Banker and mortgage lender Wells Fargo has labeled the Pierce County housing market “soft” in a memo identifying various markets around the country as soft, distressed and severely distressed. Spokeswoman Lara Underhill confirmed in an email this afternoon that Pierce County was considered a “soft” market but said she couldn’t provide any context as to why a market falls into a specific category.

She did say that today’s Reuters story on the topic was accurate. Reuters said Wells Fargo, the fifth largest bank in the country, identified more than 200 troubled markets nationwide that fell into one of the three categories.

Here’s an excerpt from the story about what such a designation means:

“Wells Fargo is tightening its lending standards in the affected markets on February 29, often by limiting the size of loans as a percentage of home values, regardless of borrowers' ability to pay. In some markets, it will not allow purchasers to borrow more than 75 percent of the value of their homes.”

Underhill declined to specify what all this might mean for borrowers in the South Sound.

She did, however, characterize the change in credit policy as a “standard course of business - we had similar instances 3 or 4 times in 2007. It's a routine step in managing credit policy and in meeting our commitment to fair and responsible lending principles.”

For some context on the Pierce County housing market, the median home price in 2007 increased 2.8 percent over 2006 but fell year-over-year in January by 2.5 percent, according to the Northwest Multiple Listing Service. Sales activity last year was down 24 percent compared to a 37 percent decline last month.

Talk about a mortgage loophole: A Bloomberg story reveals that some homeowners around the country are avoiding foreclosure because banks can't keep track of one very important piece of paper. That would be the mortgage note demonstrating ownership.

How could this happen? The story explains that, because mortgages were bundled into securities and sold at such a fast clip in the boom years of 2003 to 2006, the paperwork wasn't always done right.

Here's the story:

Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002.

That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton. The Seattle-based lender failed to prove that it owned Lents' mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

"If you're going to take my house away from me, you better own the note," said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.

"I think it's going to become pretty hairy," said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. "Regulators appear to have ignored this, given the size and scope of the problem."

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