Home On The Range…..The Mortgage Mess Gets Bigger By The Day

Posted By on October 4, 2010

The Mortgage Mess as it affectionately is called seems to be getting new names with each passing day – the latest one is, quite appropriately RoboSigning Scandal  During today’s CNBC Kudlow segment Diana Ollick  confirms various so far unfounded rumors that the government is planning to institute a 90 day foreclosure moratorium as it deals with the realization of just how big and pervasive the mortgage problem is, and even worse will soon be. Larry Kudlow noted that this is the “housing equivalent of the credit financial meltdown” and that “this is going to go on for ever.” The biggest issue that is now developing is the fact that title insurers (firms such as Fidelity National, First American, Stewart Info and Old Republic) are refusing to insure mortgages in foreclosure or otherwise, uncertain as to who actually owns the title. And for all those who believe this will merely keep prices artificially high,  there is very bad news – the problem with the title insurers walking away on fears of lawsuits is that no lender will be willing to write a mortgage without title insurance, meaning that suddenly the up-front component of home purchases will either have to surge, or home prices will have to fall by a like amount as there is simply not enough equity (money) to cover the resulting debt deficiency.

Kudlow: “We’re not talking just a few weeks, or a few months. This sounds like a long, drawn-out, bureaucratic, robotic process with lawyers, and oh my gosh.” Another implication: a veritable bonanza for both lawyers and defaulters, the former of whom will end up making billions in legal fees while the latter will be able to live mortgage free for years, while continuing to be the ultimate consumer.

Another important topic discussed is the fact that due to decades of faulty securitizations, suddenly no bank knows who owns what. Courtesy of several trillion in now title-undefined mortgages, which in turn form the basis for thousands of CDOs, which in turn are split up into millions of tranches, and includes the complicity of Fannie, Freddie and private label, it is the banks and their clients that have shot themselves in the foot: as other have noted, very soon, the entire MBS process can and very may grind to a halt.

As mentioned earlier, Ollick confirms that according to rumors, the government is going to impose “some kind of 90 day foreclosure moratorium on the banks which would melt down the housing market.” In fact Congressman Merkley already indicated he is for a foreclosure moratorium.

At the end of the day: the one true loser, is the law-abiding, conscientious, tax and mortgage paying middle class American, who is now preparing for TARP 2 as the banks will all almost definitely need to run to another bailout because of this catastrophe.

Must watch 10 minute discussion of this important story.

More at: www.zerohedge.com

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