The Mortgage Problem Explained.

Some have put forth that there should be no "moratoriums" on foreclosures as, it is argued, most of the homes going down the tubes are "owned" by people who shouldn't have been given a mortgage in the first place.

Those have come and gone.  The "immediate default" (unqualified to buy and can't make payments) were weeded out in the first wave.  The second wave came with the "underwater and can't refinance" crowd.  Now we are into the "out of work, underwater, banks don't loan" wave.  This is pure math.  We have 10% unemployment that is probably 18% and it is prolonged.  Banks are awash with money and won't lend.

More to the point, I wouldn't buy a house that is foreclosed on for a bet.  How do I know that the foreclosure is proper, all the papers are real, the "owner" isn't in litigation somewhere else over the property, or stuff regarding to clear title won't come back later and bite me.

We have a problem that even I can understand.  It actually is so simple that even Washington should understand. In a nutshell: (Krugman in the NYTimes wrote about it Friday as well)

There has been a good deal of coverage in the WSJ of late. The sum essence has been 1. banks: "just minor errors"  2. forclosees and attorneys general: "you filed fraudulent docuements with the court".  I think that this qualifies as "time out ...Houston we have a problem".

Lots of people are out of work and behind on their home mortgages.  This has been going on for about 2-3 years and will go on for another 2-3 just because the economy is so bad.

Banks and other lenders are foreclosing on these mortgages to either get people to pay or to seize the property.


However a while back, the banks and other lenders "sold" the mortgages to wall street who then resold the mortgages to pension funds, municipalities, even overseas.  The ownership of the mortgages has changed hands sometimes 5-6 times. That part of this narrative is gone into here.  Read it if you like horror stories of financial fraud.

The banks and lenders who are suing delinquent homeowners are doing so "on behalf of" the current owner of the mortgage and it is the homeowner's right to demand that there is a "paper trail" of ownership of the mortgage paper....you get those letters all the time from folks claiming they own a debt of yours and pay up and you write them and say "prove you are the people who own the debt and what the debt is for" and they go away.  Same thing here but they are now in court so the issue is pressing.

Now we find that these mortgages have been resold, re bundled up, combined with a hundred other mortgages, etc., that the paper trail is a mess or is missing or worse, full of affidavits that are fraudulently made - just churned out to ease the paper crunch.

"This is back-office work. This is not all going to resolve itself immediately, and we're going to have to be patient," says Richard Dorfman of the Securities Industry and Financial Markets Association's securitization group. Oh yes. Everyone just sit and wait until the idiots who did this come up with a solution that ...drum roll please....benefits them.

With me so far?  Well that means the court case is now a mess while each document is verified. One home foreclosure could produce hundreds of documents depending on how it was sold and resold....and, drum roll please...if there is a batch of documents missing or fraudulent "in the middle" or if a pension fund who really owns the mortgage is suing the bank for getting gypped in the first place - well the entire process stops until the courts figure out who owns what.  Think of that happening several million times with a few trillion dollars worth of property and you get the idea.

It may well be that in the center of capitalism we don't know who owns what. Thus armed with the information you can take the rest of the day off..