The Validity of Commoditizations
Debt is in dispute. Who owes on the loan is not the issue, but for the debtor the real question is who owns the loans. The uncertainty in the market stems from the the origination process of the loan to the commoditization of it on the market. Along the way the paperwork for the loan under British and US property laws should follow. However, because they commoditized the debt, they no longer "own" the house. The valid papers must be signed by the correct individual. However, these commodities were bundled and put on the open market and traded, split, and traded again. Tracing the ownership of a single property is obscured by the volume of trades in the system.
In many times prior to the mortgage crisis, there were lenders offering NINJA (No Income No Job or Assets) loans. Often times these lenders had less than adequate paperwork to justify that the borrower had income to justify the loan. We return to the issue of predatory practices, but it appears that there is a disparity on both sides of the coin. In some instances the originator made mistakes and in others the assignment (borrower) failed to produce all of the correct documentation to support the loan or failed to produce the income during the recession. In some cases, the paperwork doesn't exist at all and or nor does the corporation that originated the loans. In these cases, those debt holding institutions are manufacturing paperwork which is controversial because it may not reflect the statutes, statements or beliefs of the original loan.
The banks know this, but due to nonpayment they proceed with foreclosure. Standard contract and property law states that the party must fulfill their obligations to meeting payments for the debt. In the case where the borrower can not, they must at least remove themselves from the property. This is necessary for the market to have a value. How do you price a commodity that should be for sale, but the defaulted borrower won't leave because you don't have the original paperwork with the terms and conditions? Right now the market has come to a halt over this.
It is clear that the housing market will either continue to go down or hold with inflation. The only way to recover from this set back is to fairly price the market and that requires investor confidence. There are buyers on the sidelines waiting to come in, but the trouble is there is no confidence that this will be corrected.
I believe there needs to be an independent monitor and a standardized set of rules that govern how home and business loans are documented and executed, especially when it comes to foreclosing on commoditized loans. It needs to be set up immediately and go to work to arbitrate these foreclosures as soon as possible.