The foreclosure crisis in America is telling us a lot about the sickness that lies at the heart of the world's biggest economy. Millions of people have lost their houses, possibly illegally.
The Washington Post reports that more than two million homes have been foreclosed and another 2.3 million mortgages are in serious default. It's the inevitable result of US unemployment now close to 10%. People lose their jobs and can't make the mortgage repayments.
It's a mass production system with law firms competing with one another to file the largest number of foreclosures on behalf of lenders.
For their part, the banks are blaming it on the public, claiming people shouldn't have got themselves into this mess in the first place. As if the banks weren't pushing loans with predatory lending practices.
It's a problem neatly summed up by Paul Krugman. As he says, it highlights how corrupt the system really is.
Krugman writes: "Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation; instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by "robo-signers," or low-level employees who had no idea whether their assertions were true. Now an awful truth is becoming apparent: In many cases, the documentation doesn't exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage "trusts," which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers' obligations. But it's now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal."
It's time for the US government to act. And unfortunately, the Obama administration refuses to stop the foreclosures.
The longer this continues, the longer the US economy will struggle. Consumer demand is low which means business will continue to suffer and employ fewer people. That's easy enough to understand. People don't buy when they lose their homes.
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