Underestimating the "Foreclosuregate"

With all the efforts by the Obama administration, HUD, the banksters themselves to try to gloss over those pesky minor document "errors" in foreclosures, the problem is bigger than they portray and more people are figuring that out, albeit painfully slowly.

Even a Congressional panel.

Politico has an article titled "Foreclosure missteps still a risk". (Note the words "missteps" and "still". Politico is doing its job of trying to undermine the gravity of the situation, by choosing such words.)

The nation's biggest banks may have foreclosed millions of homes in the US in the past few years without any legal standing to do so. If that is considered "missteps"instead of racketeering, then Bernie Madoff is the savviest investor and Warren Buffett should get the Medal of Freedom for having benefited from taxpayer bailout. (Oh he's getting that, isn't he?)

But despite the lightweight title, the Politico article says the Congressional Panel to oversee the Treasury Department's bank bailout is uneasy that this "foreclosuregate" is just the tip of a huge iceberg [Emphasis is mine]:

The Treasury Department may be overly optimistic in claiming that problems with home foreclosures have been contained and pose no threat to the U.S. financial system, according to a new report from a congressional watchdog commission.

The Congressional Oversight Panel set up to look over the Treasury Department’s rescue of the banking system said the foreclosure problems uncovered so far “may have concealed much deeper problems in the mortgage market that could potentially threaten financial stability and undermine the government’s efforts to mitigate the foreclosure crisis.”

... While some of those inquiries continue, officials from the Treasury and Housing and Urban Development departments quickly concluded that the foreclosure problems were fixable and did not constitute a threat to the overall financial system.

But critics haven’t been so quick to draw that conclusion. And the watchdog commission — under its chairman, Democrat Ted Kaufman, who just stepped down as a senator from Delaware — aligned itself with those who say that more needs to be known about how foreclosures are being conducted before an “all clear” can be issued.

While it’s possible the concerns are “overblown,” the commission’s report says “the worst-case scenario is considerably grimmer.”

“In this view, which has been articulated by academics and homeowner advocates, the “robo-signing” of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure,” the report said. “In essence, banks may be unable to prove that they own the mortgage loans they claim to own.”

Well, how about that? And as I've been saying, banks, whether acting as loan servicers or trustees of the mortgage investment conduits, continue to foreclose with impunity in non-judicial states where they don't need to be bothered by the court.

The bigger problem is the fraudulent securitization of the mortgage loans. As it turns out, loans that were sold to the mortgage investment conduits were not actually "sold", as they were not properly transferred to the conduits. But these conduits sold mortgage backed securities (MBS) to investors telling them that the securities were backed by the mortgages in the conduits.

Then credit default swaps (CDS) were sold as protection for these MBSs, and collaterized debt obligations (CDO) were created out of these CDS and sold to investors. Then a new CDO was created out of these CDOs and sold to investors... All based on the assumption that these mortgage investment conduits did own the mortgages.

Well, the conduits, called REMICs, did not own the mortgages, as many foreclosure court cases in judicial states have revealed. The whole thing was a fraud.

The only way that it is any way "fixable" is for the government to ditch the rule of law, and write a new law to retroactively approve everything that banks did in loan inducement, loan securitization, and foreclosure.

And good luck even with that, as the real estate issues are the state issues, not federal.

The Politico article ends with this remark:

The fear is that uncertainty about the ownership of all mortgages could deal another blow to confidence in the housing market and cause home values to plunge again.

Well, if we do not get to the bottom of the problems in foreclosure documentation and loan securitization, and punish the bankers who committed fraud and politicians who sanctioned fraud, the home values will never recover.

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