The foreclosure war
Foreclosures are one of the war fronts of the Second Great Depression. Trying to figure out how to reduce the financial blow from this crisis is one of the tactical issues which needs to be overcome to begin winning the war on depression. The next expected attack will come from the commercial property market. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years. The Associated Press 
reports that regulators have warned that rising losses on commercial real estate loans pose risks for U.S. banks, with small and mid-size banks especially vulnerable. The government is aware that many banks will have to restructure these loans. Normally, this would result in damage to the banks balance sheet, showing restructured commercial loans. The FDIC has already closed 100+ banks this year, due to weak balance sheets. In order to make the problem less severe, the government has revised its guidelines, allowing banks to write off loan proceeds with no penalty. Under the guidelines, loans to creditworthy borrowers that have been restructured and are current won’t be classified as high risk, the article states.
There is another threat to banks on the residential side. Lenders may be at risk of losing loans through the court system. Many loans having been sold and re-sold in the debt marketplace, do not have a clear paper trail of ownership. One court in New York threw out a mortgage for almost half a million dollars, because the lender could not produce documentation that it actually owned the loan. The New York Times article said that the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free. The mortgage in this case was actually wiped out. I wrote about this exact potential problem with electronic mortgage recording in January. Since then, several courts have ruled on nominee parties as recorded grantees. This recent ruling, if upheld, could have a serious impact on lenders.
The foreclosure war also faces a battle with bankruptcy filings. More employed Americans are filing for bankruptcy. In fact, this chart shows that only 13% of those filing bankruptcy were unemployed. Interestingly, over 50% of filers were women.
