The Real Foreclosure Scandal
By Arnold Kling
If mortgage servicers were foreclosing on the wrong borrowers, that would be a scandal. That would be if they send the foreclosure notice to an incorrect address, or if they foreclose on a borrower who has actually made payments. Maybe there are stories like that, but I have not seen any.
Instead, we are seeing stories about improper signatures on paperwork. Glenn Reynolds, who disagrees with me on this issue, says that what the banks are doing is analogous to me stealing money out of a bank drawer and saying it’s ok because I have an account there. I think it’s more analogous to me signing my wife’s name to a check that I deposit in our joint account.
The real scandal is that the process of recording property title is so antiquated, and there are so many interest groups that resist modernizing it. The MERS mortgage database shows what a modern system could look like. But all of the counties that charge fees for title recording, the title “insurance” companies that shake down home buyers to buy “protection” from getting sued to prove that they own their property–these interest groups want to keep the title recording system as expensive and unreliable as possible.
The real foreclosure scandal is that it is taking so long to get people who have stopped making payments out of their homes. Those costs are shifted to the rest of us. Moreover, from now on, any mortgage lender has to raise the interest rate on a mortgage loan in order to take into account the fact that the lender’s losses in the event of a default are going to be much higher.
There may be individuals who are facing foreclosure for whom I would feel sorry. But, in my opinion, anyone who is fighting for delinquent borrowers as a class is doing damage to the economy and, furthermore, is on the wrong side of justice.