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发帖数: 901 | 1 A few emails ago, I wrote about floating down the Colorado. At that time, we
were in the calms but we knew with certainty that there were some Class V
rapids ahead. The rapids are here now.
I have to admit that I did not see it coming (may be that will qualify me to
be the next Fed Chairman). While I opined earlier this year that the real
estate market will crash, I would never have guessed that it is a couple of
legal foreclosure technicalities that brought it down.
All foreclosure activities in the 23 judicial foreclosure states have come
to a halt. Politicians in non-judicial states like California are calling
for moratoriums, mainly for the purpose of buying some votes for the
upcoming elections.
The two biggest rapids are robo-sgin and MERS.
MERS was created by the mortgage banking industry to streamline the mortgage
process by using electronic commerce to eliminate paper. Our mission is to
register every mortgage loan in the United States on the MERS® System.
Beneficiaries of MERS include mortgage originators, servicers, warehouse
lenders, wholesale lenders, retail lenders, document custodians, settlement
agents, title companies, insurers, investors, county recorders and consumers
.
MERS acts as nominee in the county land records for the lender and servicer.
Any loan registered on the MERS® System is inoculated against future
assignments because MERS remains the nominal mortgagee no matter how many
times servicing is traded. MERS as original mortgagee (MOM) is approved by
Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA, California and Utah Housing
Finance Agencies, as well as all of the major Wall Street rating agencies.
If the validity of this MERS system is successfully challenged in court, it
would be a nightmare to sort out who actually owns what, for the millions of
loans in question. Law makers have no idea what the consequences are, as
they try to demonize this method of streamlining the secondary market. I
have no opinion of MERS but if you are going to trim a tree, you should make
sure that you are not sitting on the limb that you are about to cut.
Ironically, if a stimulus plan is defined as "throwing money at it", this
chaos is not only a great stimulus plan, it is delivering stimulus money to
the middle class and most likely will not benefit the rich. The poor working
class struggling with household expenses are the big benefactors. Stop
making payments on the underwater mortgage. Take the family out for dinner
and get ready for a great Christmas. Don't worry about housing expense for a
while, a long while.
There is a price to pay. Tom Lawler asked a number of great questions.
http://www.calculatedriskblog.com/2010/10/lawler-foreclosure-gate-who-will-and.html
I believe this is a retest of too big to fail. Here are the biggest
servicers, from a friend (Mac).
Bank Total Loans Market
Servicing now Share
in $billions
1) Bank of America (BAC.N) $2,135.30 19.9%
2) Wells Fargo (WFC.N) $1,811.97 16.9%
3) JPMorgan Chase & Co (JPM.N) $1,353.60 12.6%
4) Citigroup Inc (C.N) $677.81 6.3%
5) GMAC/Ally Financial $349.08 3.2%
6) US Bancorp (USB.N) $189.85 1.8%
7) SunTrust Banks Inc (STI.N) $175.93 1.6%
8) PHH Mortgage (PHH.N) $155.97 1.4%
9) OneWest Bank, CA (IndyMac) $155.00 1.4%
10)PNC Financial Services (PNC.N) $149.94 1.4%
Total residential mortgages outstanding $10,640
Take BofA as an example. They are not just the servicer of over $2 trillion
worth of loans, they also wore the hat as the originator of many of these
loans, the worst of which were those inherited from Countrywide. They were
responsible for securitizing these loans. Then they also marketed these
products especially with the Merrill Lynch purchase. BofA is going to be
named as defendant in so many angles that they would soon have more legal
departments than branches. No doubt they would drag the Feds back in, who
forced them to complete the Merrill purchase. Same holds true for Wells
Fargo with the Wachovia and Goldwest purchases. JPM wears the most hats. It
is impossible that they are adequately reserved for these potential losses.
How can they bail out the big banks this time?
Well, that is in the past, a mess that has to be sorted out and damages
apportioned. What about the present and the future?
At present, the shock wave is just starting to hit the system. Since
practically all real estate lending is in the hands of FFF (Freddie, Fannie
and FHA), the real estate world awaits their next move. Freddie and Fannie
had asked the servicers to review their foreclosure process. I am not sure
how precise those instructions are. We know every big servicer robo-signed
documents. Wells Fargo claimed they are clean but I seriously doubted. The
task is simply too overwhelmingly labor intensive.
What if FFF decides to put back all the loans in question to the originators
, or sue the servicer for damages? What if completed foreclosures are set
aside and the servicers somehow have to reconstruct the process? What if
some borrowers successfully challenge the foreclosure and are awarded
damages, who should bear the cost?
As you can see, there is no future unless these issues are addressed. Loans
are being made today simply because the originator is confident that they
can sell it to FFF. Investors are buying these agency MBS simply because
they know they are guaranteed by the Treasury and the Feds are standing by
the buy them all up if needed. Originators are already fearful of FFF put
backs, resulting in tighter underwriting standards than required and a
mountain of verification documents. If FFF are going to put back these loans
to the originators/servicers due to the robo-sign issue, how can anyone
like BofA originate another loan before they can quantify the risk? More
importantly, how could they service these loans without adjusting for the
potential cost?
What if FFF says no more foreclosures for now, how much would they be asking
Congress for next quarter?
The biggest question of all, is there anyone working on a solution? I know
that answer: NO.
In summary, I think we have reached a stage that the process simply
continues. Ready or not, we are in the rapids. Just like the World Wars. It
was not planned. No one really prepared for it. They just happened. While
fighting, no one really knew the outcome but there will be an outcome. Going
into battle with these massive problems, I see my team is headed by Obama,
Geithner, Bernanke and all the candidates that are battling for command
positions in November. I really do not like the odds. |
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