Posted on 10/05/2010 7:25:45 AM PDT by blam
Kudlow Gets Into Foreclosuregate
The Market Ticker
Karl Denninger
October 5, 2010
Yes, I've dubbed it: Foreclosuregate.
I'd love to tell you that I think there's some reasonable way to get out of this.
There isn't.
The reality of this is far worse than it appears. Kudlow is still downplaying it, really, even though I emailed him today with the source documents of a half-dozen Tickers. Whether they prompted him to spend the time on it tonight I'll never know.
The real problem isn't the foreclosures. It's the REMICs.
The "loose document standards" of the go-go years were all predicated on this never happening - all the way up to now. In fact, the entire premise of the last three years of Bernanke, Geithner and everyone else's actions in the government has been under the (false) belief that they could "re-inflate" house prices. This would allow everyone to refinance out of the mess, and since nobody would ever see the inside of a court, nobody would be the wiser, other than a few REMIC holders who went after each other when a note was sold twice.
Instead, what we have is a nightmare. House prices are not going to go back up. As a direct consequence, we have an intractable problem.
The REMICs - the foundational conduits for all this paper - are to a large degree defective. I bet some of Fannie and Freddie's are too. Many notes were not conveyed, and in the states where recordation is necessary, most of them weren't recorded either. Many of these original notes are known to be sitting with the originator, never endorsed over and in some cases shipped overseas or deliberately destroyed. For all intents and purposes they're gone, because once the MBS closes they can't be put in later on.
This can't be fixed because both the offering circulars and IRS regulations set hard cut-offs for these things by which time everything has to be "in" and done. Further, you can't put anything in a REMIC that's defaulted - only good paper. So a defaulted note can't be put in, and nothing can be put in now, as the time has lapsed. Violate either of these and the REMIC's tax preference is destroyed. Don't violate it and some of the REMICs are empty boxes with, at best, naked promissory notes (legally a signature loan) and no standing to foreclose.
On Larry's show they were calling for "emergency legislation." It won't matter. The REMIC issues are the ones you can't fix. If those are defective then attempting to fix it triggers tax liabilities in the hundreds of billions of dollars. Forget that idea.
Nobody should get a free house. But the institutions - the big banks - are the ones who did this. They are the ones who put together these securitizations with defective (or no) assignments. Whether "by accident" or as a ruse to hide the fact that they were selling crap while representing them as good loans and knew it doesn't matter in the end analysis.
They effectively sold people an empty box - or one full of dead fish instead of good paper. Now with it all blowing up the entire "robosigner" thing appears to this author to be nothing more than a ruse to avoid responsibility.
Yet another ruse, just like "mark to myth" along with "extend and pretend."
We must not, as a matter of public policy, allow this. Those who perjured themselves in court or forged documents must stand before Justice and have it meted out on their heads. If this means that a bunch of attorneys go to prison and get disbarred, so be it.
Those transactions that are legally defective must be stopped, and when possible, unwound.
The MBS holders deserve to know exactly what's in the box they bought - not what they were sold, but what's really in there. If the conveyances happened then there wouldn't be a "robosigner" problem, as the original wet ink notes would be with the Trustee and we wouldn't need to "robosign" things and create documents that don't exist.
Obviously, this is not the case.
All we can do is unwind the transactions and make the MBS holders whole. Force the banks to eat their own crap. If this results in them detonating, then resolve them using our newfound Dodd/Frank authority and the FDIC.
And while we're at it, hold Geithner and Bernanke personally responsible for this. They both had to know. Bernanke and Geithner not only had to know, but Bernanke has been buying MBS. Is there anything in those REMICs or does he have empty boxes at The Fed too? Either way, as primary regulators over these institutions, these two must be personally held to account for gross malfeasance and dereliction of their respective offices.
This is the right way to handle this. It preserves the rule of law and protects the myriad investors who did nothing wrong - the pension funds, the individual investors and even government entities that bought these MBS in good faith, at least to the extent we can.
At the same time it puts both the homeowner who can't pay and the bank who originally played warehouse or originator (and who in either case is the one responsible for lending money to someone who they knew couldn't pay) in the same room, and says to them "You're the only two real parties at interest left, as everyone else was paid off. You figure it out - if you want to modify the loan, forebear part of the principal, or go ahead and foreclose and resell that's fine. It's up to you."
We also need to get federal criminal involvement in that if, as it appears, these conveyances didn't happen "en-masse" then each and every investor who purchased believing the pooling and servicing agreements was defrauded. Those sorts of things cannot be allowed to occur without the people responsible being held to account, and there are laws that were broken.
This mess will take a long time to clear out. But the best, proper and only way to do it is as I've outlined above. For those MBS/REMIC structures where proper assignment and endorsement is documented, leave 'em be - they're valid, and they should be allowed to run.
But for those where there are critical violations of the Pooling and Servicing Agreement or IRS regulations, the only solution that works is to put the notes back on the issuer and hold the bundler to account for what they did, and the harm they've done.
If The Federal Government will not step in and do this right here and now, today, then the State Attorneys General must stand up and prevent any and all foreclosure activity until and unless for each one full compliance with all state laws related to these security instrument transfers have been documented. If a REMIC that is out-of-compliance with IRS regulations is discovered, it must be referred for criminal tax fraud proceedings.
The States need to give the Federal Government a choice - do the right thing (which incidentally gets the states their overdue recording fees!) or all foreclosure actions will be stopped until they do.
REMIC is an anagram for CRIME. Coincidence?
bump to read later.
Not being an investor, I do not know what REMIC means... and am not entirely sure I know what MBS means (Mortgage Bank Securities?)
Sure wish I had a better understanding of how bad all this really is for the economy.
My County Recorder of Deeds is looking long and hard at the legal issues surrounding this. There are several thousands of mortgages in our County which appear to have changed hands several times, some as many as a dozen, which were never properly recorded as the law requires.
Potentially millions in fees are owed.
Just Google the acronyms you don’t understand....that’s how I learned.
Let the entire system collapse. It is the only way.
“Let the entire system collapse. It is the only way.”
How realistic is this scenario? You know the Fed will step in here with congressional support, and somehow mask over this problem with tax payer dollars Believe me the big money boys are the ones in control. Just look how Goldman Sachs was handled in 2008-2009.
This doesn’t appear to be effecting the bank stock prices..no big plunge. In fact the stocks are all up today. Go figure.
The market must believe that their is a way out..or that the banks are still too big to fail and too big not to profit.
Except banks and lawyers.
This might be the biggest and most interesting story of the last few months.
Ain't gonna happen. Holding them responsible merely expose those who are concealed by them, and who enabled this damnable mess. They represent continued concealment for those behind them.
Bernie Madoff went to jail so fast heads are still spinning for the same reason. Some of these people really are so big they will not be allowed to fail ... nor will they be held accountable.
At least, not under the current gubmint structure.
They should have let the whole thing unwind in late 08. Several problems would have been solved all at once but Paulson was able to convince Bush the future of humanity was at stake.
Right now all financial power in this country is consolidated in Manhattan. Crony capitalism has worked very well for those guys.
Don’t tell me Larry would see the sunny side of an economic issue!
Kudlow is basically Jim Cramer with better meds.
I don't think there is anything Kudlow considers unethical, as long as it jerks the Dow up another hundred points.
Don’t forget, a majority of Democrats in a dem majority Congress voted for the bailouts.
A minority of Republicans did.
The sheer audacity of the fraud is mind blowing.
This is an issue that should be a major theme for a populist, non-establishment candidate like Sarah. The theme should be, “Everybody can see that over one TRILLION DOLLARS in fraud has taken place and where are the indictments?”
I have not found one person, be they democrat, Republican, Libertarian, or progressive, who disagrees with my sentiments. Only the perps who own the congressmen and regulators would disagree.
Our country needs to clean house and put the white collar criminals in jail. The fraud is eating away the foundation of capitalism.
You are correct, if institutions are not allowed to fail they will repeat bad behavior, allowed to fail they will naturally correct.
That being said, my sister who is a town clerck has railed about the chain of custody of these documents for years and predicted this in ‘08 during the meltdown. She also contends tha many of the original documents will never be found, bottom line, many deadbeats will walk away with their homes debt free.
Makes one kinda feel stupid playing by the rules.
This whole “economy” thing is a gigantic fraud.
Soros and friends figured out a way to turn on the money blizzard (like a whiteout) in which so much $s are flying around no one will ever know how much they skimmed off by the boatload.
I am 100% convinced this is what this whole nobama mess is all about. Smart people knew America’s guilt would elect any black, regardless! Soros and klintoons found their boy in nobama.
After the bones have been picked clean, they drop us like an ugly date.
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