The foreclosure fiasco continues to dominate the headlines, so much that you have to wonder how much damage those suspended foreclosures will have on the mortgage market.
Certainly, the problem isn’t going away anytime soon. Bank of America (Stock Quote: BAC) announced last week that it is expanding its foreclosure suspensions to all 50 states. At the crux of the problem are thousands of foreclosures that the bank can’t – at least right now – verify as legitimate.
The foreclosure process has been poisoned by “robo-signing,” or bank analysts signing off on foreclosures without reading the loan paperwork. Bank of America, JPM Morgan Chase (Stock Quote: JPM) and Ally Bank have all put foreclosures on hold until their loan processes can be reviewed and steps can be taken to ensure the veracity of all home foreclosures.
Not every major lender is shutting off the mortgage spigot, however. Wells Fargo (Stock Quote: WFC) announced on Friday that it wouldn’t suspend foreclosures, and that it was standing by its paperwork.
Still, how will all of this impact the mortgage market, especially at a time when interest rates are so low? In the short term, it shouldn’t be a major deal. Banks and lenders are doing the right thing by stepping back and taking a hard look at their foreclosure documentation practices. Once new internal procedures are plugged in, foreclosures can resume and the impact on the market will be minimal.