The Stink Returns

For those who are a bit dazed by the “who has the note?” foreclosure mess, who know that it has to do with the packaged resale of mortgages as “CDO’s” but little else, it may help to know one little fact which is seldom mentioned. When your mortgage is included in a CDO the original note which you signed is not put into that package, but rather an “electronic copy” of that note is included for convenience. The CDO could have hundreds of mortgages in it, and the original mortgages would weigh hundreds of pounds. Electronic copies weigh nothing and can be transmitted over the Internet.

So the outfit which holds the mortgage, because they hold the CDO which contains the mortgage, goes to foreclose. The print out the paperwork they have, the electronic copy of your note, and file the foreclosure in court. The problem crops up because in most states they cannot foreclose without the original document. Going back to the originator for the originals would be unwieldy enough, massively so, if everything had been on the up-and-up, but it clearly was not.

In some cases the originals have been destroyed. “For convenience” is given as the reason, which one might take to mean something like freeing up space in file cabinets. One might also think that it was to facilitate selling that mortgage more than once, and that is turning out to be the case. I suspect that is going to turn out to be more than a minor problem.

I’ve read many articles which take a rather gleeful tone to the effect that a) people who can’t pay their mortgages are not going to be foreclosed upon and will be able to live in their homes for free, and b) that the big banks who created the housing bubble are finally going to get what’s coming to them. Don’t count on the first, and let’s hope the second doesn’t happen. If the big banks go down we will be right back where we were two years ago.

These are the “toxic assets” that TARP was supposed to buy up, thereby rescuing the big banks. They didn’t get bought up, they magically became labeled as non-toxic and the TARP money got used for a different purpose. Dazzling the American people with footwork, the administration claims that they saved us from depression by “recapitalizing” the banks with that TARP money, and in so doing got it all paid back.

And the toxic assets turned non-toxic are now beginning to reek again.