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Should Congress weigh in on the foreclosure crisis?

Mitchell Hartman Nov 16, 2010

Should Congress weigh in on the foreclosure crisis?

Mitchell Hartman Nov 16, 2010


Kai Ryssdal: Depending on your point of view, the foreclosure mess is either criminal — that is, banks engaged in fraud on an industrial scale — or it’s trivial, simply a question of fixing some bad paperwork.

Either way, the controversy over robosigners and improper practices has thoroughly gummed up the foreclosure process. State attorneys general have started investigating. Today the Senate Banking Committee weighed in, and sides are being taken in the fight over how to fix the whole thing.

Marketplace’s Mitchell Hartman reports.

Mitchell Hartman: A Congressional watchdog panel today laid out a litany of potential risks to the financial system, from badly-done foreclosures to whether loans were properly recorded, transferred and bundled together in the first place. They were then sold off to investors as mortgage-backed securities.

Tom Deutsch: There is a lot of pictures painted of gloom and doom.

That’s Tom Deutsch of the American Securitization Forum, which represents a $7 trillion industry. At the heart of which is an electronic system that tracks the mortgages pooled in securities. Lawyers and homeowners’ advocates are challenging the system. Deutsch says they don’t have a leg to stand on.

Deutsch: And there’s little, if any, need for Congress or any of the states to actually weigh in on the issue.

Scott Talbott of the Financial Services Roundtable sees a danger Congress will weigh in, though, with more regulation of mortgage paperwork.

Scott Talbott: What we don’t want is sort of the classic overreaction that shuts down essential parts of the mortgage market.

But if legal challenges do start to bite, all bets are off, says Guy Cecala of Inside Mortgage Finance.

Guy Cecala: If people are basically challenging the legal standing of the mortgage servicing market and all loans that have been securitized, Congress will have to step in and do something to prevent total chaos.

What could Congress do? Cecala says, start with a federal foreclosure law that supercedes all 50 states’ different requirements. Then, a law putting a retroactive seal of approval on all those mortgages that got bundled into securities during the housing boom. All of which he says would actually help bankers and lenders and would likely enrage advocates for homeowners facing foreclosure.

I’m Mitchell Hartman for Marketplace.

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