The Obama Administration’s full-bore effort to push a bank-favoring mortgage “settlement” over the line earlier this year has led to a rearguard action that appears to have caught the mortgage industrial complex and its allies flatfooted.
As Nick Timiraos reports in the Wall Street Journal (hat tip Richard F), states are disgusted with the way that banks have ignored their long-established real estate laws. Many are passing new legislation to put more teeth into existing requirements to offer modifications to borrowers that could be salvaged and comply with foreclosure procedures. You can detect the consternation from his story:
States across the country are proposing a range of new rules that would make it more difficult for banks to foreclose on troubled homeowners.
The moves have been prompted by concerns that lenders have been inefficient in restructuring mortgages, which results in unnecessary foreclosures, while using shoddy paperwork to repossess homes.
Lenders are strongly resisting the measures, arguing that they will introduce new bottlenecks in the foreclosure process that could obstruct the incipient housing recovery.
Notice how the two sides are talking past each other? The beef of the states is that banks are failing to negotiate in good faith with borrowers, and thus breaking the law there and with their reliance on bogus documentation in foreclosures. The banks, amazingly, continue to insist that more foreclosures are good for the market. Since when is increasing supply (homes for sale out of foreclosure) likely to yield an increase in prices?
The reality is that banks make more foreclosing than they do on mods, even with bribes from taxpayers like HAMP 2.0. Doing a mod is tantamount to underwriting a new loan. The servicers would have to set up new infrastructure to do that, and they don’t want to make the investment. On top