As many of you have doubtless read over the past week or so, it seems that some loan servicers have been a bit lax in following those pesky “rules” when processing foreclosures. 

In some states, California not among them, the foreclosure process requires that servicers sign an affidavit swearing that they have confirmed certain facts about the loan to be foreclosed upon.  In their efforts to blaze through all the piled-up foreclosures, some servicers signed such forms in bulk without having actually confirmed the individual facts.  This puts the legitimacy of some foreclosures into question.

Some servicers had already halted foreclosure proceedings in the states that require these forms.  Today, industry giant Bank of America announced that it would freeze foreclosures in all fifty states pending a review of its processes.  Politicians are pressuing others to follow suit.

At first glance this might appear to help the housing market by keeping homes with delinquent loans off the market, at least for a while.  But the breakdown of the foreclosure-processing machinery creates some potential headwinds as well.  Already, the New York Times reports, questions about foreclosure legitimacy have put some pending home sales into limbo.  Questions about who has the title to foreclosed homes could discourage buyers from buying and lenders from lending against those properties.  Given the potential scope of this shakeup, I’m sure there are other possible consequences that I’m not even thinking of.

Even the stalling of the foreclosures themselves only keeps the pressure off the market temporarily.  Those delinquent loans are still out there and will have to be dealt with someday before the market can truly be on a truly firm and healthy footing.

The so-called “robo-signing” scandal will take the pressure off of some delinquent borrowers, but it could well be a long-term negative for the housing market as a whole.

(I know I had promised an inventory update next, but I wanted to share some thoughts on today’s foreclosure freeze announcement.  I’ll put up a post about housing supply and demand next week.)

Please contact Rich Toscano at and follow him on Twitter at

Rich Toscano has been observing the housing market for Voice of San Diego, with the occasional prolonged absence, since 2006. Follow him on Twitter at...

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