Wednesday, October 6, 2010

Turn On The Lights, Watch The Roaches Scatter, Part 9

Texas has become the latest state to call for a freeze on all foreclosure proceedings, and the odds of a national moratorium happening is growing quickly as the fallout of Foreclosuregate continues.

Last week, JPMorgan Chase and Bank of America joined GMAC in suspending foreclosures in the states where they must be approved by a judge. The judicial states do not include California or Texas. But Mr. Abbott, the Texas attorney general, told lenders in letters dated Oct. 4 that if they used so-called robo-signers — employees who signed thousands of foreclosure affidavits a month, falsely attesting that they had reviewed the material — it would be a violation of Texas law.

As a result, he wrote, “the document and therefore the foreclosure sale would have been invalid.”
The three lenders who are at the center of the controversy, GMAC Mortgage, JPMorgan Chase and Bank of America, declined to comment. Other lenders singled out by Mr. Abbott include Wells Fargo, CitiMortgage, HSBC and National City.

Meanwhile, shares of a major foreclosure outsourcing company, Lender Processing Services of Jacksonville, Fla., fell 5 percent on Tuesday, adding to a slide that began last week.

The company’s documentation practices are stirring questions, including how the same employee can have wildly varying signatures on mortgage documents. L.P.S. blamed a midlevel manager’s decision to allow employees to sign forms in the name of an authorized employee. It says it has stopped the practice. 

State AG's realize what they have on their hands here: thousands of potential lawsuits and no way of knowing who owns thousands of properties so that the state can assess property taxes.  Several other states including Iowa, Ohio, Massachusetts, North Carolina and Maryland are opening criminal investigations into this disaster.  A national freeze on foreclosures is all but inevitable.

Things are going to get ugly, fast.  The best part:  even if the real estate sale doesn't involve a foreclosure, real estate agents and mortgage servicers may not pull the trigger on any real estate sales until further notice.  It would be a total obliteration of the housing market, and it would take our economy with it.  Lawsuits as bank creditors argue over whose fault this is will get brutal, banks will lose billions, and another TARP bailout will be in order.

This one is playing out in real-time, folks.

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