Explaining the Mechanics of the Foreclosure Mess on BNN Posted on October 13, 2010 by Yves Smith A lively session on BNN. Enjoy! You can view the segment here. Post navigation ← Title Insurance Woes Illustrate Liabilities of Foreclosure Mess Concentrated in TBTF Banks Banks “Nothing to See Here” Versus Grim Reality on Foreclosure Front → Subscribe to Post Comments 21 comments Bill October 13, 2010 at 4:52 am America needs to “get it” , if they can pull away from “Dancing with the Stars” .The MSM needs to get it if they can grow a spine . As you said Ives , Foreclosure fraud is exposing a problem that was ignored … ahem…. covered up, by the highest echelons of Gov’t and Finance – Insolvency of the TBTF . Now we are going to bail the louses out again . Better be some fancy political footwork to accomplish this. Lets see if they can fool us twice . Remember America , you need to turn off ‘Idol’ and ‘Dancing’ and actually use your brain for a moment . Glen October 13, 2010 at 5:37 am Great job, very informative! Question – do you really think we’ll end up with another bank bailout rather than using the new FinReg law to force the banks to restructure? I would expect the Republicans to have to oppose the bailout which means the Democrats would have to be willing to sign onto a political death sentence for 2012 assuming they can even get enough Republicans to go along with it. Of course, it’s more likely Bernanke/Geithner will use some other tactic to enact a bailout, but even that would be asking Obama to pretty much lame duck the last two years of his Presidency, and get booted in 2012. F. Beard October 13, 2010 at 6:34 am Yes, nice explanation of the process. Thanks, Yves. Please don’t be afraid to be repetitive, for the sake of us non-lawyer, non-real estate types. Gordon October 13, 2010 at 7:25 am Yves, Great work as always, but … It’s complicated to explain and ‘talking heads’ are never going to get the message to the majority. Surely there must be someone in the NC community who could produce simple graphics, flow charts, animations or whatever to explain what is broken and how the people are being defrauded. i on the ball patriot October 13, 2010 at 7:49 am Sheeesh! The mechanics of the foreclosure mess are eerily similar to the mess in Israel … “U.S. President Barack Obama is promising the Jewish state peace for an exchange of territories and Foreign Minister Avigdor Lieberman is speaking about a population exchange – and in this way, Arabs in Israel have been turned, against their wishes, into a central player in the peace process. As a corollary, their status in the country has officially become questioned, on two levels – on the one hand, large segments of Israeli society do not want them, and on the other hand, Mahmoud Abbas and the leadership in Ramallah stress at every opportunity that the 1.2 million Palestinians living inside the Green Line are Israeli Arabs and do not have the moral or political right to intervene in the conflict with Israel. This situation obliges the Arab leadership inside Israel to move from the stage of bombastic declarations to actions, and to prove that the Palestinians are an inseparable part of the problem and under no circumstances are they a subject for barter between the two sides. They must examine the possibility of exploiting their Israeli citizenship to the fullest and demand to utilize their legal right to buy homes and land in West Bank settlements. A move of this kind does not in any way diminish their right to continue living in their communities in Galilee, the Triangle and the Negev.” http://www.haaretz.com/print-edition/features/israeli-arabs-must-start-buying-land-and-prove-they-aren-t-a-bargaining-chip-1.318769 Peace if you overlook the two tier scam ‘rule of law’, demonization of one segment of society, setting that one segment against the other,forced relocation of the so demonized and the rich as always making out like bandits … Can we all say global problem rich against the poor? Deception is the strongest political force on the planet. Koshem Bos October 13, 2010 at 9:32 am Avigdor Lieberman doesn’t represent public opinion in Israel more than the KKK represents the US one. He is a Russian born and bred nut case who never learned the basic tenants of democracy. Despite all the obvious difficulties, Israeli Arabs are doing well economically, they attend universities, are distinguished members of universities’ faculty, serve as chief physicians in top hospitals, they perform with Israeli artists and in both Hebrew and Arabic, etc. Most Jewish Israelis see them as locals and will never dream of exchanging them for anything. By the way, Israeli Arabs Members of Parliament speak the most beautiful Hebrew in the house. billwilson October 13, 2010 at 8:30 am Great explanation. Also nice to see a business program that actually spend more than 20 seconds on an issue. Koshem Bos October 13, 2010 at 9:17 am Thanks for the very clear explanation. One of the commenters reminds one of a cancer march where a single individual carries a sign in support of Palestine. Obsession is always a problem. Like others, I don’t see another TARP bailout coming. The new house in January will have a Republican majority and the minority Democrats will no doubt know that the change happened due to Obama’s arrogance and dysfunction. The knives will be out and rightly so. On the other hand, I see neither the Democrats nor the Republicans, despite the rhetoric against TARP, willing to let the TBTF banks get in trouble. Eve’s BBN explanation is clear about the complexity of the solution, but I foresee an awkward and ugly solution devised in order to make the banks whole; it of course will be at our expense. Tom Crowl October 13, 2010 at 9:28 am Thanks for your continuing work on this issue! The TBTF banks, I believe MUST fail for there to ever be any hope for a restoration of trust in the U.S. political/economic system. Unfortunately that doesn’t mean it’ll happen… at least without some serious disruption first… the history of oligarchy suggests that ruling elites don’t give up easily. Surprisingly that’s often because they have so little concept or real concern for what’s actually going on outside of their social networks… and embrace a ‘cognitive dissonance’ regarding their own responsibility for deteriorating conditions. How Would Hunter-gatherers Run the World? (Psst… They DO!) http://culturalengineer.blogspot.com/2009/11/how-would-hunter-gatherers-run-world.html dejavuagain October 13, 2010 at 9:35 am Yves, Excellent 101 explanation in the time allowed. I hope you can go on an provide in 102 an explanation of MERS and the desire to avoid local filing fees and mechanics, the non-public nature of MERS as opposed to public filings, and the fact that all updating is performed by servicers who do not file with MERS facsimiles of the endorsed notes or assigned mortgages. Then, in 103, an explanation is needed as to why the rampant “substitution” of mortgages in trusts led to both lousy documentation and lousy underwriting, as well as making simple MBS more of a bond by the sponsor, rather than a straight pass through. In the beginning, MBS’s were pass-throughs, and the investors took the risks of defaults and prepayments – now the MBS’s and the CDO’s are more like guaranteed bonds. This is the root of the problem of the “paperwork” in my view – the pools were not fixed but flexible so the documentation became flexible as well. Then, in 104 for in-house lawyers, perhaps they can be read the riot act on their ethical responsibilities to not see what they are told not to see – same for the outside lawyers. Their opinions may be clean, but they knew the assumed procedures were not being followed. Transor Z October 13, 2010 at 9:53 am Five stars, Yves! Excellent explanation. mario October 13, 2010 at 10:03 am I second that grayslady October 13, 2010 at 12:23 pm Agreed. spigzone October 13, 2010 at 10:56 am As bad as this is, still no taking into account of Declining Oil, the very shortly arriving successor to Peak Oil. The housing market isn’t going to eventually bottom out at it’s historical mean line, it’s going to KEEP GOING DOWN as DECLINING oil supplies shred what’s left of the world’s debt based/fiat currency financial systems and the US economy, INCLUDING the financial sector. That $400K house that is now on the market for $270K isn’t going to stabilize at it’s historical mean price of $180K. In ten years, with the with world oil production down some 30 mbpd, it’s going to valuated at $60K or $40K and decreasing. How you’re going to transport yourself to and from that house is anybody’s guess. Daysman October 13, 2010 at 4:05 pm that’s why the outer rim doesn’t accept Republic credits… only money! Jackrabbit October 13, 2010 at 10:58 am Yves. Great job. It really requires more time than they gave you. I think there’s an important point that gets missed. I don’t think the Trust has to be entirely empty to be invalidated. Even if a minority of mortgages were conveyed improperly, there would be good cause to invalidate the Trust/Sale, wouldn’t it? I’d also be interested to learn more about investor’s efforts to investigate. I’ve only seen (I think on NC) that they have been stonewalled by the banks. Francois T October 13, 2010 at 2:21 pm First rate job Yves! Even a econ-challenged dude like…Moi! understood your explanation. Plus, one got to love BNN; they THINK over there! Moreover, they let their guests TALK…a radical innovation, that’s for sure! BTW, when will we see an interview on this complex topic with you and Barry Ritholz sharing the stage? Demolition of the industry talking points would be complete. Jim in MN October 13, 2010 at 3:26 pm Title waive! Progressive Ed October 13, 2010 at 3:32 pm Excellent interview,Yves. But what’s the problem. The Emperor can do any damn thing he wants. Justicia October 13, 2010 at 6:08 pm Brava, Yves. You are a National Treasure. I sent a post to the Social Investment Forum listserv (which includes major pension plans and investment firms) with a link to Prof. Peterson’s article and your BNN interview. It’s now making the round of investor blogs. I hope this wakes them up. r0tiNeK October 14, 2010 at 4:19 am Great interview Yves! Well explained. Thanks for your great Blog which is highly regarded by so many. We appreciate your efforts! Keep up the great work! : ) Comments are closed. Tip Jar Please Donate or Subscribe!