By way of Naked Capitalism I came across a Scott's Investment Blog article consisting in most part of an e-mails from anonymous financial services industry insiders that contend the fraudulent foreclosure documents scandal may be reasonably expected to cause massive further disruption to our financial system and hopefully rekindle interest in tightening the reins on banks. It is also hoped that it will rekindle the bankers' interest in modifying securitized mortgages. Assuming, that is, they even have the legal authority to do so.
And, as a side benefit, it may make Rick Santelli's head explode because as our insider contends:
If for whatever reason any of these [chain of title] signatures is skipped, [which they appear to have been en masse]then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
Read that last sentence again, please. Don’t worry, I’ll wait.
You read it again? Good: Now you see the can of worms that’s opening up.
It looks like at last the weak have a hefty weapon with which to do battle with the strong. Except that the real villains, the banks who engineered this mess, gracefully and profitably stepped aside by means of securitizing mortgages they originated and selling them, in some cases fraudulently, to hapless institutional investors.
Mass defaults sans foreclosure sale proceeds on existing mortgages and reparations paid to the already foreclosed upon would prove so massively destabilizing would produce a gigantic sucking sound so fearful so as to inspire some fast tap dancing at the federal level. As one insider notes:
The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills’ forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their master’s will by a voice vote—so that there would be no registry of who had voted for it, and therefore no accountability.)
And President Obama’s pocket veto of the measure? He had to veto it—if he’d signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as unconstitutional in short order. (But he didn’t have the gumption to come right out and veto it—he pocket vetoed it.)
Other developments includes: banks' voluntary foreclosure moratorium, actions by states' attorneys general, SEIU's lauching of Where's The Note Campaign At the very least, it is to be hoped that this will engender negotiations between borrowers and bond holders to more equally, rationally and in a less systemically damaging manner share the burdens of the crisis.
I encourage all to read the original Scott's Investment piece and if you have a mortgage just say to your bank: PAPERS, PLEASE!