No Closure on Foreclosures for Taxpayers

If you thought the housing mess was damping economic recovery, be warned that foreclosures will soon crater the real estate market. That may sound too alarmist for your tastes, but the facts suggest the coming tide of foreclosures will fuel another economic crisis likely to overshadow anything the country has witnessed.

Worst of all, the billions of taxpayer dollars spent by the Obama Administration to address the foreclosure problem have made only a tiny dent in the problem. By the Treasury Department's own admission, the Home Affordable Modification Program (HAMP) has not worked as foreclosures have steadily mounted, despite the massive bailout. The price tag for this failed government experiment is $50 billion.

Even that figure does not include the $148 billion the Treasury has invested in the government's version of Dumb and Dumber: Fannie Mae and Freddie Mac. Taxpayers have footed the bill for the mismanagement of these government-owned mortgage giants for more than two years. Although their losses have narrowed, taxpayers may have to come up with as much as $259 billion to stave off bankruptcy, according to the Federal Housing Finance Agency.

But the news only gets worse. Fannie Dumb and Freddie Dumber now own more than 240,000 foreclosed homes, as of September 30. That's more than twice as many foreclosed homes as they owned a year ago. In addition to the bailout money that's propping up the two lenders, the terrible twins have doled out more than $2 billion of your hard earned dollars to maintain more than $24 billion in foreclosed properties they own. The longer they own the properties, the higher the final bill for cleaning, maintenance, insurance, taxes and legal fees.

Those properties are likely to take many months if not years to sell. Freddie Dumber admitted recently that the sales of these foreclosed home could be prolonged by something no one in government or the media want to talk about.

The attorneys general of all 50 states have ganged up to challenge foreclosure filings by some of the country's biggest lenders, including government-owned GMAC Mortgage, Wells Fargo, J.P Morgan and a host of others. The states claim there have been defects in the documents submitted by the lenders to force foreclosure. While that issue is being litigated, the foreclosure legal machine has ground to a halt.

What that means is a glut of foreclosures are sitting in limbo. Some estimate the number is likely 200,000 or more foreclosures. Those on both sides of the issue are disputing the paper work involved in the foreclosure process. Hardly anyone is suggesting that most homeowners will not end up losing their property, even after the document faux pas is rectified.

Once those fifty attorneys general get their pound of flesh from the lenders, what do you think will happen to all those foreclosed homes the banks and mortgage firms are holding? No doubt, the property will be dumped on the market, further depressing real estate prices and adding to the already bloated inventory.

But don't take my word for it. The CEO of RealtyTrac, the leading online marketer of foreclosure properties, recently offered a somber warning. James Saccacio said if the foreclosure documentation issues are not resolved quickly, it would have a "chilling effect on the overall housing market."

Saccacio's cautionary caveat was part of the firm's U.S. Foreclosure Market Report for the third quarter. According to the report, there were 372,445 properties auctioned in the country during the quarter, the highest in the history of the firm's tracking. Bank repossessions also set a record in the third quarter, totalling 288,345 properties.

Think you've heard the worst of this sorry story? No way. Even before this embargo on foreclosures, banks and mortgage firms were already hoarding notices, waiting for the glut of foreclosures to dissipate before dumping more houses on the market. There are no available estimates on how many foreclosures are primed to be pumped into the pipeline, but it could be hundreds of thousands more. The results could be catastrophic for the real estate market.

Foreclosures are the economic beast no one in government wants to tame. However, the taxpayers are about to have their pockets picked again by Washington if nothing is done to manage the looming foreclosure nightmare. As each day passes without any action, the opportunity to avoid the crisis becomes more remote.

Obama Administration Strong Arms Mortgage Firm

There is something fishy going on in the home mortgage arena and the stench stretches all the way to The White House. Yet it has received only a couple of paragraphs worth of attention on the business pages of the mainstream media.

Home mortgage giant Ally Financial, Inc. issued a quiet note to its brokers and agents this week, telling them to halt evictions tied to foreclosures in 23 states. No public announcement was made about the action.

However, one of the brokers leaked the two-page memo to the media. The note, marked "Urgent," ordered brokers to immediately stop evictions, cash-for-key transactions and lockouts.

On the surface, this appears to be good news in light of soaring home foreclosures. Repossessions rose a staggering 25 percent in August, setting a new record. A total of 95,364 homes were taken over by banks in the 30-day period.

August marked the ninth month in a row that the number of homes lost to foreclosure has increased on an annual basis, despite failed, multi-billion dollar efforts by the Obama Administration to stem the tide.

Here's what the media missed on this story. Not many people have heard of Detroit-based Ally Financial, Inc. That's because it was once known as GMAC, Inc., an arm of General Motors, until the automotive company went belly up and filed for bankruptcy.

This same GMAC, now masquerading as Ally Financial, is 56.3 percent owned by the government. It received more than $17 billion in federal bailout funds, courtesy of the U.S. taxpayer.

Now it shouldn't be so hard for anyone paying attention to connect the dots. But let me spell it out. The federal government is the majority owner of Ally Financial. Record home foreclosures are not good news for the Obama Administration and the Democratic Party, locked in a struggle for control of Congress. How difficult is it to imagine that someone in the administration strong-armed Ally Financial into halting evictions of foreclosed homeowners?

What could be worse for Democrats than stories on the evening news showing homeowners thrown out of their homes? It is a nightmare scenario for an administration and a party that has championed its bumbling homeowner assistance program that has made only a small dent in the problem.

When it was caught red-handed, of course Ally Financial's spin masters tried to wave off the whole episode. A spokeswoman claimed the action was necessary to "allow time to address a potential issue that was raised in a number of existing foreclosures." She claimed the company had been working on the problem for three months. However, the mortgage firm declined to provide any details to shed light on the issue.

Corporate double-speak aside, the timing is not coincidental. The mid-term elections are less than two months away. If evictions are stalled at one of the nation's biggest home lenders, it serves Democrats, who already are on the hot seat for their failures to restore the economic health of the country.

If you are still not convinced, check out the list of 23 states affected by Ally Financial's action. They include many with down-to-the-wire races for the Senate, House and Governor.

For example, Florida, New York, Pennsylvania and Ohio are on the list. Others include: Connecticut, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Vermont and Wisconsin.

These are the kind of political shenanigans we have come to expect from the Obama Administration. Playing politics with home foreclosures smacks of the worst kind of meddling, even for an administration known for using bare-knuckled tactics, jiggered numbers and government muscle to bully corporate America.

There is a lesson here on why it is never a good idea for the federal government to own a private enterprise.

Factoids That You Can Use

Despite massive efforts by the Obama Administration to head off foreclosures, homeowners are bailing out of their financial obligations at a record level. Figures released by RealtyTrac show that foreclosures rose sharply in March. A total of 367,056 home foreclosures were recorded, a 19 percent jump from February. It is the highest monthly total since RealtyTrac began its reporting. Moreover, nearly 260,000 properties were repossessed by lenders in the first quarter of this year, a whopping 33 percent increase since the same period in 2009. According to government figures, a paltry 6 percent of the 3.39 million homeowners facing foreclosure have participated in the federal bailout program. According to analysts, the problem is the government bailout of homeowners is only a band aid solution. It offers temporary help to people who can no longer afford their mortgage. Once the financial assistance expires, homeowners are forced to accept foreclosure. The much praised federal program has been an utter failure by any standard and it offers a sad commentary on the government's ability to address economic problems.