From Randall Wray @ Bengiza
It is time to push the reset button. All foreclosures should be stopped immediately. The REMIC trustees should be audited to see if they have properly followed the requirements of the PSAs and laws applying to REMICs. If they do not have the notes, the securities should be put back to the banks. If the banks cannot absorb the losses, they must be closed and resolved. The FDIC in turn will end up with the mortgage backed securities and underlying mortgages. Working with Freddie and Fannie, all of these should be modified, into new fixed rate mortgages—with a “clawback” to reset principle to current market value of the homes, and with new notes. Investors are going to take losses so there will be fall-out that government will have to address. There will be hundreds of billions of dollars of losses. Congress must find a way to mitigate effects on the economy as well as on investors in MBSs and other assets related to real estate. This is a big problem, but it is not insurmountable.
It is time to take this edifice and throw it in the trashcan, after forcing its members to fix all the titles they have damaged – at their expense – and record true and correct assignment information.
Oh wait – that’s a problem isn’t it….. what if the assignments never actually happened, and the REMICs hold an empty box? Why that could get messy….. Hmmmm….
I recently spoke with an attorney who is aggressively pursing these issues when his clients are faced with foreclosure, with some (and likely growing) success. He related to me that he spoke with the FCIC and was asked “Well, what is your solution? Are you asking that we nationalize all the (large) banks?”
If that’s not an admission that FCIC knows the large banks were and are complicit in this and if forced to admit the truth in their financial statements would be rendered insolvent I don’t know what is.
Note that the FCIC studiously avoided talking about this “wee problem” in their reports thus far, and now they’re “done.” Uh huh. That’s yet more willful blindness folks.
What did I say at the time?
Now we’re faced with having structuralized a $1.5 trillion annual budget deficit into the indefinite future while those who were “helped” by HAMP and similar programs are facing re-default a few months to a couple of years down the road. DTIs over 60% virtually guarantee that outcome. At the same time the holders of these notes were sold a bill of goods and eventually some of them will wise up to the fact that the so-called “bankruptcy remote trusts” that allegedly hold the paper (and thus immunize the banks that created them) are legally defective. Those holders, when (not if) they suffer actual principal and coupon loss, can be reasonably expected to pursue their remedies at law with the aim of voiding the trust and opening the assets of the creating financial institution to attack.
If this line of inquiry is pursued it is entirely possible that these trusts would in fact be voided, and the resulting exposure landing on the major financial institution balance sheets would render them insolvent.
You heard it here first.