Prepare for the double dip. The securitization machine was running so hot and heavy that many originators and banks cut corners when it came to paper work. Now, with hundreds of thousands of homes in foreclosure, they are trying to figure out where the titles to these homes are (possibly sitting in a box in someone's garage because the originator or branch office of the bank or predecessor bank [i.e. WaMu] got shut down). This will prolong the downturn in housing and could be the catalyst for sending the economy into a double-dip recession.
Unanticipated Consequences:
Unanticipated Consequences:
- Ignorance: By focusing on speed and throughput, decisions were made on incomplete analyses.
- Immediate Interests: Loan originators (and now foreclosure processors) were incentivized to process as many new loans or new foreclosures as possible (by being paid on a per transaction basis). This ignored the long-term effect of inflating the housing bubble on the front end and having bad debt return to bank balance sheets on the back end.
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