TEXT OF STORY
Kai Ryssdal: On the topic of foreclosures, there was this today from Bank of America: it's going to redo the paperwork on more than 100,000 mortgages it owns and try to get the foreclosure ball rolling again.
Pretty much everyone in the long financial chain of the real estate market is trying to figure out what do to. Not least of all Fannie Mae and Freddie Mac, the government owned companies that guarantee the bulk of this country's home loans. They've given banks until today to review their foreclosure proceedures. Fannie and Freddie say the review will protect the integrity of the process.
But our senior business correspondent Bob Moon reports it's also a move to protect taxpayers.
Bob Moon: Right along with big lenders, the government is keen to avoid a costly legal quagmire.
Tom Ajamie is a securities law attorney. He worries that taxpayers who support Fannie Mae and Freddie Mac could end up shouldering the carrying costs for millions of mortgages in limbo.
Tom Ajamie: You have a state of delay, you have a state of sort of paralysis, which may then put Fannie and Freddie on line as guarantors of these loans.
Some experts say the worst case could see the government-run mortgage giants covering hundreds of billions of dollars in mortgage defaults without the ability to sell off the properties to limit losses.
George Mason University finance professor Anthony Sanders considers that highly unlikely, but he says that even now, the losses are mounting with every day of foreclosure delay.
Anthony Sanders: The government has to make good on the difference between what the investor was promised and what the homeowners are paying. So if two million homeowners suddenly just aren't paying any mortgages, yet get to live in the house, Fannie, Freddie, then the taxpayers, have to pick up the tab for people living in these places for free.
But the two big mortgage-buyers are making it clear they intend to protect taxpayers. Brad German speaks for Freddie Mac.
Brad German: When there are errors that result in additional delays that add to the losses, we have a range of remedies, beginning with fines, charging for the additional costs that have been incurred, forcing the repurchase of the loan, or even transferring the servicing from that lender to a different lender.
German says that's why the lenders have been ordered to ensure their foreclosure procedures are airtight.
George Mason's Anthony Sanders worries any legal limbo could end up crippling the already-reeling housing market if investors lose their appetite for mortgage-backed securities. Better, he says, to let lenders work out their troubles, instead of calling for an all-out freeze on foreclosures.
Sanders: If we don't put a moratorium on, don't do anything nutty. We can probably work through most of this in a couple of months. In that case, then it's just a couple of months worth of losses for Freddie and Fannie.
Provided the lenders can get their foreclosure act together soon.
I'm Bob Moon for Marketplace.