Posted on 11/24/2007 6:05:40 PM PST by Travis McGee
---Harvard Economic Society, October 19, 1929
“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.”
~~Only Yesterday: An Informal History of the 1920’s by Fredrick Lewis Allen
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
~~Ludwig von Mises
Important post. I have nothing to add. I am following this also, and look forward to the next parts.
Oh, since Judge Boyko, TWO MORE federal judges have reinforced his decision. Because no one knows who owns the mortgages and other bank paper, repossessions are not possible. BIG IMPLICATIONS WORLDWIDE.
This ruling will also send every other bank to do a thorough review of the papers they need to show legal ownership of the debt they are claiming is owed them - they will cover themselves as a result of this ruling. The financial world will not come to a grinding halt as a result of this legal case.
Mortgage lending used to be a department at your local bank which made good mortgage loans as a service for their valued customers. Banks could not incorporate across state lines and the only outside money for mortgages came from FNMA or the like which gave the eastern banks somewhere to safely invest long term money.
It was a low steady return on investment for all involved. Foreclosures were few and far between because lenders were so careful and didn’t want bad local community relations.
Well, looks like we’re f**ked then.
No reason to do anything but play on as the boat sinks, right?
This detailed and well written piece by Chas. Hugh Smith complements the presented article...it is worth saving..
http://www.oftwominds.com/blognov07/empire-debt1.html
Buyer beware...
Those people who fell behind on their payments will still loose their houses, but DB won't get the claim they thought they would.
Ding, ding, ding - we have a winnah...
Don’t say that! It will interrupt the orgasm of the doomsayers who get off on turmoil.
That's not the word around the bank where I work, but perhaps that's because we're not one of the ones in trouble, and can afford to face reality.
As for these failed foreclosures due to lack of documentation, this phenomenon actually started surfacing a few months ago (even an article in the NYT about it), and anyone who was paying attention realized then it would be a big factor in the whole developing mess -- though probably more of a beneficial effect on homeowners, than harmful effect on financial institutions. Why would anyone think that 2nd, 3rd, 4th, 5th, 6th generation buyers of pieces of pieces of pieces of pools of pools of mortgages, who we all know weren't keeping track of the underlying value of the homes or paying ability of the home"owners", would be keeping track of the actual whole-house mortgage documentation?
I suspect the resolution will be a quasi-standard settlement process, in which the home"owners" agree to a new, much reduced mortgage debt (reflecting the actual value of the home, which is all the bank would get for it anyway), in return for signing a new mortgage note that the presumed mortgage-holder would more or less clearly hold (and which would be transferable in the event some other institution turned up able to prove -- with or without presenting the original mortgage note -- that it was the actual holder of the original mortgage). This will save a lot of homeowners from foreclosure, while leaving the banks slightly better off than their present true position in the new real estate market (e.g. the house is worth what it's worth, which isn't what the original paperwork said it was worth, but at least a significant percentage of home"owners" will continue paying at the new reduced amount, saving the banks the time and expense of trying to re-sell the houses in a lousy market).
Man, I tell ya, when the bears are this bearish, it’s time to buy!
I doubt it. Some will be able to get the debt writedown, others will be foreclosed. Let’s just say the DB will get the documentation they need.
That’s actually been proposed here on FR, behind screams of “don’t do that for those deadbeats” regardless the implications.
I have no problem with securitizing mortgages but the process needs to be cleaned up. As we all know. Better standards (which has already been done for newly-originated loans,) better accounting (not done yet) and better tracking of ownership and all that stuff.
Reselling whole mortgages is not a significant problem. What’s really driving this whole mess is the packaging and stripping of mortgage pools into a zillion complex instruments whose holders are unable to (and uninterested in) tracing the actual houses and home”owners” that are supposedly the underlying value of the instruments. We don’t need to ban mortgage resales, even across state or national borders, but we do need to ban any sort of stripping of residential home mortgages. The value is in the ability to foreclose, and you can only foreclose on a whole house, so a single entity needs to remain the beneficial owner of the entire mortgage note and accompanying right to foreclose — no selling rights pieces of that note and accompanying rights; sell the whole thing or keep the whole thing.
I’m going to assume for a second that the physical mortgage paper is in existence somewhere. The writer of the article failed to make clear whether the problem was (a) DB failed to produce the paper at the hearing, but could have tracked it down if given more time, (b) DB owned the whole mortgage but had no idea where the paper was, or (c) DB owned just a part of the mortgage, and was falsely acting like it owned the whole mortgage.
The best explanation of the subprime implosion in 10 minutes or less.
http://youtube.com/watch?v=SJ_qK4g6ntM
“Somehow this package of dodgy debts stops being a package of dodgy debts and starts being a Structured Investment Vehicle!”
Dry Brit humor that’s pretty spot on, from what I can tell.
I’d love a ping to Part II &c., when they appear, if you’re doing that.
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