In contrast to Mexico, the United States is generally regarded as having strong property rights. The current home foreclosure mess in the US introduces a huge element of doubt into property rights. How and when it will be resolved is uncertain at the moment. There is a reasonable chance that the U.S. economy will suffer another recession in 2011 as a result of problems in the financial sector.
Briefly, many who purchased homes in the real estate boom are behind in their payments. Lenders have foreclosed on many of these properties. During the second quarter of 2010, nonperforming loans, those more than 90 days past due, were 5.36% of total loans according to data from the Federal Reserve Bank of St. Louis (the graph is available at http://research.stlouisfed.org/fred2/graph/?s[1][id]=NPTLTL ) Mortgages currently account for a large share, but not all, of past due loans. Rates over 5% are extraordinarily high. Prior to 2009, the highest rate, 4.01%, occurred in 1991. Between 1995 and 2007 the rate averaged slightly more than 1%.
Until recently, the process of foreclosure has been relatively straightforward. A borrower does not pay, the lender sends (often nasty) notices, legal steps are taken and the lender takes over the property. Banks and other lenders typically do not want to own houses, so they usually try to sell the foreclosed properties. But, in part due to the shear volume of foreclosed properties, it seems that banks and other lenders did not always comply with the exact legal requirements for foreclosure. Thus, some affected property-owners have gone to court. The details of these problems have been well-documented in the NY Times and other publications so I will not bother to recount them. A complicating factor is that many mortgages were packaged into securities which were then sold. Simply determining who owns a particular mortgage could be problematic.
As usual, the involved parties have different perspectives. Lenders have tended to minimize the difficulties as minor, little more than their failures to 'dot all the i's' in the relevant documents. On the other hand, consumer groups and lawyers whose clients' properties are in foreclosure suggest that the errors are serious. Ultimately, state supreme courts will resolve these issues. It is possible that the resolutions will differ significantly across states. Most interesting will be how the states that have seen the biggest collapses of the housing markets; those such as California, Florida, and Nevada; deal with the problems.
How could this affect the US economy? At best, a tempest in a teapot as my grandmother might have said. If so, the economy of the United States will start to grow more rapidly, probably starting in the second half of 2011. At worst, lenders will be more reluctant to lend than would otherwise be the case during an expansion and the economy returns to recession. Probably something in between these two extremes is most likely, so I expect that U.S. economic growth will remain tepid over the next year.
... and in Mexico and Belize? Another recession in the US would have negative impacts on Mexico. The United States is the destination for approximately 80% of Mexican exports. The recent US recession led to a reduction of more than 6% in Mexico's gross domestic product, much of the reduction occurred in the export sector. A double whammy of U.S. recession and the AH1N1 strain of the flu made the 2008-2009 tourist season dismal in Quintana Roo. Although the 2010-2011 period will probably be better than the year before, I expect a relatively slow winter season for tourism in the Caribbean this year. Tourism in Belize also suffers when the US is in recession. The over-valued Belize dollar will continue to suppress tourism in Belize.
In short, the foreclosure situation is a Gordian knot. Resolving the problem will be (to paraphrase Hobbes) nasty, brutish, but definitely not short.
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