Mortgage Mess

This mess stems from "robo-signers or back-office workers," who approved hundreds of documents daily without reading them, to mortgages that were bundled into pools and sold to investors as securities, which is known as securitization. 

Real-estate law requires the physical transfer of paperwork whenever mortgages trade hands, and analysts, according to the Wall Street Journal,  are raising questions about how often that happened during the housing boom.  One concern is that banks may have lost, or didn't ever have, mortgage certificates.  If that happened, banks will have to pause foreclosures for months as they track down certificates and refile paperwork. And, that is the real problem.  In other words, did those banks that are currently foreclosing on homes actually own those properties? 

The result of this mortgage mess is going to slow the foreclosure process even more but not change the outcome.  For example, according to J.P. Morgan Chase, in the state of Florida, which requires banks to foreclosure through the court system, the average borrower had spent 678 days without paying before being evicted through foreclosure.  In Florida, 1 out of 7 mortgages are in this situation.  [Sidebar: If one applies the Real Estate Rule of 32, which states that the total of all your monthly debt payments cannot exceed 32% of your monthly income to be eligible for a real estate loan, that would be like getting a 32% increase in one's salary for the next 678 days.  This is one reason why I believe that consumer spending has been as strong as it has been in the face of economic weakness is because these individuals, who are not making their P&I payments, are redirecting these funds from mortgage payments to other types of consumption.]