In my article, "The Forest Fire" (9/23/10), I use the analogy of a forest to describe how foreclosures will help to repair the housing market. Today's foreclosure is tomorrow's first home for a family that a few years ago couldn't afford to buy a home at inflated prices.
Just last week I closed a home loan for a single mother of two that works as a social worker. If not for the wave of foreclosures and the free-fall in housing prices, the benefits of home-ownership would still be out of reach for her.
Foreclosures also represent investment opportunities, and not just for the wealthy. Many middle-class Americans are purchasing houses as investments. By renting them to tenants, they earn income and provide affordable housing.
More affordable housing is vital as incomes have suffered in the Great Recession. While foreclosures represent the loss of unaffordable housing for someone, they lead to affordable housing for someone else.
This past week, there has been much news about loan servicers halting foreclosures in the 23 states that have judicial foreclosures. In addition, the largest servicer, Bank of America, has stopped foreclosures in every state. Sloppy and inaccurate paperwork seem to be the root cause. Servicers are dealing with such high volumes of foreclosures with systems that were never designed to manage such volume.
Shame on the servicers for not performing their roles properly in regards to foreclosures. But now self-serving lawyers smell blood in the water and are quickly jumping on money-making opportunities to sue the servicers.
I met one of these lawyers at a political event last week. It is clear that he will not let facts get in the way of a profitable lawsuit. Unfortunately these lawsuits, combined with political pressure will result in more servicers halting foreclosures.
The result will be a longer and more painful recovery for housing, less available affordable housing, and further losses for banks and investors that own the mortgages.