A Look Behind the Scenes - It's Ugly!
A look at the aftermath of the mortgage meltdownis still not pretty and not likely to get better soon. You would think that in these years that have followed there would be improvement and/or a start towards recovery. Far from it! The depth and extent of the problems are just coming to light and still being sorted out. And like saugage making, it certainly is not pretty.
At the heart of the issue is the supposed good thing intended to free up capital from local, regional and larger banks in order to make more loans; securitization. They made more loans OK, but many of them were not "good" ones. That in a nut shell led to the crisis; too may defaults. However, securitization is continuing to be a the center of the foreclosure boon doggle. The true ownership of these mortgages and the right to foreclose is being challenged in courts all around the country. This has been in the background throughout, but is now becoming central in many large scale legal battles.
Once things within the securitized mortgages began to unravel in 2007 and 2008, the pure large scale and scope of the problem began to create more nightmarish conditions. With 4-5% of mortgages held in the US in default, there was no system in place to handle this quantity of transactions. Servicing companies, large attorneys and banks created divisions and whole businesses to handle the onslaught. This size and number of foreclosures brought on both mistakes and fraud. In the fall of 2010 the "robo-signing" scandal began to come to the public's eye.
It has been suggested that the mess is so bad that there is no real fix to it. Therefore one of the things that you will begin to hear in the news in the months ahead is the US Congress passing legislation that will forgive the messes that have been made and that appear will never be resolved within the current laws.
So, all the efforts to handle the large number of foreclosures has backfired. There are actually millions of properties in a sort of bizarr state of limbo that we call the "shadow inventory" that is considered to be owned by banks, but for the many reasons is not yet available to be resold to investors or retail buyers. With all the legal troubles not yet resolved, there is no telling when any of this will even start to go away. All we know is that it will be years.