of bundling home loan mortgages into securities and selling them to investors it's hard to identify who exactly owns the mortgages to these homes that are being foreclosed on.
For the time being, big banks like J.P. Morgan and Bank of America are suspending foreclosure proceedings in specific states, leaving delinquent borrows and prospective home owners in limbo. Bank of America has placed a moratorium on foreclosure decisions in all fifty states, while J.P. Morgan has called for the same action in forty-one states.
The Office of the Comptroller of the Currency is reviewing the banks' foreclosure practices to decide if disciplinary action is warranted.
By: Javi Calderon
