Saturday, October 9, 2010

Stop foreclosures now!

Washington Post:
Senate Majority Leader Harry Reid (D-Nev.) called on major lenders to halt foreclosures in all 50 states Friday following Bank of America's announcement it was stopping proceedings until it finishes reviewing possible paperwork problems.

Here’s a great way to restart the housing market:  find legal loopholes to invalidate mortgages.

Let's say I’m a rational community banker. I want to make mortgages. I am willing to make mortgages at a low interest rate because, if the borrower defaults, I can take away his house.

But now I learn that (1) even if a delinquent borrower lied about everything on his application and is indeed a serial deadbeat, I must “modify” his mortgage in the interest of “fairness”; and (2) if I made the slightest paperwork mistake (such as a photocoped signature), I can’t foreclose on my collateral, even though the borrower is 24 months delinquent on his payments.

Should I start making mortgages? Yes, as unsecured personal loans. The the next time a school teacher applies for a mortgage, I will happily lend him as much as $20,000. That’s the “new normal”.

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