Mortgage Mess


As Wall Street banks pull back of foreclosures in lieu of fraudulent filings on the part of the processors, how far are we away from a general amnesty of first mortgages.

A foreclosure motion should be challenged by every homeowner on the grounds that the banks — for the most part — cannot produce the necessary evidence needed to foreclose on a property.

Either the robo-signing processor is lying about knowing the particulars of the filing or the bank bringing the action does not own the note, they are merely the mortgage servicer.

With all the securitization of these mortgages and the dicing and slicing of traunches the paper chase to find the true bondholder may be impossible to discern.

Is there any more of a moral hazard for homeowners than there was for the banks when they were bailed out?

As I wrote two year’s ago while TARP was still just a twinkle in the eye of Treasury secretary Hank Paulson, if you spent $2.2 trillion, then you could wipe out all the first liens on single-family homes in the US.

Now after two years and TARP has died an unnatural death, what do we have to show for it?

The fact that the ATMs are still working?

Well we have spent almost double the $2.2 trillion on TARP, shovel-ready stimulus programs and the bloating of the Fed’s  balance sheet with QE and beginning of QEII. Don’t forget we are on the hook for all the QE printing.

And where do we stand?

If Uncle Sam placed the money with homeowners then we would not be mired in a deflationary housing crash, or looking at anemic GDP growth.

Had the funds been deployed with the homeowners we would be growing the economy at 10% GDP, with 4% unemployment and the Fed would be raising interest rates to cool off the economy.

These are the tools Bernanke and his group know how to use to manage the economy. They cannot do anything further right now to grow the economy without creating a hyper-inflationary bubble by increasing its balance sheet.

When all is played out in the housing market, I believe all mortgages will get a substantial haircut because the economy needs to make consumers somewhat whole to spur growth.

And the sooner the better.

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