Mortgage Apocalypse?

Wall Street's "bright eye" to securitize mortgages has blown up. Court cases in many states are now balking at foreclosing on owners who have fallen behind in their mortgage payments because the legal paperwork of "ownership" in in a mess, i.e. the banks played fast and loose with legal niceties when they "bundled up" mortagages into big blocks.

Here's the key bit from an article entitled "Apocalypse Now? Will The Massachusetts Ibanez Case Unravel Widespread Irregularities In The Residential Securitized Mortgage Market?" by Richard Vetstein, a nationally recognized real estate attorney:

If, in fact, there exists widespread legal failure of securitized mortgage pools, as Mr. Rosner, theorizes, then we are possibly facing the Apocalypse Scenario, calling into question the legal and financial soundness of a large portion of the U.S. securitized mortgage market. Securitized mortgages comprise over half, or $8.9 trillion, of the $14.2 trillion in total U.S. mortgage debt outstanding.

“It may mean investors who think they bought mortgage- backed securities bought securities that aren’t backed by anything,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California. Well, that’s already happened. Check out this lawsuit by MBIA Insurance against Credit Suisse 0ver a bad securitization loan deal.

Before the Ibanez ruling came down Bloomberg News said the best scenario is that the disputes are deemed as legal technicalities, which would cause a one-year delay in foreclosures. In the medium case, years of litigation will ensue. In the worst case, the problem becomes systemic, causing “the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes.”

Here's the bad news:

For those thousands (or millions?) of defaulted loans which were “assigned in blank,” I’m simply not sure if or how mortgage lenders are going to be able to cure the title defects they created. It’s going to take some major effort and creative lawyering, that’s for sure.

Rather scary, huh?

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How many pools of mortgage loans are affected by the “assignment in blank” and related irregularities in the servicing pools? I haven’t been able to find any firm data.

For the sake of our economy, I hope that this mess can be fixed at minimal cost to taxpayers and distressed homeowners alike!

As if the meltdown of September 2008 wasn't bad enough. Now we have this mess hanging over us. This is ridiculous. Heads should roll on Wall Street for wrecking the American economy. I simply can't believe that the Obama administration is going to let the perpetrators of this gigantic financial crime to wander free. Dozens if not hundreds of Wall Street big shots should be sent to jail for tens of years if not for lifetime sentences. They have perpetrated a gigantic crime on the American people that has left millions unemployed and tens of millions losing their homes in the foreclosure mess.

There's more in this NY Times article entitled "Judges Berate Bank Lawyers in Foreclosures":

With judges looking ever more critically at home foreclosures, they are reaching beyond the bankers to heap some of their most scorching criticism on the lawyers.

In numerous opinions, judges have accused lawyers of processing shoddy or even fabricated paperwork in foreclosure actions when representing the banks.

Judge Arthur M. Schack of New York State Supreme Court in Brooklyn has taken aim at an upstate lawyer, Steven J. Baum, referring to one filing as “incredible, outrageous, ludicrous and disingenuous.”

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The role of lawyers is under scrutiny in the 23 states where foreclosures must be reviewed by a court. The situation has become especially heated for high-volume firms whose practices mirror the so-called robo-signing of some financial institutions; in these cases, documents were signed without sufficient examination or proper notarization.

In the most publicized example, David J. Stern, a lawyer whose Florida firm has been part of an estimated 20 percent of the foreclosure actions in the state, has been accused of filing sloppy and even fraudulent mortgage paperwork. Major institutions have dropped the firm, which has been the subject of several lawsuits, and 1,200 of the 1,400 people once at the firm are out of work.

The Florida attorney general’s office is conducting a civil investigation of Mr. Stern’s firm and two others.

What a mess! And just think, a guy who robs a corner store for $100 can get sent to fail for decades -- here's the classic case of two sisters given a life sentence for a burglary that netted $11 -- but the big shot billionaires of Wall Street dance away free from any legal accounting for their crimes that literally stole over $2 trillion from the American people! Outrageous!