As banks continue to play hardball with sellers using government supplied financial backstops to rpotect their industry they are piling up huge sums of collectable debt. I recall the number 900 billion for all the foreclosed debt but I also know better than to rely on my memory for such statistics. Even if the recourse number is half of that obligation that is 100k for every destroyed household during the bubble era.
Let me remind readers of the poing that the people going into foreclosure and short sale now are not NINJA deadbeats but prime credit owners who have,a t best fallen on bad times, or at worst sold a bill of goods by a trusted mortgage broker.
Every now and again I see a small story about some lawsuit being filed against those same NINJA buyers to collect recourse debt. With the timing of the election running through my head I began to wonder at what point do the news organizations and voters take serious notice of these lawsuits?
Right now many distressed sellers are unable to get thier short sales approved on account of recourse debt holders gambling that they will be able do better fiancially suing homeowners after they move back towards financial recovery. Isn't that a nice lose lose situation for people currently in financial trouble? This even further assumes that many sellers in recourse situations don't ultimately end up in bankruptcy. Clogging up the courts but ensuring full employment for attorneys across the country.
Even this leads to further financial issues. ( On a related note, here is a story from the New York Times about how lawyers are supplanting banks as holders of debt preying on distressed homeowners. http://www.nytimes.com/2010/11/07/business/07lawyers.html?_r=1
The administration has held up investors contract rights as the reason for not stepping further perpetuating the problem as opposed to pushing aside these investors and providing debt relief for homeowners. My position is that these so called investors contract rights should not exist right now and would not have existed if the government had simply let the banks fail at the height of the crisis and instead of providing them with a TARP bailout. This political statement is simply rhetoric since the Administration was more than willing to bypass bondholders contract rights when they bailed out GM. Certainly tells you who the executive brance cares for more, placing banks and unions over main street in the bailout pecking order. If we are to move forward, this glaring loophole must be closed now. Otherwise we will continue on in this economic conundrum.
If contract rights are to be left in tact, lets go teh traditional government route then and tax settlements on this debt out of existence. Place a 100% tax on any recourse recoveries on loans originated from 1995 to 2008 and defaulted. Give those investors maximum incentive to settle with homeowers once and for all and simply move forward.