On Tuesday I made the first post about what is becoming to be known as the US Foreclosure Fraud Crisis.
It is a major, evolving and significant story on a scale that is simply profound.
In a nutshell “it appears that on a widespread and probably pervasive basis (the banks) did not take the steps necessary to own the note... which means that in 45 out of the 50 states they lack the legal right to foreclose... So they have simply created a system where servicers hire foreclosure mill law firms whose business is to forge documents showing or purporting to show they have a legal right to foreclose."
The import of this cannot be understated. There are trillions of dollars in mortgages bundled into mortgage backed securities. And as this document fraud is exposed it is entirely possible that these trillions of dollars in mortgage backed securities could have NO backing whatsoever!
That means they are worthless!
As the Washington Post newspaper notes, this chaos in the mortgage industry could prose a much wider peril.
- Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.
Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.
These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."
The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system...
For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.
For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again.
Do not underestimate the impact of these developments.
How long before all foreclosures executed within the past 2-3 years have to be retried? How many millions of existing home sales will be put in jeopardy, those homes which were foreclosed upon and then resold?
All of the big banks have legacy assets which are currently marked up in value to cost and above. Because of the mark-to-market nonsense, this now represents a large amount of capital for the Western world’s financial entities.
And a number of Canada's big five banks also have large exposure to US mortgages.
As I have said, this issue has the potential to be far more explosive and crucial than the collapse of Bear Sterns and Lehman Brothers in 2008.
Gather everything together that is going on.
An economy in tatters. A looming crisis in individual US state funding. Massive looming obligations in pensions, social security and healthcare.
And now this.
It isn't a question of whether or not there will be QE2. It's a question of when will QE3, 4, and 5 come.
The United States is going to have to print money to infinity.
Do you see any other way out?
If not, you have the foundation of a genuine currency crisis.
Mortgage backed securities, over the counter (OTC) derivatives, all have been confusing financial products that critics have called time bombs that will blow up the Western economy.
I'm starting to understand what they mean by that.
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