Rep Grayson (D-FL) has called upon the Financial Stability Oversight Council to break apart the mega-banks due to the danger of systemic failure by banks. The provision which authorizes this, known as the Kranjorski Amendment, provides federal regulators with new powers to pre-emptively break up large financial institutions that - for any reason - pose a threat to US financial or economic stability. t r u t h o u t | ForeclosureGate: Time to Break Up the Too-Big-to-Fail Banks? Apart from the banks' configuration, others could be affected by the foreclosure/fraud issue. The title insurance companies of subsequent buyers would be liable if the earlier homeowner could reclaim the title to the property -- or even just cloud it to the point it was no longer freely transferrable. The IRS might be able to collect taxes on 100% of the value of these mortgages. The banks created Real Estate Investment Conduits, a term of art for tax purposes. They named themselves as trustees, and it was shares in these REMICs that were sold as mortgage-backed securities. To qualify as a REIMC and shelter the mortgages within from tax, the trustee could own any property of the REMIC. If it is found that the banks failed to make the necessary legal transfers of title to the REMIC, the whole REMIC fails as a tax avoidance device. If the banks/brokers sold shares in REMICs as non-taxable and in fact, the IRS taxes them, the buyers of these securities could sue for misrepresentaion, fraud, breach of a duty of care, etc. This issue could turn out to be quite interesting. I think I will brush up on my real estate law.