Clash of the Titans

Foreclosure Mess Hits Bank Stocks

It’s the ultimate match between public and private sectors: The core conflict of the bungled foreclosure crisis is super-speedy modern finance colliding with the slow, deliberate legal system. While banks focus on efficiency and big profits, the justice system demands due process—hence the conflict over the paperwork filed too quickly, homes taken too soon. Lax regulation of foreclosures combined with low standards of lending did little damage as long as housing prices continued to rise. But once many homes went into foreclosure at once, the system’s flaws were revealed. Bank stocks dropped sharply two days in a row at the end of last week, with Bank of America and Wells Fargo losing 5 percent, JPMorgan Chase falling 4 percent, and Citigroup dropping 3 percent. Bank of America and JPMorgan froze foreclosures while the paperwork is being straightened out, but despite the moratorium, banks are finding it tough to put the brakes on their massive mortgage machinery. Some loans have still been referred to foreclosure despite the stoppage.