The Unknown Cost of the Foreclosure Crisis

As bank stocks take a plunge amid emerging flaws in the system governing foreclosure paperwork, market observers have started asking the most relevant question: How much is this mess going to cost us?

Bringing his dim view of Congress to bear, John Carney at CNBC says that the big banks don’t stand to lose much at all, because legislators will pass a bill that will forgive mortgage firms for employing “foreclosure mills” and “robosigners.” With a lame-duck session coming up after the elections, it’s not hard to imagine something like this happening. (We urge readers to remember that lawmakers already tried a similar move, only to have their efforts thwarted by an Obama pocket veto.)

Meanwhile, Nelson Schwartz at The New York Times asked some analysts what they thought:

  • Rochdale Securities analyst Dick Bove put the short-term figure at $1.5 billion a quarter.
  • Branch Hill Capital thinks Bank of America may owe investors as much as $70 billion for mortgage securities it sold the government-sponsored entities.
  • Paul Miller at FBR Capital Markets pegged the bank-industry price tag somewhere between $6 billion and $10 billion.

TheStreet’s Lauren LaCapra tackles the broader implications for the housing market. Potential buyers of foreclosed homes are likely to be gunshy about raising their hands at bank auctions, because it’s becoming increasingly unclear that their purchase would stand up in court.

Felix Salmon of Reuters ties a nice little bow around the whole thing:

What’s desperately needed here – and what isn’t going to happen – is someone to come in and take ownership of the whole mess, and cobble together a roadmap for getting out of it. But that would take more political will than seems to exist in the White House. So this is going to drag on, painfully, state by state, quite possibly for years. And while it’s doing so, the chances of any kind of robust economic recovery – at least outside the world of high-priced legal firms – seem slim indeed.

Twitter: @mbrookstaylor

The Unknown Cost of the Foreclosure Crisis