Bank of America made headlines with their announcement that they would temporarily pause all foreclosure proceedings to investigate procedures and allegations of false affidavits. Shortly thereafter banks like Chase and GMAC also issued a memorandum against evictions. The current review is only expected to take a few weeks. At that point financial institutions are hoping that foreclosures can resume, however, the possibility of mass foreclosure fraud has worried taxpayers across the country. Currently, 10% of Americans are delinquent on their home loans, and with an election just around the corner many members of Congress have spoken out about the possibility of a nationwide foreclosure freeze. Although the Obama administration does not support the moratorium on a Federal level, the Senate Banking Committee has scheduled a hearing on November 16th to address the issue.
For all of my readers confused about the foreclosure fraud investigations and nationwide freeze, I have put together the following list of pros and cons. If you can think of any that I might have missed, drop me a line on either Twitter or Facebook.
Pro: Help to Struggling Homeowners
The number of American families that has suffered a foreclosure has been on the rise since 2007, and it has been expected that nearly five million homeowners could face foreclosure in the next two years. With a freeze in place, thousands of families will be able to stay in their homes. However, the current moratorium is only temporary and banks are still tracking delinquency so that they can resume foreclosure proceedings once the investigation has concluded.
Con: Nightmare for Banks
Although the investigation into foreclosure practices might be good for families struggling to pay their bills, it could become a nightmare for banks, and many other Americans. The credit market has been tight for years, which has made it difficult for small business owners to hire additional workers. Economists suggest that financial institutions stand to lose $2 billion every month that foreclosures are not moving forward. If revenue continues to decline, many worry that it will continue to prevent any improvement to the unemployment problem. Additionally, if banks are found guilty of foreclosure fraud it could lead to hundreds of lawsuits.
Pro: Fraud Investigations
The reason banks have been stalling foreclosures is to look into allegations of foreclosure fraud. When Bank of America began their freeze, officials claimed it was to look into cases to ensure no fraudulent documents were used to confiscate homes. After the investigations conclude, safer foreclosure programs are expected to be enacted which will help protect American homeowners. Additionally, some taxpayers could receive compensation if it is deemed that banks used fraudulent documents.
Con: Economic Recovery Prevention
Many politicians have warned a federally mandated nationwide foreclosure freeze would be bad for the economy. During a speech in New York, Senate Banking Committee Chairman Christopher Dodd said “a broad, sweeping moratorium is probably unwise. There are many institutions that are actually engaging the foreclosure process intelligently and well and doing a good job. To stop that across the board from happening would be very harmful for the economy.”
Pro: Stop to Robo Signing
Unfortunately, as financial institutions foreclosed on record numbers of homes over the past few years, the practice of using robo-signers emerged. Experts are accusing these so called robo-signers of approving hundreds of foreclosures every day, without taking the time to review them for legality. If investigations prove that this practice led to unjust foreclosures, then the government may step in to prevent robo-signers.
Con: Housing Market Instability