Lending

Is There a (Juris) Doctor in the House?

There's a 60% default rate associated with modified mortgages.

November 15, 2010
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Potential for gridlock

Credit unions have largely escaped bad press. But the potential is there.

At a recent National Credit Union Roundtable for Directors meeting in Boston, the National Credit Union Administration’s Tim Segerson reported that real estate loans represent almost 55% of the credit union portfolio. Though only 3% of credit union first mortgages were delinquent two months or more, one-third of homes today have negative equity.

Real estate modifications have gone from $2 billion to more than $6 billion, and now represent 2.4% of total real estate loans. While that’s not a huge number, there’s a 60% default rate associated with modified mortgage loans, Segerson said.

Today’s foreclosure controversy stretches beyond GMAC Mortgage, JPMorgan Chase, and Bank of America. There are dramatic tales almost everywhere, including the mortgage processor whose employee reportedly executed 400 affidavits a day for the lender without reading or verifying that the information was correct. Attorneys general in at least 17 states are investigating improper foreclosure practices.

In oversimplified terms, millions of mortgages have been shipped around the global financial system—sold and resold—without the documents that traditionally prove who legally owns the loans and the properties.

When and if these loans become troubled and lenders seek to seize them, judges are beginning to question who really owns the title.

For struggling homeowners trying to avoid foreclosure there might be standing to say some lenders have been less than forthright in their dealings. But will it stop the foreclosure process or just delay it? What’s the borrower’s recourse?

For some lenders—most notably banks—there’s a question of whether past and present foreclosures are valid. For the fragile housing market there’s potential for years of gridlock and continued uncertainty in an already wobbly market.

Next: A second TARP?

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