Why have most of the major banks stopped foreclosing on residential property? Let's discard a bunch of possibilities:
1. They are torn by conscience stricken concerns over possible errors ejecting innocent homeowners from their residences? There is utterly no factual support for this answer, and it's inconsistent with all the past talk of liar loans, ruthless defaulters and so on.
2. They were cowed into it by the aggressive law enforcement efforts of a posse of 50 state attorneys general. Nah, the posse formed up after the announcements of the suspensions. Classic reactive government, not proactive at all.
3. They were responding to public outrage in a crisis management mode. The problem with this theory is that so far the public is more perplexed than outraged. Neither Wall Street nor Main Street has quite figured out what to think. The same goes for the political class inside the Beltway and the Main Stream Media.
I have a theory, and it is only a theory. The only way that the mortgage servicers have of filing foreclosures in the volumes current circumstances dictate requires the filing of sworn affadavits that contain misstatements of facts and documents that have been fabricated ('recreated'). Since knowingly swearing to false testimony (which is what an affadivit is) and since fabricating documents to be filed in judicial proceedings are criminal activities, the servicers had to stop. To continue would be to knowingly continue in criminal activities. Stopping may not be sufficient, but it is certainly necessary.
This is completely independent of the issue of whether there 'should' as a policy matter be a moratorium on mortgage foreclosures. This is completely independent of any 'harmful impact of the housing recovery.' This has nothing to do with the state of the MBS market, or put backs. Very simply, if the robo-signing foreclosure mill activities may involve routine forgery and perjury, the legal risk to responsible corporate officers and the institutional risk to regulated financial institutions is too great to permit it to continue.
Foreclosures will resume on a routine basis when the servicers can develop a new routine.
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