Foreclosure freeze could reduce supply of cheap houses
On 9th October, financial giants GMAC, JPMorgan, Chase and Bank of America suspended some foreclosures while they review how documents were handled. Other mortgage holders, PNC and Litton Loan Servicing joined these three financial institutions in starting a review of foreclosures.
The Bank of America, which had already announced a halt for 23 states, expanded the suspension to cover the whole nation. If other banks follow suit, it raises the specter of a national foreclosure moratorium.
In all, the banks will have to review the paperwork for hundreds of thousands of mortgages. On top of that, class action lawyers and state attorneys general have filed lawsuits and called for foreclosure moratoriums.
In the near term, the freezes could actually benefit both homeowners and the housing market. Homeowners would have time to live rent-free and chip away at their debt. Prices might stabilize because so many homes are penned up.
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