Toxic real estate titles threaten second US banking crisis
Posted on 10 October 2010 with 5 comments from readers
The US subprime mortgage crisis resulted from a great many loans being granted to people who could not ultimately pay them back. But it also apparently created a rush to handle documentation that is leaving banks without the title of the property against these loans and so unable to foreclose on an asset that they may not legally own.
If banks cannot repossess property, because their rights to title are not solid, then they will have to write off the full value of this loan. The potential losses are incalcuable, and more than enough to create a second US banking crisis.
Who owns what?
Last week a class action with a RICO statute was filed against servicers acting for international investment banks foreclosing on loans that represented the collateral for securitized mortgage debt.
An next week the attorneys general of up to 40 states plan to announce a joint investigation into banks’ use of flawed foreclosure paperwork, according to Bloomberg.
This might be the start of a great unwind for these securities that look anything but secure because the assets against which they are written may not have a proper title.
Gold bug Jim Sinclair comments today: ‘This will not pass quietly. It is going to tear the dickens out of what is left of the financial firms that brought the horror to the Western World. It will be orders of magnitude uglier than anything you have seen so far. Gold is headed to $1650 for starters.’
One banker described this as the biggest fraud in the history of capital markets last week (click here). It has the potential to undermine the foundation of the US property system, namely legal title.
Title is ownership
Basically in order to issue any mortgage or buy and sell property you have to be absolutely sure who owns it. It is no good buying a property from a bank foreclosure and then later finding that the mortgage holders still have title because the bank does not have the legal title of the property it is selling.
Alarm bells have been ringing since the Bank of America, the largest US mortgage lender, announced a halt on all the foreclosures it is processing throughout all of the United States. The bank announced that it was taking this action ‘in order to investigate a few flaws in the process that they might have found’, according to a statement.
The CEO of Bank of America, Brian Moynihan, said that the bank ‘does not believe that there are any major problems in their foreclosure process’. However, they are taking the opportunity to do a ‘thorough review on the whole thing and make sure that they are getting everything completely right’. He also said that the freeze would probably last for a few weeks while they are going through the review process.
Stay calm?
Is this then a storm in a tea cup? A matter of a few documents that have gone astray? Or does it threaten a second stage to the US subprime crisis?
JP Morgan Chase has also announced a foreclosure halt for about 56,000 people because they say that they have become aware of the fact that a few employees may have been offhandedly approving foreclosures without thoroughly reviewing the loan files. Ally Financial, which is a part of General Motors, has also announced a foreclosure freeze in 23 states.
So there is no doubt that the foreclosure process is being tested. But the sudden uncovering of millions of toxic real estate titles would be dangerously destabilising for the whole US housing market and the banking sector that has loans against these titles.
5 Comments posted by readers:
“In order to make the US financial system healthy, we need to recognize the extent of our losses and begin facing the fraud. Then the market will be trustworthy again and people will start to participate.” Janet Tavakoli
A profoundly simple but powerfully true statement here from Tavakoli, who is one of the foremost experts on the extent of this mortgage fraud problem. But at the end of the Wash Post interview with her, she “sugar-coats” this “biggest fraud in the history of capital markets” (Tavakoli’s words, not mine!) by saying it’s not a crisis and that it can be easily resolved.
Huh?
I have always appreciated Tavakoli’s work – thorough, authentic and always “on target” but methinks Tavakoli is trying to be extra gentle and kind here by downplaying this massive problem. Arguably the very best bank analyst in the US is Chris Whalen who recently stated that this problem “could make 2011 look like a cakewalk” .
Watch this video for Whalen’s very insightful comments on this problem:
http://pragcap.com/chris-whalen-describes-why-2011-could-make-2008-look-like-a-cakewalk
[note: you'll have to slide the "fast-forward" indicator to the 1 hour 7 min. mark to hear Whalen's speech]
Let’s recap the dire straits that US counties and municipalities are now in:
1. Property tax revenues are down sharply in 2010, and falling precipitously (this is where their revenue comes from!)
2. Large lay-offs are occurring at the state, county & municipal level.
3. It’s well known to the Attorneys General of most states that B of A, JPM, C, GMAC, etc. have resorted to fraudulent mortgage schemes and fraudulent documentation.
4. Next week, this moratorium on foreclosures will likely become nationwide; that means further extensive losses in property tax revenues, since millions of homeowners will not by paying their property taxes.
5. Over the next six months, this “new” problem will quadruple the fiscal problems that states and municipalities are now facing, since only a fraction of defaulted mortgages have resulted in foreclosure to date.
6. Bottom Line: the US property tax base is collapsing; this means very, very serious problems ahead.
It will be interesting to see how Congress tries to change the law to make it legal to use bogus documents to legally kick people, who can’t pay every penny of what they owe, out on the street in order to save the banksters.
You want to pay your real estate tax because, at least around here, the sheriff can sell your house to the highest bidder to get the government’s real estate tax money. Sheriffs have guns, bankers don’t. (But they might need some in a few years, the way things are going.)
I doubt this will become as big a problem as some people now think. It might help stabilize the fall in house prices by reducing the number on the market. It could help new home sales, since they will be safe to buy because they will be new.
The lawyers are probably saying, “This might be the best thing since asbestos.” I read an article about problems with the electronic system set up by the banksters to enable them to push the chopped up subprime mortgage junk to unsuspecting investors all over the globe as AAA rated, about 6 months ago. This could be tied up in the courts for years.
The banksters can safely bribe Congress with campaigne contributions and jobs . But messing with judges can get them sent to jail for decades. That is way too dangerous. The FBI can be listening to everything.
This is gonna be a long response (and a long rant), but folks have got to know the truth here:
It will be interesting to see how Congress tries to change the law to make it legal to use bogus documents . . . “
@Bill Simpson:
The highly corrupt US Congress already tried to do that about 6 months ago. Last Spring, both the Senate and the House unanimously passed HR3808, the “Interstate Recognition of Notarizations Act”
go here for details
http://www.govtrack.us/congress/bill.xpd?bill=h111-3808
Congress is Despicable:
Please note that our despicable Congress passed this thing by a “voice vote”, so that American citizens would never find out who voted for this blatant piece of cover-up (though most of them voted for it!). This way, as the stomp their campaign trails, they can say “they weren’t there in the congress” when that bill was passed.
How “They” Advertised This Bill’s Virtues:
Congress and the Obama administration lobbied hard to convince the American people that this legislation will help businesses around the nation by eliminating the confusion which arises when states refuse to acknowledge the integrity of documents notarized out-of-state” . . . what a blatant and devious lie!
What the bill really does:
This piece of crap legislation, if signed by Obama, was intended to protect bank and mortgage processors from liability for false or improperly prepared documents. If Obama signed it, it would have prevented hundreds of billions in damages to banks from legal fees, mortgage deficiency claims, unwound sales, and to formally make Court Fraud perpetrated by banks, a legal act. Think about the consequences of that statement for a moment!
Obama Gets Cold-Feet and “Changes His Mind”
Obama’s handlers knew that too much time had elapsed since the bill was passed by the Congress, and that too many Americans would find out the truth about what HR3808 truly was. Oops . . .it would have been political suicide for Obama if he signed it last month; he may even have been impeached! So he delayed the signing, but some of the news media started to talk about how horrid this bill truly was.
The Extreme Wealth of the Political Class:
Given all that happens in the DC Funny-Farm, that one piece of legislation is just “another day at the sleasy office” for these folks. They’ll do anything to get Campaign contributions (all of which they can keep as their “retirement” when they leave office!!!). Most Americans don’t know that the Banksters paid over $488 million in graft/ corruption money in 2008 (all that money given to them in just one year alone!).
@obewon :
I missed that one. They must have passed that bill the DAY after the banksters lost the FIRST court case. I remember reading about the problems with MERS a while back. This will really get interesting after the election.
Dylan Ratigan will have fun with this on his MSNBC show. He wants all the banksters arrested.
@ Bill:
Yeah, Ratigan is a breath of fresh air, and one of the few on MSNBC who is not “just a stooge”. After he gets all the background data he needs, I hope he runs with this story and exposes the truth to American citizens.
In general, though, I’m not impressed with MSNBC; I’m not a sexist, but most of the female reporters there make fools of themselves when they interview people, and then offer their “opinions.”