http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/02/16/EDKF1N8M4N.DTL
By: Earl Blumenauer
Date: 2012-02-17
It's a curious and unfair system that homeowners face, with those in debt expected to meet the original terms of their mortgage loan even as we're seeing a cavalcade of misdeeds, shortcuts and in some cases outright fraud by their lenders. Nowhere is this pattern clearer than in Thursday's report from San Francisco auditors that 84 percent of foreclosures examined contained at least one violation of the law by the foreclosing party.
The report is only the latest in a series of incidents involving bad actors in the foreclosure crisis. Last year, I called for a moratorium on home foreclosures after Bank of America, JP Morgan Chase and Wells Fargo signed affidavits initiating foreclosure against borrowers without verifying the information they contained. In fact, problems have been so rampant that banks now require many buyers of foreclosed homes to sign contracts absolving the bank of liability should irregularities appear with the original foreclosure.
In light of these negligent practices, the $26 billion settlement last week between the U.S. Department of Justice, state attorneys general and the major banks raises as many questions as answers. For instance: If a house is illegally foreclosed upon and subsequently sold by the bank, who owns the home? The new buyer or the original owner? Untangling this mess might require new consumer protections, not just a payout from the banks accused of wrongdoing.
The best way to prevent foreclosure problems, however, has always been to prevent foreclosures in the first place. Offering families facing foreclosure the same bankruptcy protections enjoyed by business speculators is one place to start.
As it stands today, a single family that buys a home in a housing development is treated differently in bankruptcy court than a businessman who bought 10 units in the same project. If and when the housing bubble bursts, the underwater speculator is able to seek bankruptcy relief on all 10 units, while the owner of the single home is left out in the cold. There is no good reason that homeowners should face this discrimination in bankruptcy or be treated differently than commercial interests. If it's good enough for business, it should be good enough for homeowners.
That's why today I introduced the Bankruptcy Equity Act to provide judges with the power to align a homeowner's mortgage to its current value and put ordinary homeowners on the same playing field as speculators and businesses. This simple step will slow the flood of foreclosures and help stabilize home values in free fall by bringing more certainty in value via renegotiation or the bankruptcy process.
It will also help prevent another housing bubble. Knowing that homeowners will be treated the same as businesses during bankruptcy, lenders will think twice about aggregating vast numbers of dicey mortgages, taking their profit and then passing the financial product on to the next investor.
It's time we fixed one of the many double standards in which our system treats big businesses better than average American families, even when those businesses might be behaving badly. The Bankruptcy Equity Act is a start.
The article is reproduced in accordance with Section 107 of title 17 of the Copyright Law of the United States relating to fair-use and is for the purposes of criticism, comment, news reporting, teaching, scholarship, and research.
By: Earl Blumenauer
Date: 2012-02-17
It's a curious and unfair system that homeowners face, with those in debt expected to meet the original terms of their mortgage loan even as we're seeing a cavalcade of misdeeds, shortcuts and in some cases outright fraud by their lenders. Nowhere is this pattern clearer than in Thursday's report from San Francisco auditors that 84 percent of foreclosures examined contained at least one violation of the law by the foreclosing party.
The report is only the latest in a series of incidents involving bad actors in the foreclosure crisis. Last year, I called for a moratorium on home foreclosures after Bank of America, JP Morgan Chase and Wells Fargo signed affidavits initiating foreclosure against borrowers without verifying the information they contained. In fact, problems have been so rampant that banks now require many buyers of foreclosed homes to sign contracts absolving the bank of liability should irregularities appear with the original foreclosure.
In light of these negligent practices, the $26 billion settlement last week between the U.S. Department of Justice, state attorneys general and the major banks raises as many questions as answers. For instance: If a house is illegally foreclosed upon and subsequently sold by the bank, who owns the home? The new buyer or the original owner? Untangling this mess might require new consumer protections, not just a payout from the banks accused of wrongdoing.
The best way to prevent foreclosure problems, however, has always been to prevent foreclosures in the first place. Offering families facing foreclosure the same bankruptcy protections enjoyed by business speculators is one place to start.
As it stands today, a single family that buys a home in a housing development is treated differently in bankruptcy court than a businessman who bought 10 units in the same project. If and when the housing bubble bursts, the underwater speculator is able to seek bankruptcy relief on all 10 units, while the owner of the single home is left out in the cold. There is no good reason that homeowners should face this discrimination in bankruptcy or be treated differently than commercial interests. If it's good enough for business, it should be good enough for homeowners.
That's why today I introduced the Bankruptcy Equity Act to provide judges with the power to align a homeowner's mortgage to its current value and put ordinary homeowners on the same playing field as speculators and businesses. This simple step will slow the flood of foreclosures and help stabilize home values in free fall by bringing more certainty in value via renegotiation or the bankruptcy process.
It will also help prevent another housing bubble. Knowing that homeowners will be treated the same as businesses during bankruptcy, lenders will think twice about aggregating vast numbers of dicey mortgages, taking their profit and then passing the financial product on to the next investor.
It's time we fixed one of the many double standards in which our system treats big businesses better than average American families, even when those businesses might be behaving badly. The Bankruptcy Equity Act is a start.
Earl Blumenauer, a Democrat, represents Portland, Ore., in the U.S. House of Representatives.
The article is reproduced in accordance with Section 107 of title 17 of the Copyright Law of the United States relating to fair-use and is for the purposes of criticism, comment, news reporting, teaching, scholarship, and research.
That's a great start, but more needs to be done, especially with regard to truth in lending.
ReplyDeleteThe article says that there's legal trouble with 84% of the homes that are foreclosed upon. I'm not surprised.
Until the past ten years, the legitimacy of every deed had to be traceable all the way back to the original deed holders. In the case of South Carolina, for example, that means all the way back to the eight lords proprietors during the 17th century. With all the deed and credit swaps that have taken place since 1999, NOBODY KNOWS WHO OWNS MANY OF THE PROPERTIES IN THE UNITED STATES. Thus, foreclosure on those properties is illegal; but it's done anyway.
To make matters worse, with each swap, the homeowner often has to pay a fee, and he may not be aware of it; thus, even if he makes every payment on time, he may still lose his home.
It's robbery, plain and simple.