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UncleNasty -> RE: "safe as houses" (12/16/2008 8:30:46 AM)
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This is gonna get political real quickly because you mentioned parties by name and pointed fingers at them.
But this isn't really a political issue. It is systemic.
I have yet to see any mainstream media source report on this issue with anything that comes close to understanding the bigger picture. The biggest problem with that is that most people get their news and information from mainstream media so when they get it wrong or incomplete they pass those flaws on to the masses.
60 minutes did a segment this issue Sunday. They demonstrated their lack of research and investigation by putting up 2 individuals the likes of which the media in recent months have continuously paraded out as being either 1) solitary and rare beacons of wisdom that were able to see this debacle coming or 2) the hapless individual that failed to read the fine print.
Both of these examples are so far from the truth it turns my stomach.
1) All one need do is look through newspapers, professional journals, even blogs, of people involved in the financial industry to see there were many that saw it coming, and wrote about it years ago. Even our regulatory bodies, such as the FTC and CPA, were receiving complaints from consumers that were being defrauded, lied to and having their property stolen from them. This also started years ago. No one listened.
2) Review almost any Truth in Lending statement provided at a loan closing that involved New Century Mortgage, Option One Mortgage Corp., Litton Loan, or any of dozens of other lenders, from the past 5 years and you will find absolute material misrepresentation of the facts and terms. Even when reading the documentation provided the borrower had literally no opportunity to make an informed decision. When lies are substituted for truth and accuracy..... Well, in commercial transactions doing that is a crime.
So many of the loans made by these alleged lenders in the past 5 years are laced with violation after violation of the regulations that govern the transactions - I don't mean 25% I mean 90% plus.
Bank of Amerca recently worked out loan modifications for $8.4 billion in loans gone bad. They did this not voluntarily but in response to suits being brought by 15 State attorney generals. Now the investors in the mortgage backed security pools that contain those loans are suing BoA. Seems BoA doesn't have the authority to modify loans AND pass the losses onto the investors. The Pooling and Servicing Agreements (PSA's) have codified the agreement between originators, servicers and investors. In almost every case they require the originator to buy back non-performing loans AND any loans that were made in which fraud was involved.
One effect of that last sentence is that Trustees of MBS pools and Certificate Holders (investors) don't have the legal standing to bring foreclosures suits against a borrower that is either in default, or against a borrower whose loan involves violations of Federal laws. They do it anyway and they usually win.
Freddie and Fannie are also making a move. Of the laons they have acquired that involve fraud in origination they are requiring the loan originator to buy back those loans. Currently that number is projected to be between $1 - $1.5 billion. My expectation is that it will get bigger. I also expect other MBS pools to follow suit in coming months.
This dynamic and process are going to mushroom, and quickly, as the deeper details are revealed.
A real big problem is going to develop when it comes out that 1) many of the originators have already gone belly up and bankrupt (Option One was under the H&R Block corporate umbrella and they are now defunct, for example) 2) these loan originators don't have sufficient capitol to buy back all the loans they made under fraudulent terms - further they never intended to have or maintain that capitol as the loans were made with the express intent of selling them immediately - take the money and run if ever there was.
It will still take years to settle all the legal issues and for the legal system to catch on in amount sufficient to stop the train from running over all the individuals that are being defrauded. By that time of course the damage will already have been done and we won't be living in a country, or world, with much resmeblance to itself 10 years back.
Uncle Nasty
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