[McGavin999]

It's not really a fraud. People didn't make their house payment, they should lose their house and the people who buy them should have clear title to them. Banks are NOT forclosing on people who are making their payments.

If there was fraud here, a big portion of it was committed by people who bought houses they couldn't afford.

[RobRoy]

Yes, I am using the word “fraud” VERY broadly. I am not concerned with what caused this, really. What I am concerned with is what we are left with. I am concerned that we are left with a house that is so eaten with termites that the slightest breeze will knock it down and, short of intentionally destroying it, the only option is to do just that and build a new one.

I may be overblowing this, but I don’t see a human solution to this. Or, to but it more bluntly, I don’t see people doing the right thing voluntarily. As with the article I link below, I believe they will do it because they have no choice. And that means it will get very bad first.

http://www.freerepublic.com/focus/f-news/2603197/posts

Frankly, I am looking at the subject of this thread through the lens of the link above and other stories like it.

I think we are about to shift from talking about “things could get bad” to things actually getting bad.

[Above My Pay Grade]

I agree. The “fraud” seems to be that officers of banks have been signing off on foreclosure documents,without properly reviewing the files.

Right or wrong, this sort of thing is common in all areas of business. Does anyone think the CFO of some Fortune 500 company actually reviews all the checks his signature gets printed on?

In essence, what the robo-signers were saying is “I trust that the the professionals working for me properly checked the documentation I am signing.” Not a wise practice, but not “fraud” in the sense that they are trying to rip anyone off.

Now, the shoddy record keeping may cause huge losses for banks, give a huge break to thousands of deadbeats, and directly or indirectly taint or put a shadow on nearly every home title in the country, but this is NOT a massive effort to seize homes that don’t rightfully belong to the banks.

[Dan Cooper]

The problem here is in the origination of the mortgages. These mortgages were being given out like candy to fill the orders for Mortgage Backed Securities. The demand for MBS was so great that they were being sold money before there were mortgages to bundle. I'm trying to find the reference for this part of the story, but I read it in the last few weeks. Essentially, a pension fund or other buyer would approach Goldman-Sachs or whoever and want to buy $100 million worth of MBS at a certain interest rate or coupon. GS would then say, "Sure, we can sell you that, no problem", then take their money and send it down the line to create the mortgages to fill out the securities bundle (after taking their fee). Mortgage brokers had all this money to lend (adding to their fees) and came up with all sorts of creative ways to do so. All this money was driving a bubble in housing prices, which led people to believe that their house value would only go up. So many people took out ridiculous loans that they couldn't afford or hope to pay off eventually, which mortgage lenders where happy to make since it wasn't their money. The borrowers thought that they could always refinance at some future date after their house gained some paper equity.

The volume of the loans, and their nebulous final status of ownership (who holds the deed in trust? The MBS owner?) meant that there was extreme looseness, nay, even criminal sloppiness in the handling of the origination paperwork. After all, these loans were going to be refinanced long before anyone needed to look at the details.

Boom! The recession hits with a hike in oil prices in 2007. People who are barely making their mortgage payment start defaulting, drying up the MBS interest payments enough to scare off future buyers and, more interestingly, triggering credit default swap payments that insured the aforementioned MBS. Long story short, the bubble bursts.

Now that the banks are trying to recoup (in order to stave off their own bankruptcy) these properties through foreclosure they are finding the things aren't going so smooth. The paperwork is missing and they can't quite establish that they have standing to foreclose. They forge ahead anyway.

Sorry for the pedantic outburst, I really wanted to get it down to establish for myself what I think is going on. I don't think that people who defaulted on their loan should get a free house, they too are culpable. The mega banks that are up to their necks in this mess should taken over and dealt with like any normal bank that goes into receivership. They are bankrupt right now and no public money should be used to help them or special legislation passed to haul them out of the fire. Stupid and greedy should hurt.

[Lurking Libertarian]

It's not really a fraud. People didn't make their house payment, they should lose their house and the people who buy them should have clear title to them. Banks are NOT forclosing on people who are making their payments.

All true, but the person doing the foreclosing has to have the original promissory note, or at least prove that they are the owner of it. Otherwise, someone else can come along next year and foreclose on the same house again.

[cycjec]

There’s a difference between a debt and a secured debt.
If the chain of title of the house has been corrupted
beyond repair, the lien on the house should be lost, but
the debt remains. Denninger and others explain this much
better.