The SEIU has a campaign: Where’s the Note? Demand to see your mortgage note. It’s worth checking out. But first, what is this note? And why would its existence be important to struggling homeowners, homeowners in foreclosure, and investors in mortgage backed securities?
There’s going to be a campaign to convince you that having the note correctly filed and produced isn’t that important (see, to start, this WSJ editorial from the weekend). It will argue that this is some sort of useless cover sheet for a TPS form that someone forgot to fill out. That is profoundly incorrect.
Independent of the fraud that was committed on our courts, the current crisis is important because the note is a crucial document for every party to a mortgage. But first, let’s define what a mortgage is. A mortgage consists of two documents, a note and a lien:
The note is the IOU; it’s the borrower’s promise to pay. The mortgage, or the lien, is just the enforcement right to take the property if the note goes unpaid. The note is crucial.
Why does this matter? Three reasons, reasons that even the Wall Street Journal op-ed page needs to take into account. The first is that the note is the evidence of the debt. If it isn’t properly in the trust, then there isn’t clear evidence of the debt existing.
And it can’t be a matter of “let’s go find it now!” REMIC law, which governs the securitization, is really specific here. The securitization can’t get new assets after 90 days without a tax penalty, and it can’t get defaulted assets at all without a major tax penalty. Most of these notes are way past 90 days and will be in a defaulted state.
This is because these parts of the mortgage-backed security were supposed to be passive entities. They are supposed to take in money through mortgage payments on one end and pay it out to bondholders on the other end — hence their exemption from lots…
All you need to know to follow the trail of wrongdoing.
The current wave of foreclosure fraud and the consequences for the economy are difficult to follow. As such, I’m going to write a few posts to simplify what is going on so you can follow stories as they unfold. This is very 101 level, and will include a reading list of blog posts and articles at each stage to help provide depth. (Special thanks to Yves Smith for walking me through much of this.) Let’s make three charts of the chains involved in the process. The first is what is currently going on with foreclosure fraud (click through for a larger image):
As you can see, in judicial review states like Florida the courts require that servicers, or those who administer the bonds that are full of mortgages (securitization, residential mortgage backed securities, RMBS, are all phrases they use), say that they have everything necessary in order to have standing to bring a foreclosure. They need to have the note for a mortgage, which is supposed to be in the trust — part of the mortgage backed securities — that they administer.
What is breaking down here? In Florida, a judicial review state, it was found that one person was notarizing documents far faster than anyone reasonably could have. Someone found forged documents necessary for the foreclosure process, like the note. A separate court system was set up to resolve these foreclosures faster, at the expense of allowing serious challenges to the documents. Here’s Smith on how kangaroo these courts look up close. Here’s WaPo on one individual and the nightmare of trying to challenge an invalid foreclosure. Keep him in mind when you hear about deadbeats and whatnot: the current system is designed to make it difficult for anyone to challenge their case.
Meet the robo-signer who kicked it off here at this WaPo story. I almost feel bad for this patsy; the real battle here is between junior and senior tranche holders, and this doofus could end up in jail in order to keep John Paulson rich. After reading about this guy, I’m asking our elites to take better care of their goons. (Can we get a Financial Patsy Fordism social contract movement going? If…
So how did America solve the problem of the Too Big To Fail Banks? Simple, we doubled the size of them. Now they’re too gigantic to fail.
You couldn’t make this stuff up.
Here’s Stephen Grocer in the WSJ with this incredible story (emphasis Daddy’s):
Citi, BofA, J.P. Morgan and Wells Fargo now control $7.7 trillion in assets and $3.2 trillion in deposits as of March 30. To put that in perspective: The $7.7 trillion in assets is almost double the combined assets of the next 46 biggest banksand 37% more in deposits.
More importantly, those four banks control more assets today than they did in December 2007, when Deal Journal first wrote about “too big to fail.” Back then J.P. Morgan, Citigroup, BofA and Wells held $4.95 trillion in assets.
In the brokerage business, we have a term called Concentrated Position, meaning an account with a greater-than-normal percentage of assets in one or two large holdings. Accounts with concentrated positions are seen to carry more risk (obviously) and are ineligible for margin privileges in some cases. Essentially, the entire banking system has become one big concentrated position account, in worse shape than it was in before the crash (thanks to mergers and attrition, no doubt, but still).
This is an interesting solution to the systemic risk problem we were all carrying on about over the last few years. Bravo.
The Obama plan is exactly backwards in its approach to systemic risk. It will increase systemic risk.
As pointed out by one of the leaders of econophysics, Eugene Stanley (here), one of the prime results in the exploding field of network theory is that densely connected networks are chaotic and unstable compared to sparsely connected networks.
This only makes sense. If every part of a network affects every other part of a network it becomes very easy for large perturbations to propagate through the network, and rebound, and so on.
The Obama-Summers-Geithner solution to our problem of systemic risk is evidence of an intellectual obtuseness that is breathtaking.
The Fed created or permitted by neglect of its duties the systemic risk that caused this crash, and the Great Depression before it. Mish got this right.
The obvious solution given that systemic risk is a characteristic of the structure of the financial system is to change the structure of the system to reduce systemic risk. Break up investment banks and commercial banks. Eliminate financial institutions that are big enough to create systemic risk all by themselves (no more “too big to fail”). Make it impossible for the system to become densely connected by limiting leverage. The plan does increase capital requirements but not enough. And it leaves the trading of CDSs, the densely-linked network of derivatives that largely caused the supposed near melt-down of the system last fall, lightly regulated and less than transparent.
You can’t leave the TBTF institutions in place, or they will capture the regulators again. Or perhaps it’s better to say they’re not letting them go at this time.
Glass-Steagall and the other laws that the neocons undid over the past thirty years worked. They kept the system stable for sixty years.
Karen Petrou's memorandum to the Federal Financial Analytics Clients on the GSIBs dilemma: death by hanging or dismemberment.
TO: Federal Financial Analytics Clients
FROM: Karen Shaw Petrou
DATE: July 31, 2015
At Wednesday’s hearing on Dodd-Frank’s resolution protocols, conservative Republican Pat Toomey wanted to end big banks by hanging them in bankruptcy, while Sen. Warren preferred death by dismemberment. Any way you look at it, two senators who might well not agree on from which side the sun rises are united as one on a goal: killing GSIBs. A Presidential candidate, former Texas Governor Rick Perry, Thursday ideologically stood as one with fellow candidate, socialist Bernie Sanders to demand a slow, painful GSIB death by ever higher surcharges along with an array of other costly sanctions. It’s enoug...
ATHENS (Reuters) - Greece's stock market will reopen on Monday after a five-week shutdown caused by capital controls, but local investors will face restrictions aimed at stemming capital flight, a bourse spokeswoman said on Friday.
The Athens Stock Exchange (ASE) (.ATG) (EXCr.AT) has been shut since June 29, when the government closed banks and imposed strict limits on withdrawals and foreign transfers to avert a run on deposits.
The Finance Ministry cleared the way for the exchange to resume operations by issuing a decree setting out new trading rules for local investors. There will be no restrictions on foreign investors.
MagneGas Corporation (NASDAQ: MNGA) this week completed metal cutting demonstrations with over 40 representatives from the Fossil Fuel division of a major northeast Utility. The Company believes the demonstrations were successful as they have received multiple requests for fuel as a result of those meetings.
The Utility is one of the ten largest in the United States with over $35 billion in assets and large volume use of acetylene. Multiple company officials and representatives from the Fossil Fuel Division of the Utility were in attendance. This particular division is the largest user of acetylene and propane at the Company. The test used MagneGas® to cut 2 inch steel plates and resulted in very little pre-heat time with clean cuts. Officials have indicated an int...
Tech indices finished strong after they overcame the opening half hour of selling. The Fed statement was greeted favorably, although market breadth is not looking pretty. The Nasdaq still has a distance to travel to make back all of its losses, but has done well to hold up against Semiconductor weakness.
The Semiconductor Index is struggling to make inroads against past losses as the Nasdaq and Nasdaq 100 push respectable gains. I find it hard to see how this scenario can continue, ...
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report -- primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bul...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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