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Economic Survival - States vs the Federal Government

In New York, the NY Fed may try to force Bank of America to buy back mortgage securities which would cripple the big financial institution in the credit default swap market.  This was announced the day after BofA claimed it would resume foreclosures in over 20 states and claimed the foreclosure procedures used were sound.

This is an ongoing effort by investors to make banks responsible for mortgage losses incurred from securities that did not meet the guaranteed standards.  The temporary foreclosure freeze by several large financials due to procedural violations in filing foreclosures brought the spotlight (finally) to bear on the ever growing number of families losing their homes to foreclosure.

Rushing to foreclose on homes is new for banks.  Traditionally, foreclosures were initiated by most lenders only after a fourth payment was not made.  Today, homeowners receive threats of foreclosure with a payment 60 days past due. You might think banks would not want a glut of homes on its books but those homes are easily resold in batches to large investors and those resales yield more mortgage paper that can be sold as securities by the financial institutions.  The train is out of control and there is no one driving it.

Perhaps it will be up to the States to put on the brakes as the federal government has shown no inclination to interfere or to provide help for homeowners stress by high layoffs and continued high unemployment.  This week several federal agencies announced meetings to discuss the foreclosure crisis.  The federal agencies say their focus is on ascertaining whether mortgage lenders are violating the law and on determining what effect the foreclosure crisis will have on the economy as a whole and on housing in particular.

The states are taking action with all 50 states beginning a coordinated joint investigation into potentially fraudulent foreclosure practices designed to separate people from their homes as quickly as possible.  The states are looking at procedures of the mortgage granting industry but also looking at potential violations of the rights of homeowners.

Continued increases in the number of foreclosure actions and questions about the methods being used by banks to reclaim property are likely to force home values even lower and further damage the housing market in the US for years to come.