Saturday, October 9, 2010

Foreclosure Clusterf*ck


Over the last week or so, there has been a huge mess brewing in the foreclosure processes; Rep. Alan Greyson (D-FL) has called for Congressional inquiries. On Wednesday, Florida halted all foreclosures. Today it got a lot worse: California Attorney General (and gubernatorial candidate) Jerry Brown called for a similar moratorium in California and said he was in talks with a slew of big banks: Wells Fargo, JP Morgan and Bank of America amongst them. New Mexico's AG called for the same.

The following is from one Janet Tavakoli, a noted financial expert and author, on why: "This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional"

Just how bad is this ? It could be very, very bad for big banks.. and thus taxpayers. Zerohedge's prediction which, at the current rate of decline and given the propensity of Americans to sue, might just come about: "We predict that within a week, all banks will halt every foreclosure currently in process. Within a month, all foreclosures executed within the past 2-3 years will be retried, and millions of existing home sales will be put in jeopardy."

This would be a big blow to banks who are big in mortgages; Wells Fargo and Bank of America in particular; their very survival will certainly come into question as it's my guess that to solve this, the foreclosed owners would be granted a tidy sum by these banks.. tens of thousands each in damages.. for millions upon millions of people, perhaps reaching a couple hundred billion dollars in total. In the end, I believe the banks, with an assist from Big Ben Bernanke, will survive, but with a gaping hole in their portfolios. If these banks no longer want to do mortgages, others will step up into the gap. Perhaps they'll even get it right and not defraud people.

In other news, today's unemployment report was brutal.. sort of. It was intended to be that way; it opens up the door for Bernanke to announce his QEII on the day after the election. The FX, commodities and stock markets have already priced this one in, and they will not be disappointed. Us serfs, on the other hand, might not like the rising prices at the store and gas pump. But then again, nobody really cares about serfs; America's top to bottom, trickle down theory isn't reaching those at the bottom anymore.. and neither will this upcoming action. This has, over the last week or so as the FX markets have taken this in, set off a mini currency war, with Big Ben and China on one side and the rest of the globe on the other. Brazil, Korea, Peru, Japan, and a few other smaller nations have taken steps to halt the rise in their currencies. The ECB will also not sit idly by forever. "Beggar Thy Neighbor" might be in the early stages: http://themeanoldinvestor.blogspot.com/2009/11/beggar-thy-neighbor.html

9 comments:

  1. Mr K

    Ally formerly GMAC is also in trouble. The entire housing bubble was a fraud perpetrated on a greedy bunch of Americans who thought that they could get something for nothing. Bank of America, having acquired Countrywide should be stuffed to the gills with bad loan docs. People now live here in Florida mortgage free. While their neighbors dutifully pay there mortgage every month others haven't paid in three years. This is the moral hazard that the banksters created. How this will end is anyones guess.

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  2. It's going from fiscal policy to social policy; Wash DC are where the final decisions are going to be made. But you're right.. if there are no foreclosures in your state and your house is "underwater" anyways, what incentive do you have to pay the note ?

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  3. IN the words of Timmy Geithner (Washington Post Five TARP Myths: Myth 3: The TARP was a quick fix for the market meltdown but left our financial system weak.

    Geithner's propoganda:
    The U.S. financial system has been completely overhauled and is in a much stronger position today than before the crisis. In fact, the weakest parts of the system are gone.

    Myth #4: The TARP worsened the concentration of the banking sector, leaving it more vulnerable to another crisis.

    Geithner propoganda continued:
    ...greater transparency, tight limits on size and further concentration, and a clear prohibition on taxpayer-funded bailouts.

    Queenbee: guessing not required as this will end very badly and there will be at least one bank taken down as a result of the foreclosure mess. Keep in mind, the banks continue to play extend and pretend and the pretend game just went viral. Next up...Mark-to-Model will come back to bite the banks in the arse much like a rabid dog!

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  4. Bear Hug I am sure it will end badly, but I am still in the muddle through this camp as opposed to a banking melt down and a complete reset of our economy. Lots of pain and suffering ahead.

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  5. Us serfs, on the other hand, might not like the rising prices at the store and gas pump. But then again, nobody really cares about serfs; America's top to bottom, trickle down theory isn't reaching those at the bottom anymore..

    well said.

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