Texas AG halts all foreclosures

[boutons_deux]

Foreclosuregate and Obama's "Pocket Veto"

Amid a snowballing foreclosure fraud crisis, President Obama today blocked legislation that critics say could have made it more difficult for homeowners to challenge foreclosure proceedings against them.

The bill passed the Senate with unanimous consent and with no scrutiny by the DC media. In a maneuver known as a "pocket veto," President Obama indirectly vetoed the legislation by declining to sign the bill passed by Congress while legislators are on recess.

http://www.truth-out.org/foreclosuregate63953?print

[Winehole23]

Wow.

[Wild Cobra]

Well, here's the text:

HR 3808

An Act

To require any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT LE.

This Act may be cited as the ‘‘Interstate Recognition of Notarizations Act of 2010’’. SEC. 2. RECOGNITION OF NOTARIZATIONS IN FEDERAL COURTS. Each Federal court shall recognize any lawful notarization made by a notary public licensed or commissioned under the laws of a State other than the State where the Federal court is located if—

(1) such notarization occurs in or affects interstate commerce; and

(2)(A) a seal of office, as symbol of the notary public’s authority, is used in the notarization; or

(B) in the case of an electronic record, the seal information is securely attached to, or logically associated with, the electronic record so as to render the record tamper-resistant.

SEC. 3. RECOGNITION OF NOTARIZATIONS IN STATE COURTS. Each court that operates under the jurisdiction of a State shall recognize any lawful notarization made by a notary public licensed or commissioned under the laws of a State other than the State where the court is located if—

[Winehole23]

Wow, someone in DC has connected the dots: that the banks’ failure to adhere to contractual and legal requirements in the residential mortgage backed securities market are so extensive and widespread as to cons ute systemic risk. Alan Grayson, Congressman from Ground Zero of the foreclosure mess, is calling on the Financial Stability Oversight Council to investigate the escalating foreclosure fraud crisis.


Although the data points we have seen so far could be considered anecdotal, we have evidence that strongly suggests that major RMBS originators, the investment bank packagers, and the bank trustees failed to convey the notes (the borrower IOU, which is critical to having the legal standing to foreclose in 45 states) to the RMBS trusts starting in 2005, perhaps even earlier. And comments from industry insiders suggest this problem is pervasive.

That puts a cloud over the entire US RMBS market, the biggest asset class in the world. This paper was sold as secured; the ability to offset the cost of borrower defaults by seizing and selling his house is critical to the value of the instruments. And if no assets were conveyed to a particular trust by closing, an even uglier possibility exists: under New York law, which was elected by RMBS as governing law for the trust, it would be considered to be “unfunded”, which means it does not exist.


Now the rather sick irony is that this monster screw-up probably affects Fannie and Freddie paper only indirectly; presumably, it will a given that this will be treated as if the government guarantee covers this little mess. The Obama Administration is the last bunch of folks that will look into the fine print to see if Fannie and Freddie ought to eat this liability. I’ll admit I have not looked into the Fannie/Freddie procedures on this one, but I’d have trouble believing their rules would include having the government guarantee extend to operational screw ups that prevent losses on guaranteed mortgages being relieved by foreclosures. I’d have to believe they have putback procedures which will not be applied because the consequences would be too devastating to Team Obama’s best friend, the banking industry. So Frannie and Freddie not pushing the losses related to foreclosures back to the banks would be yet another back door bailout.
Felix Salmon is also on the case and makes some sound observations as to the larger implications:

….the mother of all legal messes has already emerged from the foreclosure crisis, and threatens not only a large chunk of the financial system but also venerable civic ins utions, like the courts, which have thus far emerged from the crisis largely unscathed….


Argentina’s sovereign default has been called “the slowest trainwreck in history”, but this one might turn out to be slower, bigger, and much less fair. Millions of people have already lost their houses to lenders who didn’t have the proper paperwork, and it’s unlikely they will ever get any redress. For people who haven’t yet been foreclosed upon, however, it could now be a very long time before they lose their house.


The big-picture consequences here are by their nature unpredictable, as no one has a clue how this might all play out.



But I can think of a few themes:

1. Bond investors, who have seen the value of their mortgage-backed debt rise impressively over the past 18 months, could find themselves unable to find any kind of bid at all. The paper will still be cashflowing, but those cashflows will be surrounded by enormous uncertainty, and no one’s going to want to buy them except at extremely deep discounts until the mess is cleared up.


2. Mortgage servicers will go from being assets to being liabilities, and banks which own mortgage servicers could find themselves on the hook for substantial losses.


3. The time from default to foreclosure will become indefinite, and as a result there will be a significant uptick in strategic defaults, especially in states with judicial foreclosures.


4. The “shadow inventory” of houses which aren’t on the market but will eventually be sold once the bank gets around to foreclosing will grow substantially from its already-enormous level.

Yves here. It appears there are four ways this crisis might play out:


1. Congress intervenes to try to wave a magic statutory wand to make many of these problems go away, invoking its authority over national/interstate banks. To the extent industry in bents admit there is a problem (Tom Adams reports there was amazing denial at an American Securitization Forum conference earlier this week), they immediately say, “Congress will pass a law.” But any Federal statutory remedy will run roughshod over well settled state real estate law and New York trust law. This is big state/Federal rights matter, potentially one of those rare Cons utional battles that the average citizen will care about.


2. The Federal government comes up with a mass refi program of sorts. Even though in theory that might also run afoul of various state law issues, the reason the states are fighting is they see the devastation foreclosures are creating in their cities and towns. It would probably take some to-ing and fro-ing, but state legislatures would be far more inclined to play ball with this solution than the one outlined in point 1. But this is so contrary to how Team Obama operates that I see no will to go down that path, and the odds that the incoming Congress will be even more anti-spending is another not-trivial impediment.


3. Mass deep principal mods. As we indicated, there are programs which are ready to go and only need some tweaking to help servicers make deep mods. With mortgage loss severities at 70% or worse, a 40% principal mod for borrowers, say, is a win for everyone but the servicer. And before readers howl that this is unfair, life isn’t fair. Moreover, lenders restructure loans all the time; it’s normal creditor behavior to rework a loan if the outcome looks to be more profitable than liquidating.


The critical bit is assessing borrower viability. There is no point trying to save borrowers who are so broke they can’t afford payments even with a reduction in principal to, say, the current market value of the house. The and the NACA program provides a platform for handling what has been the sticking point, collecting evidence of borrower income and preparing a budget so a bank can see how much discretionary cash flow he has.
While the banking industry will insist this would be a simply horrid outcome, what would turn the tide is private or attorney general suits in a particular state leading to a mass resolution. That would turn the tide regarding perceived viability.


But mass mods would also leave the servicers with big losses on all the advances of principal and interest they have made to investors, and will force banks to end their phony accounting on second mortgages. It’s entirely plausible this puts some banks back in the TARP, which from my perspective is a good outcome. It would be hard after all the banks’ false claims that all was well and outrageous 2009 bonuses not to seem some pain imposed, at a minimum, the firing of top management for cause (meaning no severance) and the replacement of boards.


4. Continued gridlock. I expect this to be what we see until the pressure hits the breaking point.

http://www.roubini.com/financemarket..._systemic_risk

[boutons_deux]

If there's anything America knows how to do, it's capitalism.

This is classic banker scam, 100s of years old. Destroy the economy, then grab assets at low prices and foreclose on collateral.

Now if Fannie and Freddie would now just CRAM BACK DOWN the bankers'/lenders/etc throats the toxic mortgages sold to them in bad-faith, we'd have a real good time watching the bankers suffer, and save the taxpayers 100s of $Bs.

[Wild Cobra]

BoA also suspended foreclosures nationwide.

[Winehole23]

Too late. The states might go ape on them anyway.

[MannyIsGod]

So what happens if no action is taken? The banks lose the houses if they can't produce the paperwork?

[Winehole23]

Action will be taken. Banks are on the hook for huge losses if they don't.

[Wild Cobra]

Action will be taken. Banks are on the hook for huge losses if they don't.

But he's right.

With all the shakeups, reselling of loans, etc...

What if critical paperwork is missing?

[MannyIsGod]

Action will be taken. Banks are on the hook for huge losses if they don't.

What action will be taken? If my house is being foreclosed upon and the bank doesn't produce the paperwork they can go themselves and any government that tries to step in and me is going to endure a fury that they can't imagine.

Maybe a direct monetary bailout but I'm not sure that would fly again consequences be damned.

All I know is that if the government tries to let the banks slide with no paperwork and it s people out of their homes then you'd better believe it will get ugly.

[Winehole23]

Congress just tried to fix that problem for foreclosure fraudsters in the dead of night, without any debate. It won't be the last proposed fix. Hopefully the greater visibility of a regular session will make it harder for Congress to try screw us so blatantly next time.

[Winehole23]

It already is ugly, MIG. Banks have foreclosed on wrong addresses and people who paid cash for their houses.

[MannyIsGod]

You saw how fast that turned once it came to light. Its one thing to hand these assholes a check but to help them kick people out of homes is an entirely different political animal.

I'm not sure how much will there is to hand them a check again either. Maybe the cat ran out of lives.

[MannyIsGod]

Double.

[CosmicCowboy]

meh....the taxpayer is the insurer of last resort on all those. We own AIG that guaranteed all the bonds.

[Winehole23]

The banks will just stick us up again. Give us hundreds of billions more, or the sky will fall. Same game as 2008, with a similar likely result.

OTOH, one possible difference is resolution authority established in the Dodd-Frank finreg bill. Some banks could hit receivership instead of a bailout jackpot this time.

(I'll believe it when I see it.)

[MannyIsGod]

Oh, but those guarantees surely don't cover lost paperwork.

[CosmicCowboy]

Oh, but those guarantees surely don't cover lost paperwork.

Sure they do.

[MannyIsGod]

We'll see, WH. I don't think the political will is there this time.

[MannyIsGod]

Sure they do.

The ? I refuse to believe this is actually the case.

[Winehole23]

Seems a little glib to me. Courts take this stuff very seriously, which is why the is hitting the fan now.

[CosmicCowboy]

The ? I refuse to believe this is actually the case.

Sorry. Tis true. They guaranteed the bonds against default. Trillions of dollars worth with no collateral to back it up. Why do you think the Fed bailed out AIG? They put the money in AIG and it immediately went to Goldman Sachs to pay off guarantees at 100% on the bonds they held in their portfolio.

[Winehole23]

Pretty sure they'll be some kind of a haircut whenever we pull their bacon out of the fire. Again.

[MannyIsGod]

Sorry. Tis true. They guaranteed the bonds against default. Trillions of dollars worth with no collateral to back it up. Why do you think the Fed bailed out AIG? They put the money in AIG and it immediately went to Goldman Sachs to pay off guarantees at 100% on the bonds they held in their portfolio.

Against default but what if they legally don't exist? If the banks can't produce the paperwork thats exactly what it means legally: Those loans do not exist. Pretty hard to collect insurance on something that has been declared legally null and void.