The Politics of the Foreclosure Mess: Another Big Bank Bailout?

[marmar]

from OpenLeft:



The Politics of the Foreclosure Mess: Another Big Bank Bailout?
by: Mike Lux

Thu Jan 13, 2011 at 19:00


Everything I am reading these days on financial issues points to some serious reckoning soon to come, especially because of - as the folks at Third Way are calling it - foreclosure-gate. The Massachusetts Supreme Court ruling in the Ibanez case, along with a growing body of cases where the banks and/or their servicers have been ruled against in foreclosure cases, and even the banks' lawyers are being castigated in court by judges for bringing in made-up paperwork, is causing a growing sense of panic among the biggest banks that hold the most mortgages. Spokespeople for the banks are talking bravely, trying to dismiss the situation as some minor paperwork errors, but everyone who has been paying attention to the situation fears that there are really big consequences afoot. The plain fact is that over the last decade, in their overwhelming rush to make bigger and bigger profits from trading in the bubble-driven real estate securities market, the banks ran roughshod over the home mortgage and title system that had served this country (and England and many others) quite well for hundreds of years - and they made a serious mess of it. Because of the way these mortgages have been sliced and diced and sold into complicated securities, homeowners, judges, and the banks themselves are having quite a bit of trouble figuring out who actually owns the note in more cases than is easy to believe. The "paperwork" - figuring out who owns the note - is not just a little messed up, it is a disaster area.

This wouldn't be as big a deal except that the combination of the housing bubble itself plus the worst recession since the Great Depression (caused in great part by that bubble) has created a foreclosure crisis of gargantuan proportions. Millions of homeowners are in foreclosure proceedings, millions more underwater because of the collapse of housing prices. And because the banks have cooked their books, not wanting all these toxic assets to wreak havoc with their official valuation and their stock prices, they have no interest in helping homeowners stay in their homes by writing down these mortgages to current market levels. So banks are moving to foreclose these millions of homes, but they can't prove to judges that they even own the notes that would allow them to foreclose. Thus you have robo-signers, falsified affidavits, and all kinds of strange things being presented to judges in courts. The judges who are not bought and paid for by the banks are raising big red flags about all this, and thus you have cases like Ibanez going against the banks.

This is a mess not just for the housing market but for the entire economy, as the numbers on all this are staggering, and the housing market really does have the potential to just completely freeze up, which would be an economic nightmare. Our economy has no chance of getting dramatically better until the housing market starts moving again. So the banks are now going to their political allies, just like they did in 2008, and telling them: unless you save us from the mess that we've created (oh, wait, they don't use those last four words, instead it's the unforeseeable "perfect storm", "black swan" thing), we will go under and take the entire economy down with us. The good news for the banks is they are not necessarily looking for a cash handout this time - although it may come to that - but just some legal "tweaking" of this "minor paperwork problem." ............(more)

The complete piece is at: http://www.openleft.com/diary/21405/the-politics-of-the-foreclosure-mess-another-big-bank-bailout

[northoftheborder]

1. Thanks for posting this. We need to pay attention.