Thursday, October 14, 2010

Bank Stocks Getting Hit in Advance of More Homeowners Stopping Mortgage Payments

Bank stocks with heavy mortgage foreclosure exposure are getting hit this morning. Bank America and Wells Fargo stocks are both down around 4.8%.

Meanwhile, in New York, NyPo's John Crudele eggs people on to stop making their mortgage payments:

If you think there is chaos in the housing market now, just wait.

You've already read about banks suddenly stopping foreclosures because of paperwork snafus and the like.

And you have probably also read elsewhere how this will hinder the ability of banks to clear bad loans off their books and how it might slow the housing market even more.

The last effect of the foreclosure freeze, of course, is fewer people will be packing up their belongings and moving their families in with Aunt Millie.

These are all valid points.

But I'm wondering what impact the moratorium will have on another group: homeowners who bought their places within the last five years owe a lot more on the house than it's now worth and are struggling financially and emotionally with the monthly payments.

That's to keep these people from purposely defaulting on their loans?

In fact, under the current scenarios, why would anyone cut back on other things their family needs just to pay the loan on a house that the bank can't foreclose on?

Yes, I know, there are moral obligation to make the payments. And ethics, and all that other quaint stuff.

But don't be surprised if the backlog of "could-be foreclosed but wasn't" properties suddenly spikes.

And when push finally comes to shove, even a half-witted attorney representing an aggrieved homeowner can find some sort of paperwork error or misstatement at the time of closing that will keep the family in the house and the bank on the hook forever.


  1. The loans were obviously made, and evidence sufficient to demonstrate to a court that loans were made exists.

    People who stop paying their mortgages, theoretically, should not be "just fine". Yes, the loans made may no longer be secured by the real property, but just because a loan is unsecured by collateral does not mean a default on that loan is unenforceable in court. The defaulter's credit rating will still be shot and a money judgment can still be issued against that person for the amount outstanding.

  2. I understand contracts and promises and morality.


    What exactly did the bank have that it lent to the borrower if it created that money out of nothing?

    Also, were these problem mortgages never even recorded with the county clerk/register of deeds? Was there no title insurance issued? Just curious as to the actual factual problems that are arising.

    Obviously, it's a lot more complicated to sue on a note than to foreclose by sale.