US housing foreclosure litigation to last for many years
Posted on 26 October 2010 with 4 comments from readers
Most mortgage backed securities are now uncertain of their legal right to title and the litigation surrounding foreclosures will last for many years, says Christopher Whalen of Institutional Risk Analytics in this video.
Rather like the initial subprime loan crisis this issue is taking time to gain traction in financial markets. It is a problem too big to ignore. It’s the second phase of the subprime crisis come back to haunt us. It strikes at the heart of banking and is a reminder that the US housing crash seems far from over with only a quarter of repossessions actually done – and even those now in dispute.
Did Wall Street get too optimistic about a recovery before one had really started? Did optimism feed on itself to get stocks moving? Or was this all about a carry trade in cheap money from the Fed pushing up stock prices into a bubble that cannot be sustainable? Or all three?
4 Comments posted by readers:
Without a doubt, it’s all three!
About Chris Whalen:
I’ve commented before about Whalen, who is probably the best bank analyst in the US . . . and his numerous commentaries about this foreclosure mess are like a breath of fresh air; he simply “tells it like it is”.
From the US banks’ perspective, they naturally would want to mitigate the extensive damage they’re gonna take; but to mitigate damage means they have to lie, misrepresent, deceive, etc. And so from their perspective, all this stuff is a result of “a few clerical errors”.
Disclaimer: owner of SEF and KRS, both of which, in my opinion, are set for blast-off.
Great video with good points. Look at 3:39 mark of this video and you will see that in all of Asia $44.6 Billion in Bank Writedowns and credit losses compared to $1192.1 Billion in the US and $1831.3 Billion in the world. This goes back to saying why I don’t think prices will come tanking down in China,Hong-Kong or Taiwan like they did in the US. One thing for sure is that when people here purchase homes they usually purchase with cash unlike in the US or Europe and those that get loans usually do not default on their loans like they do in the US because they have a co-signer for that loan who has real estate or property of some sort to back that up. In the US they default and writedown rates are 27X higher than what they are in Asia. That is a crazy high number. So should Asia always look up the US as a leader or should the US start learning from Asia??
Dubai is no different than the US at the moment because it consists of expats so actually they are at a much higher risk of defaults and writedowns than the US is because if people in the UAE do no have permanent residency status and an affordable lifestyle where they can live and raise a family people will pack up and leave which leaves Dubai with no base and one can establish growth without a base.
Yes, the US will have some problems for a few years to come but will rebound after. It is a cycle in the US where we see up and then down and after the down comes up again because in the US there are many people working and making money. Sure 10-15% can’t find jobs but even then you have 80% working and making money and of the 80% which are making money a good 60% make good money while the other 20% are probably at poverty levels. Every country out there whether it be Europe,Asia,US,Africa or the middle-east has similar issues. In the US when people can not afford to buy and make high monthly payments on their home loans they default file bankruptcy and rent some where cheaper. Life goes on and people will move on.
You mean to tell me that since we are entering stage two of the subprime mess, that there may be a second stage to the pay-option ARM mess as well?! Stage one for pay-option ARMs is underway, with peak resets expected around mid-2011 and defaults/floreclosures expected after that. Now, is the fact that these problems with foreclosures being found out going to be discovered for pay-option ARMS NOW or when they fall into default?
If I understand it correctly the pension funds who bought MBS have no recourse and in effect own only unsecured debt. This will ensure that these MBS will quickly be worth 0.
Meanwhile the banks who bet against these MBS will be in clover.
This tangled web has a long way to go and it looks like the people who profited most from it will once more go free.