Big banks, it seems, are getting into the real estate market through the tax door.  I do not consider this a good thing at all.

When a property owner is unable to pay property taxes the county will typically not take action for several years, other than pile up penalties and interest on the unpaid amount.  At the end of that time the property will be sold at auction to recover the lost taxes.  For the savvy investor this is a great way to pick up real estate for pennies on the dollar.  There is an element of risk which requires good research to mitigate, but for a diligent investor it can pay big dividends.

Looking at it from a purely libertarian point of view this is just another market, which it is.  There is something obscene, in my opinion, about these well funded entities coming in to feed off the carcass of the real estate market they have worked so effectively to destroy.

Old Republic National Title Insurance, among the nation’s largest title insurance companies, will no longer write new policies for homes foreclosed upon by J.P. Morgan Chase and Ally Financial’s GMAC Mortgage unit.  None of these entities are little guys, this is major.  Inevitably more title insurance companies will follow suit and refuse to offer title insurance for these kinds of properties from these lenders, and the list of lenders will get longer as the depth of the underlying problem becomes clearer.

This does not mean that nobody will issue title insurance to anybody.  So if you are buying a home from a private seller you’ll still be able to get title insurance, which you really do need.  But it seems likely that in the short term it will be difficult or impossible to buy title insurance on a foreclosed property.

I have written previously that for the housing market to recover all the toxic assets (foreclosed homes, and those which are facing foreclosure) which are poisoning the system must be run through the system and liquidated (s0ld).  One could wish for some kind of a Divine Heimlich Maneuver, but I don’t count on it.

But it will be impossible to sell a foreclosed property without title insurance, therefore the huge backlog of foreclosure properties is going to be locked up in limbo for the foreseeable future.  The consequences for the real estate market, and by extension, for the economy at large, are going to be devastating.  It is conceivable that this will tip the entire financial system into coallapse, as it nearly did two years ago.

Hang on to your hats, ladies and gentlemen, its going to be a wild ride.

Well there is no question whatever that the foreclosure situation is ugly. Its ugly for homeowners losing their homes. Its ugly for homeowners who are (so far) keeping theirs but are underwater. Its ugly for lending institutions which are taking major losses on money they had lent in good faith. Its ugly legislation that has been both enacted and proposed to deal with the situation. And, of course, there are people out there who have crazy ideas about how they can fix the situation by making it all a lot uglier.

One of those crazy ideas has passed both houses of Congress.

Designed as a consumer bill, the foreclosure measure could save banks and other mortgage processors from liability in how a foreclosure is processed. Specifically, the bill would broaden the acceptance of notarizations, even those generated by computers.

This only affects 23 states which have judicial foreclosure, California is not among them. What this would do is exempt lenders with sloppy foreclosure proceedings from liability for their sloppiness. This is basically an incentive to be sloppy, and would serve only to make them even more careless.

But wonder of wonders, the President vetoed the Bill. Thus lenders are still on the hook for their foreclosure acts. I realize that the banks are overwhelmed with foreclosure actions, but it was they who brought it on themselves with their insane lending standards. Yes, abetted by the Community Reinvestment Act gone Frankenstein, but it is their mess and they get not only to get to suffer the consequences of their stupidity, they get to clean up their mess as well.

But the banks haven’t cornered the market on stupid.  There is now a proposal in Congress (where else?) to do another moratorium on foreclosures.  Now, this may help certain individuals get re-elected, but it isn’t going to do the housing market any good.

The fact is that the housing market has swallowed a gigantic poison pill of bad mortgages, and is being killed thereby.  Over the course of the last two years we’ve seen all sorts of moratoria and legislative sleight of hand designed to numb the pain of that poison pill, but all it has done is extend the problem over a longer period of time, guaranteeing that the housing crisis will become the Energizer Frankenstein Bunny of our age.  Until such time as all those millions of toxic assets remain stuck in the system, the housing market, and by extension, the economy as a whole, will continue to suffer.

Get it over with, already.

In the previous post I wrote of why JP Morgan Chase was halting foreclosures; essentially their process was overwhelmed by the workload so they were getting really sloppy. Consequently foreclosure actions weren’t being handled properly, leading to errors, sometimes massive errors. Since then several major lenders, including BofA, GMAC and Wells Fargo have followed suit, in an effort to get the problem under control.  Then the Office of the Comptroller of the Currency has asked several more major lenders to review their foreclosure procedures.  Now, inevitably, Congress want in on the act.

It looked to me like the mortgage industry recognized that they had a problem and were taking steps to rectify it.  Now Congress, which has never covered itself in glory in the best of times, is feeling the need to validate their existence by huffing and puffing in the lime light.  Yes, indeed, the foreclosure train wreck is going to be centrally managed by The Four Hundred Thirty Five Stooges.  “Hey, all you voters out there, look at me!  Never mind that I’ve just spent the last two years demonstrating my complete indifference to your needs, utter contempt for you personally, my vaulting arrogance and total ineptitude, I, Congress, will now astound you with even more of the same!  (Remember this when you go to the polls next month, how I stood up for you.  Vote for me!)”

All things considered it promises to be a great, great show.  There will be comedy, tragedy, scandal and romance; in short, something for everyone.  If only it weren’t being funded by Taxpayers R Us.