Thursday, 30 September 2010

The Next Housing Crisis

Given the fetishistic obsession with legality when it comes to Mexican gardeners (‘What part of ILLEGAL don’t you understand?’), a curious lawlessness rules the land in the arena of mortgage foreclosures as detailed in numerous articles recently. Turns out that the same get-rich-quick ethic that led subprime mortgage mills to churn out phony paperwork in the fee-creation-securitization-blow-up-the-world-economy process is again operative in the judicial sphere as tens of thousands of insolvent households are reduced to penury and homelessness.

A spate of reports now shows that the mad rush to cash in on the housing bubble led, not surprisingly, to sloppy procedures, including the all-important transfer of title. Since mortgages were being bundled into huge portfolios (bonds) and sliced up for ease of resale to gullible bond buyers, little care was taken with the costly and time-consuming process of placing the ownership of the mortgaged houses into the trusts, the shell companies that were the formal vehicles for the bond creation. Since the juicy fees were elsewhere (in churning out new mortgages as fast as possible), huge numbers of disputed properties now have dubious and easily challenged title claims.

Any lay observer who played Monopoly as a kid would assume that a court-supervised foreclosure procedure would require clear title to the property being seized just as you can't charge rent for Park Place without the little cardboard deed in your hand. But apparently through collusion between lawyers for foreclosure mills and the courts, that step has been largely ignored—up to now. Some major firms, including GMAC (the finance arm of General Motors) and today JPMorganChase, have halted foreclosures proceedings in some places while the extremely serious issues raised are studied.

What better example could we ask for of the collapse of a founding principle of our own capitalist economy? Has it not been the Republican/Tea Party wing of our polity that for decades has placed private property at the center of its ideological crusade? For them, taxes are a curse because what’s mine is mine—now suddenly the courts are incapable of assuring homeowners that they won’t be evicted based on concocted, fraudulent documents.

My casual reading of these accounts is that despite the banks’ and lawyers’ claims of a mere ‘technical lapse’, the mess could be gigantic as a few million desperate homeowners realize they can contest the foreclosers’ legal standing to prosecute them.

It would be ironic if, after all the failed efforts by the Obama Administration to halt the foreclosure avalanche, the housing finance system itself provided the ammunition to paralyze it. And the implications for the still crippled banking system are dire: how many more banks will teeter on the edge if they cannot even seize property from the bankrupted households? And will Rick Santelli stage a new hissy-fit if a million busted homeowners suddenly cannot be thrown onto the streets?

Postscript: anyone interested in this farce really must watch a couple minutes of this videotaped deposition of one of GMAC’s ‘robot signers’, the guy whom they hired to attest to the accuracy of something like 10,000 foreclosure proceedings a month. I was expecting some sleazy character in a suit who thought he wouldn’t get caught, but not this: someone hire him quick as an extra in their next biker movie.

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