The Stakes Are Huge: There's Another Bank Crash Looming, and We Must Prevent Another Bailout

[Donnachaidh]

http://www.alternet.org/economy/149543/the_stakes_are_huge%3A_there%27s_another_bank_crash_looming%2C_and_we_must_prevent_another_bailout/

The housing bubble plus the worst recession since the Great Depression has created a foreclosure crisis of gargantuan proportions.

Everything I am reading these days on financial issues points to some serious reckoning soon to come, especially because of -- as the folks at Third Way are calling it -- foreclosure-gate. The Massachusetts Supreme Court ruling in the Ibanez case, along with a growing body of cases where the banks and/or their servicers have been ruled against in foreclosure cases, and even the banks' lawyers are being castigated in court by judges for bringing in made-up paperwork, is causing a growing sense of panic among the biggest banks that hold the most mortgages. Spokespeople for the banks are talking bravely, trying to dismiss the situation as some minor paperwork errors, but everyone who has been paying attention to the situation fears that there are really big consequences afoot.

The plain fact is that over the last decade, in their overwhelming rush to make bigger and bigger profits from trading in the bubble-driven real estate securities market, the banks ran roughshod over the home mortgage and title system that had served this country (and England and many others) quite well for hundreds of years -- and they made a serious mess of it. Because of the way these mortgages have been sliced and diced and sold into complicated securities, homeowners, judges, and the banks themselves are having quite a bit of trouble figuring out who actually owns the note in more cases than is easy to believe. The "paperwork" -- figuring out who owns the note - is not just a little messed up, it is a disaster area.

This wouldn't be as big a deal except that the combination of the housing bubble itself plus the worst recession since the Great Depression (caused in great part by that bubble) has created a foreclosure crisis of gargantuan proportions. Millions of homeowners are in foreclosure proceedings, millions more underwater because of the collapse of housing prices. And because the banks have cooked their books, not wanting all these toxic assets to wreak havoc with their official valuation and their stock prices, they have no interest in helping homeowners stay in their homes by writing down these mortgages to current market levels. So banks are moving to foreclose these millions of homes, but they can't prove to judges that they even own the notes that would allow them to foreclose. Thus you have robo-signers, falsified affidavits, and all kinds of strange things being presented to judges in courts. The judges who are not bought and paid for by the banks are raising big red flags about all this, and thus you have cases like Ibanez going against the banks.

MORE at the link ---

[FreakinDJ]

1. Would be in the Bank's best interest to "Restructure" those loans

[KansDem]

2. What happens if the bank can't produce the title?

Who owns the home? And is there an obligation on part of the homeowner to pay the mortgage? Or is the mortgage considered just another "loan" to be paid off...just that the house cannot be foreclosed on.

Could a homeowner simply say "no" to payments and keep the house and file bankruptcy?

[Statistical]

5. Likely no houses will end up free of mortgage but lets say they did.

Say the Smiths have a $200K mortgage and $250K home. Bank indicates that a foreclosure can't be completed due no or flawed chain of title.

Great Smiths get a free house? Not exactly. The bank still has the original note (loan) and thus the Smiths owe the bank $200K. It just now is an unsecured debt. So the bank will seek a judgement and then garnish wages. The amount garnished could be more than the mortgage payment.

So say the Smiths declare bankruptcy. Well bad news is they have a $250K asset free and clear. You don't get to just wipe out your debts and keep $250K asset in bankruptcy. The judge will apply a homestead exemption of $22K on the home. If any equity remains above that the judge will order the home sold, the Smiths will be paid their $22K exemption, and any remaining revenue used to pay creditors (including the original mortgage holder).

Now mmost likely the Smiths will simply negotiate with the bank and sign a new note and attach it to the home. If the Smiths have a good lawyer they might negotiate the principle down based on how much the Bank will lose in a bankruptcy (unlikely bank would get paid in full unless Smiths had no other debt).

[Exilednight]

9. The maximum garnish amount is 10% of wages after taxes. So it is unlikely that

the amount garnished will be more than the mortgage.

[Statistical]

11. Well it really depends on a lot of factors.

http://credit.about.com/od/garnishment/f/garnishlimit.htm

There is no simple 10% maximum. Depending on disposable income (and not having a mortgage payment would result in a lot of disposable income) it can be more.

Still even if that does happen. The point is the debt doesn't go away. You merely have a $200K house and an unconnected but still valid $250K debt.

[Exilednight]

13. Ahhh, you are correct. In my state it is 10%. Thanks for the info. n/t

[Vinnie From Indy]

3. The original billions in bailout money shoud have been given to the homeowners

rather than the banks.

[Exilednight]

10. Actually, the smartest way out of this would

be for the government to let the banks collapse and buy the mortgages outright at pennies on the dollar. Then, the government can renegotiate the loans with individual homeowners at less than the original value, but more than what the government paid for them.

Wall Street takes a bath, Main Street gets a bailout and the government makes a profit.

[Kolesar]

4. Obama vetoed the "robo signer" notary bill a month or two ago...eom

[DCKit]

6. The banks are insolvent, yet continue to pay record bonuses each quarter.

Management needs to be held accountable for this, and stripped of their ill-gotten gains.

[starroute]

7. And there are further problems with houses that have been foreclosed

The house across the street from us got foreclosed on last summer. The people moved out, notices went up on the front door, and it was put up for auction at a sheriff's sale. But it didn't sell. The problem is that, I think by law, the auction price can't be any lower than what the bank is owed. And in this case, the bank was owed way more than the value of the house.

I don't know how it all happened -- but according to figures available online, the house was last sold for $200,000 in 2004, its value reached a high of $237,000 around 2008, and the amount still owed is $237,000. Did the people have one of those interest-only balloon mortgages and then tack on a home equity loan or line of credit as the value increased? I've got no clue, but the result is that the bank got took.

Meanwhile, the house is just sitting there, without even a "for sale" sign out front. My assumption from things I've read is that the bank would rather keep it as an asset on their books with a nominal value of $237,000 then sell it at $160,000 and have to post a loss.

But the result is that there's an empty house across the street for me, which I'm not at all happy about -- and of course the bank doesn't even send anyone to shovel the sidewalk when it snows, as property owners are required to do. I wonder if they'll bother mowing the grass next spring and if the town will try to call them on it if they don't?

[cbdo2007]

8. unrec - enough with the "foretelling the next crash" game

[snot]

12. Sr. execs of mortgage-holders and those who pooled and sold them as investment securities

should be in jail.

People DID go to jail for less than this in the 80's.

[mdmc]

14. ..

`