Mon, Oct 11, 2010, 10:29PM EDT - U.S. Markets closed
Related Video Joe Weisenthal, deputy editor at Business Insider, tells Daniel Gross that he believes there will eventually be some sort of national moratorium on foreclosures.
The U.S. is grappling with at least two related crises. First, there's the employment crisis. Last Friday's employment report showed the economy lost 95,000 jobs in September. Private sector companies are hiring, but not enough to offset government job cuts. The housing and housing-finance sectors, which contributed so much to job growth during the expansion of the aughts, continue to be a major drag on employment. Some 21,000 construction jobs were lost in September.
And then there's the foreclosure crisis. It turns out (shocker!) that the same banks who put the lending process on autopilot, sprinkling credit around like fairy dust, have largely botched the wave of foreclosures by trying to put the process on autopilot. Lawsuits have revealed that banks employed robo-signers, processors who signed hundreds of documents per week without reading them fully. Amid court challenges and regulatory and public pressure, several banks have called a moratorium to the foreclosure process. J.P. Morgan Chase in late September followed the lead of GMAC and suspended foreclosure proceedings in 23 states. Last Friday, Bank of America announced it would suspend all foreclosure activity. Politicians are getting involved. Connecticut Attorney General General Richard Blumenthal, locked in a tough Senate race, ordered a 60-day freeze.
In the accompanying video, Joe Weisenthal, deputy editor of Business Insider, and I discuss some of the implications of the moratorium. Weisenthal "most foreclosures are legitimate," Weisenthal believes banks were smart to get ahead of the government in declaring suspensions. After the election, he suggests, there will be a large-scale national effort to try to reduce principal for many mortgage borrowers. "This foreclosure-gate scandal will be the spur that makes it happen," Weisenthal notes. In the meantime, while a foreclosure moratorium could give some borrowers breathing space to come up with the funds to stay current, it's creating "chaos and nervousness" in the housing market.
The latest revelations are throwing sand in the gears of the already dysfunctional housing market, and the freezes impose a great deal of uncertainty on homebuyers and holders of mortgage-backed securities. The headlines have further damaged the already low reputations of America's financial institutions, whose reckless lending helped precipitate the crisis and necessitated the expensive public bailouts. The banks offer extremely low interest rates on deposit, and while they still benefit from all sorts of public assistance and guarantees, bankers walk around as if they're fiercely independent entrepreneurs. Now it turns out they're slow to extend credit and quick to repossess homes.
[Mortgages About to Get Costlier]
But this crisis presents banks with a rare opportunity to improve their public image and help clean up the foreclosure mess.
Thus far in the recovery, companies have managed to boost profits and deal with higher demand without hiring more people, due to immense gains in productivity and efficiency. That's why employment gains have been limited. But banks have clearly tested -- and exceeded -- the limits with their foreclosure processing. Robo-signers like Jeffrey Stephan, who signed up to 10,000 documents per month, are modern-day John Henrys.
Banks clearly haven't invested in the technological or human capacity necessary to manage its mortgage business. The volume is simply too much for the existing workforce to handle. And the failure to do so has invited scrutiny from judges, regulators, and legislators in the middle of a campaign season. The banks have scored more of their own goals than a team in a second-grade soccer rec league.
Jamie Dimon of J.P. Morgan Chase, Brian Moynihan of Bank of America, and other banking CEOs willing to show their face in public should call a press conference today and announce their intention to hire 50,000 people to deal with all aspects of the foreclosure crisis. They should hire processors who will actually read the legal documents, but also professionals to work on debtor counseling and modification, landscapers to mow loans of real estate they own, and security guards who will ensure that repossessed homes aren't stripped or occupied by squatters.
[Why Old Jobs Require New Skills]
Doing so would help put a small chunk of the underemployed workforce back on the job. It would be a bold, public gesture that might spur other companies to hire. It would demonstrate to courts and politicians that the banks are finally getting serious about getting on top of the problem. Perhaps some of the newly employed will use their wages to stay current on their mortgages, and the banks can certainly afford it. Fifty thousand people at $50,000 per year comes to $2.5 billion. J.P. Morgan Chase earned $4.8 billion in the second quarter. In other words, it would cost the industry about what one of its leading members makes in seven weeks.
Yes, hiring people can be expensive. And when the banks bulk up their capacity to handle the millions of foreclosures more smoothly, it might mean a little less cash to pay out to top executives. But something tells me the cost of the regulation, lawsuits, and the general chaos being created by a foreclosure moratorium will be even more expensive.
Daniel Gross is economics editor and columnist at Yahoo! Finance.
Follow him on Twitter: @grossdm. Email him at grossdaniel11@yahoo.com.
___ Popular Stories on Yahoo!:• Meet the Youngest Billionaires in America• Eight Fun Jobs That Pay Well, Too• Seven Cities on the Verge of Sinking
Follow Yahoo! Finance on Twitter; become a fan on Facebook.
See today's average rates across the country.
View rates in your area
View more popular articles
Quotes delayed, except where indicated otherwise. Delay times are 15 mins for NASDAQ, NYSE and Amex. See also delay times for other exchanges. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page.Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.
Fundamental company data provided by Capital IQ. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data, daily updates, fund summary, fund performance, dividend data and Morningstar Index data provided by Morningstar, Inc.
Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer
Read Full Article »