Motley Moose – Archive

Since 2008 – Progress Through Politics

banking

We Are SO Screwed

Today Bank of America stock rallied.  The Fed is talking about ‘quantative easing.’  We are alarming our friends and allies by crimping the US dollar worldwide in an effort to improve exports and ‘pump prime’ our flagging economy.  We are in the midst of a tenacious recession and our equity market is overhyped daily and undermined after-hours by insider profit-taking.  

The foreclosure crisis has our whole system of real property in doubt across fifty states and the banks which we spent our last trillion capitalising have made provisions to cover a trivial fraction of their remaining exposure to toxic subprime debt.  Some originators no longer have the notes, some mortgages have been securitised into two or three trusts, all of them have been leveraged into endless tranches of CDOs whose value exceeds the world’s GDP.

And now this:


HOUSTON, Oct. 18 PRNewswire  Today, the holders of over 25% of the Voting Rights in more than $47 billion  of Countrywide-issued RMBS sent a Notice of Non-Performance (Notice) to Countrywide Home Loan Servicing, as Master Servicer (“Countrywide Servicing”), and to Bank of New York, as Trustee, identifying specific covenants in 115 Pooling and Servicing Agreements (PSAs) that the Holders allege Countrywide Servicing has failed to perform.

Institutional Holders of Countrywide-Issued RMBS Issue Notice of Non-Performance… PRN Newswire 18 Oct 10

Just wanted to post this as a marker, really.  The first $47 billion.  Of the $1.4 trillion worth of dodgy securitised mortgage trusts we know about.  A little time-capsule of our current condition.  “Iceberg, right ahead!”, exclaimed the lookout.

The Mortgage Documentation Crisis

For weeks there has been an emerging story which casts doubt on the validity and provenance of documents used in foreclosure proceedings nationwide:


It is a legal impossibility for someone without a mortgage to be foreclosed upon.  It is a legal impossibility for the wrong house to be foreclosed upon, it is a legal impossibility for the wrong bank to sue for foreclosure.

And yet, all of those things have occurred.  The only way these errors could have occurred is if several people involved in the process committed criminal fraud.  This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.

Barry Ritholtz – Why Foreclosure Fraud Is So Dangerous to Property Rights The Big Picture 12 Oct 10

The use of the Mortgage Electronic Registration System by the majority of lenders, especially for mortgages securitised and resold to investors, inadequate or concocted documents and imperfect ‘due process’ by unqualified loan officers has created uncertainty regarding the status of mortgage-holders and their standing as plaintiffs at foreclosure:


“If people say that you cannot prove that you own the loan, it could be really cumbersome to untangle,” said [Jeffrey Gundlach, chief executive officer of DoubleLine Capital LP], whose firm manages $5.5 billion in investments, mostly mortgage-backed securities.  “It has the potential to spiral into much, much more.  There have been many twists and turns to the foreclosure process since the credit crisis started and this is one more turn of the wheel, and it can spin out of control.”

John Gittelsohn – Securitization Flaws May Lead Investors to Fight Mortgage Deals Bloomberg 14 Oct 10

In spite of the volume of foreclosure actions, 100,000 in the past month alone, the crisis emerging as securitised mortgage documentation is presented in court has led major institutions to declare a self-imposed moratorium on foreclosures, at least for properties ‘held’ by MERS.  

There is more to the problem, however.  The process by which these mortgages were originally transferred to trusts for sale to institutional purchasers is questionable and may be found to be defective, rendering them essentially worthless and exposing the banks who sold them to liability at par with their original value, roughly $1.4 trillion dollars.