Why the Foreclosure Mess Settlement Proposal Can't Fix the Damage

Ever since this fall, when the mortgage industry's robo-signing scandal first broke, people have been aware that banks have been illegally foreclosing on homes.

Now there's a huge fight over what to do about that, mostly focused on a 27-page proposal that was supposed to represent the consensus of the 50 state attorneys general, but apparently doesn't. On top of that effort came a report of a "shock and awe" modification push from the federal government, but as Yves Smith at Naked Capitalism details, it's neither good policy nor practical.

One feature of both the attorneys general's proposal and the "shock and awe" maneuver is speed.

The attorneys general are in such a hurry to find a solution that they haven't even investigated the banks: They're just relying on consumer complaints to define the problem. Similarly, the shock-and-awe plan involves an impossible six month deadline. TERA Gold As Treasury Secretary Timothy Geitner explained to Congress: "All parties have a stake in bringing this to resolution as quickly as possible" and "It's very important that we try to bring this to bed as quickly as we can."

At least part of this desire for a fast fix is rooted in the belief that an agreement will help the housing market recover, which in turn will help straighten out the overall economy. That's true to some extent: If millions of mortgages were successfully modified and unnecessary and servicer-driven foreclosures were halted, RIFT Platinum as the settlement proposes, that would be good for the economy and the real estate market.

The Enormous Clouded Title Problem

But the settlement doesn't go nearly far enough to save the housing market. In fact, it can't go far enough, rift gold because it can't address one of the most confounding problems the banks have created: the millions of properties nationwide that now have "clouded" titles.

To put it plainly: Because of these bad titles, property owners can't prove they own the properties they think they bought, and banks can't prove the had the right to sell them.

Even though it's impossible to know how many properties are affected, RIFT Platinum I have confidence in saying millions nationally for the following reasons:


More than 1 million foreclosures have been completed since 2005; nearly 200,000 were completed in the third quarter of 2010 alone.
Foreclosures involving securitized mortgages seem to be flawed as a rule, not the exception.
Even when foreclosures may have been otherwise valid, the practices of foreclosure attorneys have clouded titles.
The problems are ongoing. More flawed foreclosures are completed every day.
The clouded title problem extends well beyond foreclosures. Both MERS, the electronic database that holds more than half the mortgages nationally, Rift Gold and possible securitization failures could have damaged the titles of the properties even though the borrowers are current on their mortgages.