Commentary: Seven lessons from the latest mortgage scandal
Some of the country's biggest mortgage lenders apparently have been bending the law to speed up foreclosures.
Investigations are under way at Bank of America Corp. (NYSE: BAC - News), J.P. Morgan Chase & Co. (NYSE: JPM - News) and Ally/GMAC for pushing foreclosures with flawed paperwork. All three have frozen many of their foreclosures pending a review. One suspects that others are doing the same.
What does this mean? Here are seven lessons from the latest scandal:
1. The banks are still stupid -- OK, not all of them, but a surprising number. Foreclosures actually hurt them. A foreclosure empties a home and helps blight a neighborhood. It drives down property prices and makes it harder to sell the home and the one next door. Yet here are several of the biggest banks actually bending the rules to speed these foreclosures up and make matters worse. It beggars belief.
Remember that throughout the crisis the banks largely have resisted bending the rules to prevent foreclosures -- something that might have helped everyone. They have been dragged kicking and screaming into renegotiating any doomed loans, even when there was absolutely no hope of it ever being repaid on the original terms. They have resisted short sales, and fought bitterly with real-estate agents who actually got them an offer. I've seen this firsthand. The banks caused the crisis; they barely have missed an opportunity to make it worse. (more)
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