Camel's Back, Two Straws...

My dire prediction for the housing market is based on two recent developments. First is B of A's nationwide suspension of foreclosures. Expect this to spread until all foreclosures are halted for some indeterminate period. At issue is documentation, and whether anyone attempting to seize a house actually has the secured interest needed to legally foreclose.

This impacts not only pending and future foreclosures, but completed foreclosures. Also hit hard are past and pending purchases of foreclosed homes. If you bought a foreclosed home in the last couple of years, it's quite possible that the foreclosure wasn't properly documented, and title may now be in question. Among other things, this will develop into a title insurance crisis that could take years to resolve.

The second big development is the Countrywide Mortgage class action lawsuit. Among the many claims, plaintiffs have asserted that Countrywide and various retail lenders who wrote Countrywide paper deliberately shopped for high appraisals in order to overvalue properties. This will be easy to prove, as everyone familiar with this mess knows that "optimistic" appraisals have been used industry wide for at least the last decade.

That's called fraud. Every real estate transaction in America over the last 10-15 years is now in question, tainted by this universal practice. Many homes have changed hands two or three times in this time period, and every buyer has paid too much. They've been defrauded.

There's no statute of limitations on fraud, nor can such liabilities be discharged in a bankruptcy.

It's easy to demonize and marginalize subprime borrowers who can't pay their mortgage. But, how do you dismiss someone who did everything right, paid his loan on time every month but who was overcharged for his house? When those people realizes what happened, they'll sue. And they're sympathetic victims. Virtually every realtor, every appraiser, every mortgage broker and every bank in the country participated in this fraud, many knowingly and the rest looking hard in the opposite direction.

As this sinks in, the next realization is that the government was a willing participant. Government regulators looked the other way as taxes poured in from the incomes and purchases of contractors, realtors, appraisers, mortgage brokers and bankers, and from capital gains. Our government knowingly caused the mess, and was on the take from day one.

I expect a total loss of faith to follow on the heels of these revelations, and I doubt they can keep a lid on this until the election.