There's A Possible Nightmare Scenario Here That No Foreclosure Is Valid - U. S.

[interestrateripoff]

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/06/AR2010100607227_pf.html

Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.

Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.

These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."

The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.

For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can't afford and waiting for the foreclosure process to begin anew.

For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.

For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again. Attorney General Eric H. Holder Jr. said Wednesday he is looking into the allegations of improper foreclosures, and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, said he plans to hold hearings on the issue.

At the core of the fights over the legal standing of banks in foreclosure cases is Mortgage Electronic Registration Systems, based in Reston.

The company, known as MERS, was created more than a decade ago by the mortgage industry, including mortgage giants Fannie Mae and Freddie Mac, GMAC, and the Mortgage Bankers Association.

MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.

The idea behind it was to build a centralized registry to track loans electronically as they were traded by big financial firms. Without this system, the business of creating massive securities made of thousands of mortgages would likely have never taken off. The company's role caused few objections until millions of homes began to fall into foreclosure.

O dear, I'm sure we'll all feel sorry for Wall Street bankers if this happens, really it couldn't have happened to nicer people.

http://market-ticker.org/akcs-www?post=168499

Now we're cooking...

For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.

Yep.

And this wasn't hurried - it was intentional.

MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.

You mean ignore the law, not "bypass" the law. Oh wait - bypass does mean ignore, doesn't it?

Kentucky lawyer Heather Boone McKeever has filed a state class-action suit and a federal civil racketeering class-action suit on behalf of homeowners facing foreclosure, alleging that MERS and financial firms that did business with it have tried to foreclose on homes without holding proper titles.

"They have no legal standing and no right to foreclose," McKeever said. "If you or I did this one time, we'd be in jail."

Indeed, just as if I showed up, busted in your house and changed the locks I'd be in jail too.

But heh, when they do that in Florida, the Sheriff refuses to arrest the perpetrator.

Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.

But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks' paperwork problems have been laid bare, she said.

The result: "Banks are vulnerable to lawsuits from investors in the [securitization] trusts," Tavakoli said.

Darn tootin' they are.

Gee, if the so-called Trust never took delivery of what it claims it did when it sold those MBS to investors then the investors are holding an empty box, and they're likely to get a bit ****ed when they figure it out.

TIME TO GET ****ED FOLKS - THERE ARE MORE THAN SIX TRILLION DOLLARS WORTH OF THESE POTENTIALLY-EMPTY BOXES OUT THERE!

There are a few people - Janet included - who have been on this for a long time. Indeed, when the light came on in this regard in early 2007 it is what prompted me to start writing The Ticker in the first place!

"Joe on the Street" largely doesn't understand what happened here. He thinks, and the mainstream media sells to him incessantly, that his was all just "unbridled speculation" or "mistakes."

It was not.

Janet, myself and a few others - including Bill Black - have said that the essence of what happened here was fraud and deception, not "speculative froth" or "mistakes."

Until the common man on the street comes to understand that he didn't get screwed because of bad luck, but rather he was intentionally assaulted, he will not rise and demand that these screwjobs be unwound and the people involved held to account.

Dennigers take on it.

It would be great to see this all end up in court and see the bankers squirm.

[Meat Puppet]

These criminals "processing" all those fraudulent loans in 2006 and 2007 reminds me of the Nazis rushing the Jews to Auschwitz and elsewhere in 1944 as the Red Army approached.

The bankers deserve their very own Nuremberg Trials.

[Redcellar]

No forclosure is valid, what about simply refusing to pay any more of the loan off at all then, everyone! That's what would happen if the law didn't back the banks on this. It would be complete and catastrophic failure of the banks and subsequently everyone in the country. Won't happen. Things will be fiddled to make it all work out OK.

I read a story on these boards a couple of days ago that said the law backed the banks on this already. Didn't need to prove who now held the ultimate loan.

[Mikhail Liebenstein]

No forclosure is valid, what about simply refusing to pay any more of the loan off at all then, everyone! That's what would happen if the law didn't back the banks on this. It would be complete and catastrophic failure of the banks and subsequently everyone in the country. Won't happen. Things will be fiddled to make it all work out OK.

I read a story on these boards a couple of days ago that said the law backed the banks on this already. Didn't need to prove who now held the ultimate loan.

Shame really , but if it is true it means all the banks are bust. No ability or right to foreclose, means no collateral value, which means non performing loans are worth zero.

In which case I'd sell your Goldman Sachs Shares tomorrow.

[Liquid Goldfish]

No forclosure is valid, what about simply refusing to pay any more of the loan off at all then, everyone! That's what would happen if the law didn't back the banks on this. It would be complete and catastrophic failure of the banks and subsequently everyone in the country. Won't happen. Things will be fiddled to make it all work out OK.

I read a story on these boards a couple of days ago that said the law backed the banks on this already. Didn't need to prove who now held the ultimate loan.

The cases have gone both ways and the law's not settled yet.

I read that 15% of mortgages would be unenforceable if the banks lose so that would mean another major financial meltdown.

Edited October 8, 2010 by oldsport

[Pauly_Boy]

You know what, from the HOC side of things this sounds funny but it's far from that. I've heard stories of courts allowing banks to sieze properties that were bought without mortgages because that MERs system is so screwed up.

It's a complete mess and I hope it never happens here!

[wonderpup]

You know what, from the HOC side of things this sounds funny but it's far from that. I've heard stories of courts allowing banks to sieze properties that were bought without mortgages because that MERs system is so screwed up.

The best part was they had the 'documentation' to prove that this guy had failed to pay that non existent mortgage-

The USA truly is now a banana republic- they will simply rewrite the rules to allow the banks to do whatever it takes to avoid being exposed as the frauds they really are.

[The Eagle]

I read about this a year or two ago, there was some case where the owner stopped paying and sued the bank becuase the bank couldn't prove to have clear title.

I'm surprised it took so long to become major news...

OTOH I think Washington will solve this with some emergency law in favour of the banksters, there is no way they would allow this to spread.

This just proves again that banks are nothing but systematic ponzi schemes by design, not because of corrupt individuals.

[The Eagle]

You know what, from the HOC side of things this sounds funny but it's far from that. I've heard stories of courts allowing banks to sieze properties that were bought without mortgages because that MERs system is so screwed up.

It's a complete mess and I hope it never happens here!

Well UK mortgages were resold into MBSes too (norther rock was very much at it, but others too), so i wonder how that has been done from a legal POV?

[interestrateripoff]

http://www.nytimes.com/2010/10/08/business/08frozen.html?_r=1&hp

Amanda Ducksworth was supposed to move in to her new home this week, a three-bedroom steal here in central Florida with a horse farm across the road. Instead, she is camped out with her 7-year-old son at her boss’s house.

Like many buyers across the country, Ms. Ducksworth was about to complete the purchase of a foreclosed house when it suddenly went off the market. Fannie Mae, the giant mortgage holding company that buys loans from commercial lenders, is pulling back sales of homes that might have been foreclosed in bad faith.

“I gave up my rental thinking I would have a house,” said Ms. Ducksworth, a 28-year-old catering assistant. “Now I’m sharing a room with my son. What the hell is up with that?”

With home sales this past summer at the lowest level in more than a decade, real estate is ill-prepared to suffer another blow. But as a scandal unfolds over mortgage lenders’ shoddy preparation of foreclosure documents, the fallout is beginning to hammer the housing market, especially in states like Florida where distressed properties are abundant.

“This crisis takes a situation that’s already bad and kind of cements it into place,” said Joshua Shapiro, chief United States economist for MFR Inc., an economic consulting firm.

Three major mortgage lenders — Bank of America, GMAC Mortgage and JPMorgan Chase — have said they are suspending foreclosures in the 23 states where they first need a judge’s approval. They are also waving off Fannie Mae from selling any of the foreclosed homes whose loans they sold to Fannie.

The companies say they are reviewing their operations after disclosures that employees signed documents without determining the accuracy of the material, as is required by law.

Those reviews are throwing into limbo hundreds of thousands of foreclosures and pending home sales, analysts estimate, though the lenders and Fannie Mae have been mostly silent about precise numbers and other specifics.

More broadly, the revelations about the sloppy paperwork are emboldening homeowners and law enforcement officials in many states to question whether lenders rightfully hold the notes underlying foreclosed properties — further chilling the housing market.

Distressed properties, many of which are in foreclosure, make up about a third of all home sales. “Foreclosures are going to slow to a crawl,” said Guy D. Cecala, publisher of the trade magazine Inside Mortgage Finance.

Still I'm sure it won't case serious problems....

Although I suppose while it's all in limbo the banks can keep marking to fantasy.

[The Eagle]

It's surprising how more serious threads like this one get ignored by the majority of posters, despite the subject is actually extremely relevant to the topic of this forum (potentially explosive) and with a serious possibility of similar developments in the UK, too.

But I guess most posters on HPC these days prefer Daily Mail style threads than serious discussions...

[South Lorne]

It's surprising how more serious threads like this one get ignored by the majority of posters, despite the subject is actually extremely relevant to the topic of this forum (potentially explosive) and with a serious possibility of similar developments in the UK, too.

But I guess most posters on HPC these days prefer Daily Mail style threads than serious discussions...

....stories of US judges rejections of securitised loan documentation in such actions has been going on for at least a year....

[ccc]

If it gets to be a major problem they will just retrospectivwly change a few Laws. We all know the score. Anyone really think the US Courts are going to be ALLOWED to ****** up all the Banks even more ?

Not a hope. They will be told what to do. And this is no TFH theory either. Just money.

[Injin]

If it gets to be a major problem they will just retrospectivwly change a few Laws. We all know the score. Anyone really think the US Courts are going to be ALLOWED to ****** up all the Banks even more ?

Not a hope. They will be told what to do. And this is no TFH theory either. Just money.

Interestingly, it's money either way.

Sharks eat sharks.

[The Masked Tulip]

This has two possible consequences:

1. People will not buy repos in the US out of fear that X years from now some court will award the home back to the people kicked out. You would only buy such a repo now if you can get it for a bargain basement price - much lower than now.

2. People might go back to buying from non-repo owners just to get the certainty of ownership which, possibly, could drive up such house prices once the recovery begins in the US.

In the land of the lawyer I would stay away from a repo now unless I could get a house worth X hundred thousand for a mere ten or twenty K.

[northwestsmith2]

If it gets to be a major problem they will just retrospectivwly change a few Laws. We all know the score. Anyone really think the US Courts are going to be ALLOWED to ****** up all the Banks even more ?

Not a hope. They will be told what to do. And this is no TFH theory either. Just money.

Same as the banking charges in the UK, the Supreme Court oerturned the High Court and Court of Appeal and decided the OFT did not have the right to assess the charges. The banks also threatened customers with closing their account and said they would make everybody pay a monthly fee as well as calling in loans.

Bank always wins

[billybong]

I don't see why the UK doen't have exactly the same problems of proof of mortgage ownership.

Perhaps the difference is that the courts more readily accept the word of the bankers/lenders rather than the mortgage borrowers. And maybe people aren't aware of it as a possible defence i.e. poor legal advice.

[DabHand]

No not really. In this case security holders (banks!) are sueing the servicers, also the originators (often the same entity - also banks!). So you see, some banks will win, but it means another set of banks will need to lose.

[erranta]

Interestingly, it's money either way.

Sharks eat sharks.

That would be a fin_alistic phase - Banksta 'Cuts' = Cannibalism.

Edited October 8, 2010 by erranta

[MinceBalls]

In all serious can someone tell me if this is inflationary or deflationary?

On the one hand, i can see it as very inflationary - giving houses to people who can't really afford them - but on the other hand surely it is deflationary because banks go to to the wall?

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/06/AR2010100607227_pf.html

O dear, I'm sure we'll all feel sorry for Wall Street bankers if this happens, really it couldn't have happened to nicer people.

http://market-ticker.org/akcs-www?post=168499

Dennigers take on it.

It would be great to see this all end up in court and see the bankers squirm.

[northwestsmith2]

No not really. In this case security holders (banks!) are sueing the servicers, also the originators (often the same entity - also banks!). So you see, some banks will win, but it means another set of banks will need to lose.

But they don't have the house or the money, maybe some nice office furniture will cover it.

[leicestersq]

I don't see why the UK doen't have exactly the same problems of proof of mortgage ownership.

Perhaps the difference is that the courts more readily accept the word of the bankers/lenders rather than the mortgage borrowers. And maybe people aren't aware of it as a possible defence i.e. poor legal advice.

I think that the land registry keep details about mortgages and who has secured what over what property. It has to registered with them in a proper process, and they have a copy in case the bank loses it.

[billybong]

The other side to this is the security of the money given to the UK banks by the taxpayer as bail-out funding in the UK.

Not only are banks overvalued in that the derivatives they hold aren't marked to market but in actual fact they don't have any clear right of possession of any mortgaged properties at all. So no housing asset backing.

No wonder the BoE said when this crisis started that they didn't like transparency they like to act in secret.

It's because the entire system is collapsing around their ears.

Edited October 8, 2010 by billybong

[The Eagle]

I think that the land registry keep details about mortgages and who has secured what over what property. It has to registered with them in a proper process, and they have a copy in case the bank loses it.

Yes but do you know if, when for example nothern rock sold on someone's mortgage, they changed the details in the LR?

I doubt so, I think it will still say northern rock and the buyer is obviously still paying his mortgage to northern rock, even though they don't own it anymore...

I wonder how the securization has been done from a legal POV in the UK?

[billybong]

I think that the land registry keep details about mortgages and who has secured what over what property. It has to registered with them in a proper process, and they have a copy in case the bank loses it.

Indeed that sounds likely but I'm sure the US registry system is similar. If the mortgage now forms part of a mortgage backed security does the land registry register that fact and for that matter register every new owner of the MBS as the security is traded along as time goes on - I doubt it.

So if the US is having difficulty proving ownership as the mortgage has been passed onto the mortgage backed security and diced and sliced into different components and subsequently traded along then the same doubts apply in the UK.

A borrower therefore has every right to say in court does the bank wanting possession still actually own the mortgage or does it form part of a mortgage backed security owned by another company or person. And if so they should be dealing with them and they might not even want posession of the property and might be more willing to negotiate etc etc.

An added complication is that if the security changes hands during a repossession case.

If the original originator of the mortgage loan does get court possession of the house do they immediately advise the current owner of the mortgage backed security so that they can claim the asset or their share of the asset. How is the value of the asset transferred (if at all) under those circumstances.

Maybe that's another reason why banks are being slow to sell repossessions into the market - or at least rumoured to be slow.

Edited October 8, 2010 by billybong