It's official now: we've hit another bump in the road to housing recovery. A major one. News started spreading recently that three major lenders – GMAC Mortgage, JP Morgan Chase, and Bank of America – have halted foreclosure proceedings in 23 states while they review the process being followed for signing affidavits. Basically, there have been allegations that some workers at these banks were signing a lot of documents that they personally had not verified.
This has now dialed up to "scandal" status as attorneys general in several states have ordered widespread investigations.
What's really going on here? This foreclosure scandal is a big deal, but not for the reasons you may think.
It almost goes without saying that banks should always follow proper procedure when it comes to the devastating act of foreclosing on a property. If workers indeed were "robo-signing" documents without verifying them, then that's not good.
However, the big picture is this: even if proper procedure were followed, it doesn't change the situation of the borrower not being able to pay their mortgage. Hence, all this "scandal" is serving to do is to seriously slow down the process of foreclosure. And while foreclosure isn't pretty, it's a necessary step in the path to market correction.
It's important to say here that when borrowers' attorneys have challenged such procedural issues in the past like this, for the most part they've only been able to delay the foreclosure proceeding, not stop it.
Again, I'm not saying that this whole robo-signing ordeal is right; I'm only saying that it's not going to change the overall state of foreclosures right now. Only positive economic growth and a substantial increase in jobs will do that.
Once again, I find myself saying that we cannot legislate, regulate or buy our way out of the housing lull. We have to work through it like any other challenge we face in life.