What You Don’t Know about “Mortgagegate” Could Crush the U.S. Banking System
The Fed can't admit that the potential shocks it's worried about have already materialized, because that would trigger the very panic the central bankers hope to avoid.
But the odds that a financial tsunami will result from Mortgagegate are building each day. If this storm strikes with its full fury , it could be the kind of credit-crisis aftershock that undermines the tentative handhold that the U.S. recovery is so desperately clinging to.
On the surface, the problem looks like foreclosures have been conducted based on improperly processed paperwork. That is a gross understatement.
Here's what's wrong. When a homeowner buys a property with a mortgage, the property title lists them as the rightful owner and their lender as the mortgage-holder. The named lender possesses an encumbrance on the title. If the homeowner doesn't pay his or her mortgage, the lender can rightfully repossess the property and sell it.
In order to take the home back, the lender must first foreclose on the property. The problem begins with the fact that lenders, in order to make trading mortgages between themselves easier so they can be packaged into mortgage-backed securities (MBS) pools and sold to investors, assign their rights on titles to a "nominee." (How that happens is the part of the story that news outlets aren't talking about and will both shock and sicken you).
To take homes back, lenders or mortgage services start by filing court documents in "judicial foreclosure states" (most states in the U.S. require foreclosures to be court-processed). Filings against homeowners must include signed affidavits attesting to the relevant facts and demonstrating the lender's legal status to foreclose. Affidavits must be notarized.
But here's what's been uncovered: The people who are signing the necessary documents on behalf of the lenders aren't even reviewing documents - which means there's absolutely no way they followed the pre scribed procedures. It turns out that signers are basically "rubber-stamping" legal documents.
Read more:
http://moneymorning.com/2010/10/15/mortgagegate/
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