When the banks foreclose, people get angry. Apparently, when they slow down or stop foreclosing, that angers the people as well.
Following last week’s announcement that many of the major banks are suspending foreclosure sales while they review their processes, confusion and anger seem to be building amongst the populist. Bank of America (NYSE: BAC), the country’s largest mortgagor thanks to their acquisition of the former Countrywide brand, has decided to suspend foreclosure sales across the country. JPMorgan Chase & Co. (NYSE: JPM) has announced similar action, as has Ally Financial.
Although stalling foreclosure may initially sound like a good sign, economists have warned that the delays are actually very bad for the housing market. Any uncertainty in the market tends to scare buyers away from foreclosed homes, and that excess supply continues to flood the market. If these houses cannot be cleared from the market than the market simply cannot return to normal.
To date, nothing has been found to indicate the banks are doing anything deceitful, and nothing they are doing has been out of the ordinary. Borrowers applied for loans, asked for a loan, and were granted it. They then decided to stop pay for whatever reason after they legally signed a contract promising to pay, and since it is a collateralized loan the bank then takes back the asset and sells it at auction. None of this should be controversial. But, the vitriol the public has for banks right now has put the entire blamer on the lender side, leading to elected representatives asking for moratoriums on foreclosures and further confounding the market.
Though the process is unpopular, the solution is simple – the foreclosed homes must be cleared from the market to regain any semblance of normalcy. With this flooded supply prices will be continuously pushed down, further aggravating home owners.
