When will the Foreclosure write offs Turn Critical

[william the wie]

The fraudulent MBS tranches are probably a bigger problem than the foreclosure mess. My guess is that that will run 20 Trillion or higher to settle depending on whether RICO is triggered.

It is hard to say how many MBS are still unsettled. The Fed bought as many as possible to shield the banks from these kinds of risks......

This save the banks/screw the economy mentality is the MOST obscene corruption evidenced in the whole recession.

I noticed a curious silence on this subject so I went to MSN.com and found one video reference to tranche lawsuits. It turns out that the courts put these lawsuits at the bottom of the list and it takes 25+% ownership in the pool to bring suit. If at all possible these cases are settled out of court. There is at least one case coming to trial already against some small fry securitizer I have never heard of.

The only way I know of that this trial could even be on the docket is if a deep pocket law firm combined with a hedge fund back in at least 2006 and signed up enough retirement funds to shorten the waiting list for trial. Because it would be insanely reckless to sign up 25% with US retirement funds (A Canadian bank did this with a Wisconsin school board early on in the boom using a synthetic CDO CDS and the case flew through the courts with some criminal indictments so that crap stopped quick.) I suspect a hedge fund was also needed for funding no matter how rich the law firm was.

If there is a lawyer on the board feel free to correct my legal errors if any but I thought lawyers could not collect more than their clients in cases like this. If so preparations for this lawsuit would have had to begin in 2004 to get the capital needed to go forward and evidence of fraud would have had to be nearly overwhelming back then to get this much capital tied up for so long.

 

[loosecannon]

Mozilo

 

[william the wie]

Mozilo

Mozilo? I think you are referring to the Countrywide CEO settlement with the Government but that is old news. Besides if I am not mistaken Countrywide was more of an originator than a securitizer. Countrywide provided a disproportionate amount of the crap documentation that is getting the CDO creators in trouble but I am referring to the other end of the food chain. The folks who bought the tranches made from the crap mortgages that Countrywide made are suing the CDO creators who did not do their due diligence in converting that crap to BBB-AAA mortgage bond tranches.

Time for an expanded view of the big picture of what was happening in the boom:

Originators were writing mortgages so fast that they had no time to get their paperwork straight. Doing 20K/month in commissions at say 1% commission net to the salesman and 146K per mortgage with 20 hours of work per commission that is 274 hours per month or 62 hours a week on accepted mortgages. That is a lot of work because a lot of mortgages would be rejected with full credit reports, income verification and other things that were supposed to be in the package that went to the securitizer.

Then the loans were sent to the backroom where the clerks prettied up the loans and sent them off to the securitizer with missing paperwork "found".

The securitizer kept the paperwork for one year while illegally slicing and dicing the loans to destroy the chain of title. The stored paperwork was prettied up again when it arrived and certified for the ratings agencies so the slicing and dicing could begin. The resulting tranches were then sold.

If required documentation ever existed it became bug and rat food after one year. Which was really helpful because three deeds with the same names but different handwriting could be embarrassing particularly with no note.

So we now come to the point that I was posting about. The tranches were sold with a warranty that 100% of the documentation for 100% of the mortgages were verified and safely stored. This paragraph was what I posting about Anthony Mozillo is four paragraphs up. The folks who got their warranty on their tranches are beginning to sue for fraud by the securitizer. Yeah, it is complicated and confusing even though I left out a lot of major steps in the process.

 

[georgephillip]

I think it's also likely our national government will continue doing what similar institutions have done for thousands of years - socialize the cost and privatize the profit for a select few.

November 2nd brings the entire US House of Representatives into range IF you are willing to FLUSH as many Republican AND Democratic INCUMBENTS from power as possible.

YES! It's a leap of political faith to trust in Greens or Libertarians.

Continuing the "choose" between Republican OR Democrat guarantees a win for the few and economic ruin for the many.

While I agree with much of what you say how is it politically survivable to vote for a TARP II?

If the choice is between TARP II or watching Bank of America go the way of Lehman Bros, do Republicans AND Democrats survive?

 

[william the wie]

I think it's also likely our national government will continue doing what similar institutions have done for thousands of years - socialize the cost and privatize the profit for a select few.

November 2nd brings the entire US House of Representatives into range IF you are willing to FLUSH as many Republican AND Democratic INCUMBENTS from power as possible.

YES! It's a leap of political faith to trust in Greens or Libertarians.

Continuing the "choose" between Republican OR Democrat guarantees a win for the few and economic ruin for the many.

While I agree with much of what you say how is it politically survivable to vote for a TARP II?

If the choice is between TARP II or watching Bank of America go the way of Lehman Bros, do Republicans AND Democrats survive?

Well the Republicans will certainly not survive a vote for TARP II. True some moderate republicans will not survive voting against TARP II but a Tarp II will mainly aid Boston, New York, Philadelphia, Atlanta, Miami and San Francisco Democratic bastions all. The smart move with almost no exceptions is to vote against such a bill. The Fed will illegally monetize the effectively dead assets. Democratic votes in favor of TARP II with a few republican defectors may gain passage but it will effectively destroy the Democrats as a national party.

 

[Toro]

I would be shocked if there was a TARP 2. Has the original TARP been disbanded? They might disburse funds out of that.

 

[loosecannon]

I would be shocked if there was a TARP 2. Has the original TARP been disbanded? They might disburse funds out of that.

They already are redistributing those funds, but I barely bothered to notice the details.

Why would we TARP 2 when TARP 1 did nothing for the recovery?

 

[william the wie]

I would be shocked if there was a TARP 2. Has the original TARP been disbanded? They might disburse funds out of that.

As I understand it about 700 billion was the limit on TARP I. Once the bondholders start getting fraud convictions against the securitizers claims will be in the trillions with about 10 Trillion against the federal government, assuming punitive damages awards,

 

[georgephillip]

"The truth is that there was fraud going on in every segment of the mortgage industry over the past decade.

"Predatory lending institutions were aggressively signing consumers up for mortgages that they knew they could never repay.

"Many consumers were also committing fraud because a lot of them also knew that they could never possibly repay the mortgages.

"These bad mortgages were fraudulently bundled up and securitized, and these securitized financial instruments were fraudulently marketed as solid investments.

"Those who certified that these junk securities were 'AAA rated' also committed fraud. Then these securities were traded at lightning speed all over the globe and a ton of mortgage paperwork became 'lost' or 'missing'.

"Then, when it came time to foreclose on these bad mortgages, a whole bunch more fraud started being committed.

"The reality is that the 'robo-signing' scandal is just the tip of the iceberg. The following are six things that you should know about how deep this foreclosure fraud crisis really goes...."

Foreclosure Fraud:

"Securitized mortgage debt is going to be the final shot that kills all kinds of financial entities in the Western world. The biggest holder of this putrid junk is pension funds."

Hyperbole?

 

[william the wie]

The degree of fraud combined with the 20 year statute of limitations for real estate fraud makes this potentially the biggest economic crisis ever.

 

[iamwhatiseem]

The short answer is the government is trying to slowly let the air out on these bad loans hoping that it doesn't create another critical mass.

The lesson of the day...no the lesson of the century...is that governments have no business f*cking around with commerce. There is overwhelming evidence not only in the history of this country, but indeed the history of the world; nations that stray from the free enterprise system are nations where poverty is the norm.
As a matter of fact, you can accurately predict the poverty of a nation if all you knew was it's governments policies in how it interacts with production.

 

[Pepe]

The more I read on this subject the more I come to understand that there is much I really don't understand about the inner workings of the Mortgage and Securitization Industry.

The more I read and delve into the subject the more I find myself agreeing with WTW that losses are going to run into the Trillions.

The four largest Banks in the US hold some 60+ Trillion in "Derivitives." These being CDS, CDO, SDO, etc.

When the truth becomes so widely known that even the HS dropout can grasp the knowledge that the Dems through Carter and CRA to Dodd and Frank brought this economic disaster upon the Empire, the Dem Party may be finished.

Especially when Pensioners find that they have no pensions.

Congressman Brad Miller (D), has stated that in the end another "Resolution Authority" will be required to unwind the "Too Big to Fail" and bring this sordid mess to a conclusion.

 

[finebead]

When the truth becomes so widely known that even the HS dropout can grasp the knowledge that the Dems through Carter and CRA to Dodd and Frank brought this economic disaster upon the Empire, the Dem Party may be finished.

This is not true. There was no bubble in housing prices nor explosion in the issuance of subprime debt on Clinton's watch, it all occurred on Bush's watch, with his repub control of the white house, house or rep. and the senate.

This is on the repubs, and the dems were not helpful in averting the disaster, but 2001 - 2006 is when the damage was done, and the repubs controlled Wash. DC at that time.

Bush policy in housing was to expand minority home ownership, he said so at HUD while introducing his friend Franklin Raines, back in 2002. The repub house and senate could have controlled Fannie and Freddie, but they failed to do so. Greenspan, a lifelong repubican, had the authority to regulate the mortgage and banking space more tightly and he failed to do that on Bush's watch. And the CRA was for the most part an non-factor in the mortgage crisis.

The repubs were given the control of the nation from 2001 - 2006, six years, and the housing bubble blew up on their watch. To believe they are not responsible and accountable is insane.

 

[The Rabbi]

The current foreclosure mess is being presented in the MSM as the following:

Banks trying to foreclose on deadbeats and being obstructed by the courts.

However unless all mortgage data is wrong that is not what is happening.

The overwhelming majority of deadbeat mortgages are owned or at least guaranteed by the Federal government. So the federal government is hiding behind the banks to avoid the public record of foreclosing on its own citizens. This is illegal.

Why does the federal government own the mortgages? The short answer is that the interventions in the mortgage banking system going back to at least the S&L crisis in the late 80s/early 90s have involved the federal government taking on financial risk to avoid a real estate shake out. The long answer involves all the different ways $5+ trillion in BS notes ended up as an unfunded liability of the federal government. The long answer involves several books. Just go to the local library or bookstore (online or not) pick about 10 that suit your worldview and read them the story ain't simple.

So the federal government in various ways is on the hook for the worse loans out there but what makes those loans so bad? Lack of documentation is the biggie. Mortgage originators who were sloppy about who they loaned to were most often sloppy about record keeping as well. If deed, note or other required documents either do not exist or cannot be found then the mortgage claim will most likely not be honored.

GMAC/Ally the first problem child to surface is a subsidiary of the federal government. The relationship of MERS the electronic depository of most mortgage records in question was set up near DC in Reston VA which does sound suspicious even without its admitted ties to fannie mae and freddie mac. MERS has not kept ownership transfers updated at the county courthouses which is just as bad as no documents.

So the federal government is trying to foreclose on its own citizens without legally valid claims to many and probably most of the properties. In fact it may have foreclosed millions of houses already without a defensible claim to those houses, that will be really expensive.

So when does this mess go critical with class action lawsuits out the wazoo?

That is a gross misunderstanding of the mortgage market and process.
To start, most mortgages are not guaranteed by the gov't in any real sense. Other than VA and FhA there are no gov't guarantees. Fannie/Freddie were private companies for most of their existence.
Second, gov't guarantee, where it exists, means that the bank forecloses, sells the asset, calculates its loss on the whole transaction and sends the bill to the government for reimbursement. But they cannot do that until they foreclose. So the Lamestream media is right on that.
Finally, the issue seems to be procedural rather than substantive. Someone was supposed to sign the foreclosure notice and someone else did. How does that rise to anything criminal? No one disputes that the people getting foreclosed on are delinquent. Some of them have not made a mortgage payment in 24 months.

 

[william the wie]

A) Is the entire chain of title recorded at the Clerk's office? No, not for securitized loans.
B) Is the holder in due course of the note in a position to present himself as required? No, that requires a recorded chain of title to determine the holder in due course.
C) Can robo-signings in the absence of other title blemishes void the mortgage? Yes, conspiracy to forge evidence can be used to void contracts and that is why the 50 state AGs are cooperating in a joint investigation. This mess is a political goldmine that will put two or more of these AGs in the White House. Certainly the D presidential nominee in 2016 will be one of these AGs with 2012 a low but non-trivial probability for the same.
D) Are there non-trivial title errors in the majority of foreclosures pending? Yes. See the link by George Philip above. Further investigation may up that percentage from 75% to the 90+% range I have been told to expect. (the link at post 29 this thread.)

 

[loosecannon]

Hyperbole?

....or understatement?

I think it is some of both, of course I expect this mess to be resolved with unitary executive fiat shortly after the election but if it isn't I think the scope of this problem is much larger than the PIIGS bond scare. For a start the Chinese are now underwriting the PIIGS bonds to fuel their need for more reserves to keep the yuan pegged without pissing off the Bernanke Syndicate. Second the problems with paper work appear, or threaten to be extremely real. Like millions of legally void mortgages, or worse yet mortgages that by law can not be foreclosed upon, again millions of them. And the web of related CDS, CDOs etc is incalculably large. Those could be a trillion or 100 trillion, who knows. You can sign an infinite number of synthetic derivatives based on an asset's performance.

But that isn't the worst of this. The worst of this may be that a tsunami of legal filings may force a complete unravelling of the entire mortgage and securitization industry dragging everybody from HUD, Fannie, Freddie, and Sally into court with AIG, GS, Lehman, BearStearns and Countrywide to fight over losses they incurred due to the fraud committed by one another. We can only hope all 120 million parties to this fraud are dead before the courts can sort this out.

But most likely Obama will make a fiat declaration, appoint a settlement czar and offer parties the option of a quick settlement in exchange for keeping this quiet, keeping 100,000 mortgage related workers and financiers out of prison and keeping this all out of court lest it destroy western civilization.

 

[georgephillip]

If we get REALLY lucky, ForeclosureGate will vanish the Republican AND Democratic Parties from the page of time.

It could all start on November 2nd.

FLUSH the DC TOILET in 2010!

 

[loosecannon]

That is a gross misunderstanding of the mortgage market and process.
To start, most mortgages are not guaranteed by the gov't in any real sense. Other than VA and FhA there are no gov't guarantees. Fannie/Freddie were private companies for most of their existence.
Second, gov't guarantee, where it exists, means that the bank forecloses, sells the asset, calculates its loss on the whole transaction and sends the bill to the government for reimbursement. But they cannot do that until they foreclose. So the Lamestream media is right on that.
Finally, the issue seems to be procedural rather than substantive. Someone was supposed to sign the foreclosure notice and someone else did. How does that rise to anything criminal? No one disputes that the people getting foreclosed on are delinquent. Some of them have not made a mortgage payment in 24 months.

That was a really good post, succinct and well stated.

I still disagree with most of your key points. Fannie and Freddie are quasi government orgs, as is AIG today. Robo signing is fraud, and the document trail can be demanded to settle foreclosures.

But I do agree that those being foreclosed on should be foreclosed on.

I would make a gentlemen's deal to sweep the whole thing under the carpet if the paper work was cleaned up and every single person who worked in the mortgage securitization, ratings agencies, mortgage origination industry spent at least one month in prison, while those who worked in the synthetic industry spent at least 3 months in prison while all agree in settlements to never work in the industry again.

I still think we have to kill the securitization industry and selling synthetic CDS's should be a felony. Selling them to pension funds absolutely a felony.

This IS institutional FRAUD on a scale of Madoff cubed.

 

[loosecannon]

If we get REALLY lucky, ForeclosureGate will vanish the Republican AND Democratic Parties from the page of time.

It could all start on November 2nd.

FLUSH the DC TOILET in 2010!

More than likely both parties will blame the other and nothing will change.

What will it take for America to realize that both parties are screwing them at once?

 

[georgephillip]

Whatever it is, I think it would have to happen very close to an election.

Possibly a combination of something like ForeclosureGate and a US/Israel attack on Iran?

The Next New Pearl Harbor?

Most of us are so badly divided by the wedge issues we probably won't react properly to a common enemy.