Home Sweet (Forclosed) Home

Lots of people are worrying about there being too many foreclosures. But the real problem may be too few.

In recent weeks we’ve been treated to multiple stories about robo-signers processing 8,000 or 10,000 foreclosures per month. Assuming a 60 hour work-week, that’s a package every two minutes. Since one of these packages is umpteen pages long, it’s not hard to see why these folks didn’t have time to read them all.

This foreclosure crisis is a logical outgrowth of the securitization culture of mid-decade. The worker-bees who kept the mortgage and consumer loan engines humming were incented according to one metric: cost. So it’s no surprise that too few people had too much work to do in too little time. Since the assumption was that continually rising home prices would cover over any paperwork problems, getting the documents right wasn’t a priority.

Now we’re reaping the harvest. Poorly documented loans are proving to be a major liability for the banks that wrote them, bought, them, and serviced them. If the security for these notes turns out to be uncollectible because of sloppy paperwork, the banks involved may have another round of losses awaiting them.

But it’s crucial that our financial system collect the security on nonperforming loans in an efficient manner. When expenses are low, loans are cheaper. As many banks are re-learning, though, the cheapest service is often the most expensive.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-11T15:55:30+00:00 October 11th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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