US Banks Likely To Face Another Round of Crisis in the Future

December 8, 2010

Bank of America and Robosigners

A recent case in New Jersey involving Bank of America ignited the “robosigner” crisis by exposing lenders’ suspect foreclosure practices and called into question the validity of millions of foreclosures throughout the US.  As a result, many experts have weighed in as to whether the lenders, by way of securitization and complex trust agreements, ever owned the mortgages in question and, therefore,  have the legal standing to foreclose. Regardless of what side of the argument you support,  banks will ultimately be able to overcome the “robosigner” crisis and exercise their right to cure all alleged defects under the terms of the trust. Distressed homeowners who were given a glimmer of hope will once again be facing foreclosure and it is clear that there will be no recovery in the availability of credit or jobs in the U.S. economy until the Obama Administration restructures the largest banks. Consider the fact that more than $1 trillion in outstanding second liens have yet to be addressed. That’s enough by itself to make you question the solvency of more than a few banks. What’s more, 11 million mortgages are tied to homes that are worth far less than the amount of debt owed on the property.  Unless changes are made, US banks are likely to face another round of crisis in the future. News today ( reveals that Fannie Mae and Freddie Mac are in talks with Obama administration officials to join fledgling government programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth. What is clear is that the recession is far from over and the introduction of new lender endorsed government programs to correct this mess will be far more valuable than focusing on the lenders’ past mistakes, which are plentiful.

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