The Baying Hounds of the Foreclosure Mess

Yowza. Lots of "I'm as Mad as Hell" articles making it into the press these days.

(Via Felix Salmon) Here's a full on rant by Joseph Tauke at the Daily Caller, One Nation Under Fraud. He does a nice walkthrough of the issues - and brings a pieces that were new to me:

• A company called DOCX offered its services to "recover." As Yves Smith pointed out - this means they created documents that the banks thought should have existed. Created from nothing - for a set price.
  
• There are tax implications for trust companies who do not acquire the mortgages they will hold within three months. Implication might be an understatement - the payments to the trust go from untaxed, to taxed at 100%. Ow.
• A class-action lawsuit was just filed in California which challenges MERS legal standing to hold mortgages. I'm thinking that might cause some re-valuing of some 60 million mortgages that list MERS as their mortgage owner.

David Kotok is cited over at The Big Picture, where he posts the anonymous rant of one of his sources in finance:

“You can endorse the note as many times as you please…but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.

“If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.

“To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.

“Read that last sentence again, please. Don’t worry, I’ll wait. “You read it again?

Good: Now you see the can of worms that’s opening up.

Put me in the camp that says there is no way government is going to allow defauting homeowners to remain in houses for free in perpetuity. Kotok's suggestion seems the most rational:

An example of a possible fix in a full blown litigation might be for the court to order the mortgage modified to the current equity value of the home, so that it a) punishes the lenders who failed to do their proper legal work on the documents, but b) does not give a home to a defaulted homeowner for free. The odds would be that the homeowner still gets foreclosed on, but does not owe additional monies to the bank. Since these are very often uncollectible judgments anyway, the court’s judgment can mete out justice fairly, not give anyone an undeserved windfall, yet move the cases forward. That is but one “just” solution, and I am confident that most courts have the sophistication to fashion an appropriate remedy.

Homeowners get a shot at staying in their homes based on better terms - lenders get a shot at owning SOMETHING of value - and we take a long, slow walk out of the woods.

Gah.

Also - from the NYT's always ass-kicking Gretchen Morgenson - a story about how Countrywide Financial kept up appearances.

Money quote from their CEO, Anthony Mozilo, describing their 80/20 loan (which allowed borrowers to finance 100% of a home's value):

“In all my years in the business, I have never seen a more toxic product,” he wrote to Mr. Sambol in an April 17, 2006, e-mail cited by the S.E.C. “With real estate values coming down ... the product will become increasingly worse.”

Nice to hear, Ant'ny - but would have been a lot more useful if we'd heard it a few years ago, no?