This page has been archived and commenting is disabled.
The Foreclosure Mess MBS Hate Triangle Emerges: Junior Versus Senior Bondholders Versus Servicers
The WSJ has an article that does a great job of qualifying the impact of what the foreclosure halt will do to the traditional cash waterfall priority schedule inherent in every MBS deal. To wit: junior bondholders will rejoice as they will receive payments for the duration of the halt/moratorium (these would and should cease upon an act of foreclosure), while senior bondholders will suffer, as the deficiency money will come out of the total "reserve" in the pooling and servicing agreement set up by the servicers. As for the servicers themselves, they should be "reimbursed by funds in the trust for all costs related to litigation and extra processing of foreclosures, provided they follow standard industry practices." In other words, it will now become "every man, sorry, banker for themselves" as each party attempts to preserve as much capital as possible given the new development: juniors will push for an indefinite foreclosure halt, seniors will seek an immediate resumption of the status quo, while the servicers stand to get stuck with billion dollar legal and deficiency fees if it is found that "standard industry practices" were not followed. Alas, it would appears that the servicers have by far the weakest case, and the impact to the banks, whose sloppy standards brought this whole situation on, will be in the tens if not billions of dollars. Oh, and suddenly both junior and senior classes will be embroiled in very vicious, painful, and extended litigation with the servicers. Lots of litigation.
More from the WSJ on the conflict between juniors and seniors:
When houses that have been packaged into a mortgage bond are liquidated at a foreclosure sale—the very end of the foreclosure process—the holders of the junior, or riskiest debt, would be the first investors to take losses. But if a foreclosure is delayed, the servicer must typically keep advancing payments that will go to all bondholders, including the junior debt holders, even though the home loan itself is producing no revenue stream.
The latest events thus set up an odd circumstance where junior bondholders—typically at the bottom of the credit structure—could actually end up better off than they expected. Senior bondholders, typically at the top, could end up worse off.
Not surprisingly, senior debt holders want banks to foreclose faster to reduce expenses. Junior bondholders are generally happy to stretch things out. What is more, it isn't entirely clear how the costs of re-processing tens of thousands of mortgages will be allocated. Those costs could be "significant" said Andrew Sandler, a Washington, D.C., attorney who represents mortgage companies.
"This is sort of an extraordinary situation," said Debashish Chatterjee, a vice president for Moody's Investors Service who covers structured finance. By delaying foreclosures, "it means the subordinate bondholders don't get written down for a much longer period of time, and they keep getting payments."
This, however, ignores the class that will impacted the most by all this: servicers.
Typically, mortgage servicers enter into contracts called pooling and servicing agreements with bondholders that spell out the servicers' obligations to manage the loans in the best interests of the investors. These agreements provide that the servicers be reimbursed by funds in the trust for all costs related to litigation and extra processing of foreclosures, provided they follow standard industry practices.
Servicing companies hope the reviews will be quick. At GMAC Mortgage, a unit of Ally Financial Inc., the vast majority of these affidavits will be resolved in the coming weeks and before the end of the year," a spokeswoman for the company said. A spokesman for J.P. Morgan Chase & Co. said the company's review process is expected to take "a few weeks."
But the problems could be magnified if the reviews uncover a lack of proper documentation or other substantive problems rather than simple procedural errors. The furor over servicer practices is also likely to trigger additional legal challenges from borrowers facing foreclosure and more judicial scrutiny, which could further slow the process and increase foreclosure costs.
And the explanation for why one day soon the XLF will open limit down, as soon as Wall Street sellside research gets their cranium out of their gluteus:
"It's very hard to see how the servicers can avoid reimbursing the trusts for losses caused by taking short cuts," said David J. Grais, an attorney in New York who represents investors. Investors could press trustees to investigate servicer conduct, sue the servicers to recoup damages or replace a servicer, he said.
As we said: lots of litigation... playa.
And since Wall Street continues to refuse to touch this topic with a ten foot pole (here is the bottom line for those who may not have been paying attention: huge hits to bank EPS) Zero Hedge is in the process of quantifying just how many billions of dollars each day, week and month of halted foreclosures will bring to the juniors, and how many more billions servicers will be on the hook for unless they manage to convince each of the hundreds of judges in thousands of upcoming lawsuits that all the mortgage fraud (for lack of a better word) was "standard industry practice."
»
- 8643 reads
- Printer-friendly version
- Send to friend
- advertisements -
cry. me. a. river.
This is one of the reasons that there will never be real "work outs" of these MBS/CDO, etcs...none of the parties owning different slices will be willing to share the losses of the lower tiers.
Standard industry Clusterf*ck!
Send Lawyers, (guns and money to follow), TSHTF!
I cant help but to think of David Lereah's books before the bubble burst. We all knew it was coming. Speaking of which;
Q). What do you call it when David Lereah and Jim Cramer are running through the woods naked?
A). Hunting season.
Sir, I salute you! Thank you for the megalol.
So many others we could put in that joke:
Bernanke
Paulson
Geithner
Hunting season indeed...
Hayek said, "There was never a war of 'all against all'."
To which I would only add, "Yet".
That's a thought !
I predict the bloodthirst will be unquenchable.
And then things will spiral completely out of control....Epic bank failures, charmin as good as greenbacks, ect.
Gee, I see more nationalization looming when it ignites....what a surprise!
Won't be anything left to nationalize. It all goes POOF in the Great Reset.
I agree.I was trying to be optimistic.
I can see one world currency looming....then imagine how much more will be in such a small numbers control.Very ugly, and probably WW3 first.
Gold.
matrix glitch
Buyers are already known for finicky behavior - keep this away from MSM if you want to avoid total collapse - if wifeycakes/girlfriend is talking to her BFFs about something other than lipstick and Brad Pitt we can call it ahead of Vegas.
Hey, any Vegas guys out there on this?
Going long on lipstick. Short on housing.
wifeycakes/girlfriend knows not to lie on her back whilst house is in fc.
Shorting condoms and human race too.
Go long redwood trees. Everything will be so greeeeen.
Do you know any romance languages? How to shoot?
So senior bondholders are last to take the hit when mortgage payment cash flows dry up but they bear most (or all) of the overhead and legal costs involved in operating the MBS?
IIRC a Spanish curse:
May they be involved in lots of lawsuits and win them.
Glad the ZH collective is on the case.
Wondering if more knowledgeable posters or contributors could comment:
Could the foreclosure mess lead to massive price discovery of the toilet paper assets held in the bank vaults precipitating the systemic bank crisis we've all been waiting for?
Or is it not related at all?
There are calls for a congressional investigation of this mess, for whatever that is worth. That would be :public record" and somebody with half a brain has to ask the question of how many this is on their books.
The real poop in the punchbowl is that some of the MBS are "empty boxes" and if a bank has this on their balance sheets as an "asset" or allows them to use it as a "reserve" but it is empty, this will affect more than just the bank. It then effects the ratings and the reserve requirements as well.
Another ass hat investigation by Congress, that will solve everything!
Agreed. Or worse. Congressional investigations serve a few purposes, none of which are discovery.
Mix and match the above as needed.
5. Generate additional "contributions" from juniors as no decision is made in extend and pretend.
- Ned
This is the kicker - the fact that there was an improper conveyance of mortgages into the Trust/MBS structure. This cannot be made subject to retroactive correction as that would trigger an 100% IRS penalty.
My hunch is the holders of the senior tranches are at present exaiming the outcome of two courses of action:
1) They wait and accept reimbursement from the servicer (and contemplate the liklihood of restitution resulting in servicer bankruptcy).
2) They turn and litigate against the vendor of the MBS claiming fraud. The vendor offered a "security" which is not what it was purported to be and did not legally hold the mortgages and/or it held mortgages which did not meet the specifications touted by the vendor. This has civil, criminal and SEC and Fanny/Freddy aspects, would likely bankrupt the TBTF and therefore makes it diificult to estimate the potential financial recovery via this route.
+1. It'll be hard to keep all of the MBS holders from suing, and once some do, then it will be a rush. Prisoner's Dilemma.
I'll take a cup from column 1) and a plate full from column 2)!
It's all good, and all probably gonna get flung at a rotary aero-mover near you!
You have to also remember that a lot of politicians themselves are investors. Did you also know that they are exempt from insider trading laws?
http://finance.yahoo.com/tech-ticker/congress-refuses-to-outlaw-insider-...
Yeah, 44% of them are millionaires. Nice representation of the American people ;)
http://www.politico.com/news/stories/1109/29235.html
I million dollars does not make them 'elites.' Would you rather have unsuccessful politicians?
and another thing to remember. the fed bought all of the real shitty MBS to get them off the banks balance sheets and are probably the biggest holders of MBS. do you think they are going to raise this as an issue? i diubt it. if anything they know full well how big a fuck up this is and have already spoken to MSM bosses and told them to keep this quite and to little timmy to organise a bailout. people here keep making the mistake in assuming that bankers will actually wear losses when we know this is simply not the case. It will just get added to the taxpayers bill.
The banksters will find a way to make us pay for it, first with our pensions, then with our future taxes.
Well, here's one example where it has at least lead to price discovery:
http://www.sun-sentinel.com/business/realestate/condos/fl-mortgage-termi...
In short, Condo associations have managed to gain title to foreclosed condos, without owing a penny on the mortgage. Some have claimed that no one is going to end up with a free house; well, someone just ended up with a free Condo. I can see how Condo associations need this in order to keep functioning. This also sets a precedent for other cases.
So, in this particular type of action, price discovery is being forced on the Banks. It will be interesting to see this go nationwide.
Another reason not to own a condo. Of course, in this kleptocracy, there's no reason to own anything except extra passports and liquid funds.
you bet!
http://www.thepennsylvaniaprogressive.com/diary/2794/bankers-foreclosure-fraud-threatens-a-new-financial-meltdown?source=patrick.net
Dumb WSJ.
The Junior holders would force the trustee of the MBS to put everything back to the bank who sold the unqualified/fraud/loans into the MBS and get back all their money.
Burn, Baby, eh, bank, burn.
Yep. Whoever wrote that WSJ article has not done their homework on RMBS. They are confusing some relationships and how the cash-flow process happens (hint: cash-flows can continue to the investors w/out receiving payments from the mortgagor). Now, I think that he has enough to go on to figure out where to begin researching.
Edit: I read too fast. Joke is on me.
This group will continue to feed and think they are "winning" and "experiencing growth" because they are dining on the rotting flesh of their fellow mortgage crinimals. This will get truley 'canabalistic" and it is most welcome. I am HAPPY for the pain about to visit these bastards. After today, I no longer care about the pain these pricks endure. Whatever it is, it ain't enough to make up fot the problems they have caused and continue to cause!
Great is the satisfaction outliving your enemies.
http://www.youtube.com/watch?v=yge311sFhC8
BURN IT ALL DOWN!!!
Well, I guess it is standard industry practice...fraud when they wrote 'em, fraud when they foreclose 'em.
It does give one a sense of symmetry.
Once an interest payment is missed to bondholders, it only takes 3 bondholders to agree, to throw the issuing company into bankruptsy.
Can anyone fill in the blanks here in this situ about the coming downside and to who ?
"there can be only one, Highlander." Who will pay their local banker buddies? This is the "cold hard math" of Too Big to Fail. You can save your local campaign contributor but it could very well mean "blowing up the state." seems rather "expensive" but who am i to argue with a campaign contributor when all i am is the "son of a son of a sailor." I mean it was none other than WARREN Buffet who said "i invest in moody's because there is no competition when it comes to rating a state's debt." and i believe Phil Angelides (former Treasurer of State of California) responded "you know i used to be the former Treasurer of the State of California, right?" A "thoughtful silence" ensued followed by an unusal state of joviality. i've noticed i'm still laughing but many others are not.
Beautiful irony. Two White House administrations couldn't get them, the SEC hasn't touched them and District Attorneys are nowhere to be found.
Just when they thought they were in the clear, US banks and financial players are going to take themselves down. Reminds me of the scene from The Hunt For Red October when the Russian Submarine Captain is sunk by his own torpedo after trying to kill Ramius at all costs.
This is going to be fun to watch.
Regards,
George The Greek ... From Canada
I paid cash for my house ... damn!
reverse mortgage last year when i saw it coming. And the chicks are free
Here's how I see this "dog eat dog" playing out in the courts...
http://www.youtube.com/watch?v=Ku88RFNCWZA
Now that's funny! I'm hoping, however, that trial attorneys live up to their reputations as pit bulls . . . and, after facing and observing many of them over the years, I gotta say that that I have complete confidence that they will.
Whether the Judges will enforce the law is another matter.
Can you say 'emergency legislation'? Somehow, the meaning of 'standard industry practice' will be changed to incorporate all that has gone before. This will turn centuries of real property law on its head, and change the game forever. Sorta like bankruptcy law in the case of GM. This will buy some more time, and that's really all they're good at.
Nice prisoner's dilemma we got going here. With 3 prisoners! Hope John Nash is taking his meds, he could let us all know how this is going to turn out!
The fat lady's singing
http://www.youtube.com/watch?v=DjctiFb9T1A
love that song!
"will be in the tens if not billions of dollars." Appears to be a missing word or two...maybe "hundreds of" billions of dollars?
Forbes ~ Its going mainstream. Tick,tick,tick ...
http://www.youtube.com/watch?v=2f2hgGPNqWA
Looks like ABX 07 01 CCC is going to PAR!!!!!!!!!!!!!..
Most deflations and depressions will have to be resolved by debt forgiveness. WW2 was an oddity, because we basically created austerity for the entire modern world with industrial destruction.
http://www.the-peoples-forum.com/cgi-bin/readart.cgi?ArtNum=7806
In the modern age, debt forgiveness is default.
It can also be this foreclosure mess since predatory lending can only be legitimized by the government enforcement.
If Obama wants to stay in office, he can screw the banks over(but basically screw FHA over) by pulling a revenue source from them. If people just keep the toxic trash they lived in, then the economy would basically reset to ZERO and the ponzi can happily roll along until the next FED-induced moral hazard bubble.
So, whats it going to be. Free homes or the decline of western civilization?
Glad to see the dysfunction come in to play really. As the big boys fight amongst themselves the little guys getting foreclosed on might get a little relief.
Title companies are also factoring into the picture -- can't resell something that can't get title insurance for.
I don't like moochers getting liars loans or a house, but there's got to be payback on the "bitchez" or we all get it again next time. Thems the rules.
To add another twist, many banks are both bondholders and servicers (different groups within the bank). So, do you sue yourself?
This will be like derivatives. What is the net exposure? If Bank of America sues Chase for $2 billion and Chase sues Bank of America for $2 billion, it's a net $0 except for the legal fees.
So the winner is the lawyers.
Too fucking cool for words. Period
Not to worry...it's only theoretical money...Ben can always print us some more
I guess that becomes the big question, was fraud standard industry practice?
I believe the correct answer in this case was yes, yes it was.
comic relief. Thank you.
Fook! Silver just smacked down 23 and is still rising. Gold at 1346+
yeah but...but...
i hope you're not hungry JLee 'cause you can't eat it.
(i musta beat someone to it anyway)
FRNs MMMMMMM roughage!
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/04/AR201010...
What happens when judges all over the places vacate foreclosure judgments?
The one who bought the foreclosures do not have titles. OK, sue title insurers.
The bank will have to return the sales proceeds back to the buyer. Ok, payments seized by title insurers.
Realtors will have to vomit the commissions back to the seller, which was the bank?
Wait a minute! the bank did not keep the money. The bank transferred the money to the MBS which wiped out the junior note holder. Now, the junior note holder wanted the money back.
So, judges don't want to vacate the rulings. So, everyone and anyone is sueing the foreclosure buyer for wrongful enrichment which then force the judges to vacate the ruling??????????????
Vacate or not vacate, that's the judge's dilemma.
I do wonder what the real estate agents obligations are...those agents who represented the sellers/banks in foreclosure sales. Do they have any legal obligation (as an agent) to assure that the properties they are selling are in fact owned by the banks? Are they instead selling stolen property? Do they have any due diligence obligations?
As one of my law professors used to ask the class after going over a case:
Professor: Who do you sue?
Class: Everybody!
On Florida's west coast, where the housing bust has flooded courts with foreclosure filings, the chief judge of the 6th Judicial Circuit has little sympathy for lenders who have routinely submitted flawed and possibly fraudulent foreclosure cases.
J. Thomas McGrady, whose jurisdiction includes two hard-hit counties with more than 1 million people in the Tampa area, said Monday that foreclosures based on improper paperwork should be tossed out.
Judges "are going to have to vacate that judgment and start over again," he said.
Oh, what a tangled web we weave, when first we practice to deceive.
The ETHER (BS) is so strong these days…no wonder every one is so high…they can’t tell a match has been struck and they are on fire.
The big CB/IB/FED/Central Bank financiers signed off on this dreck ages ago (nothing in this world is beyond their gaze, they get first cut in *all things* as creationist gods of value). Having multiple layers of deniability aided and abetted by a bought and payed for state and federal governments including their respective judicature…making them untouchable. Now they stand at the end of dark hallways, waiting…too push out those naive enough to think they were in pat, to be thrust into the *Commons Lobby* discoveries light illuminating their criminal nakedness. A paltry feast to satisfy the mob is on the menu and if the commons order loudly, strongly enough it will be served, sedating hungers pangs and then a digestive rest will take angers place…the Commons default position.
This legal process will take years and is stacked against the Commons, parlor tricks to dilute / diffuse energy and *IF* the Commons receive not unlike Exxon Valdez or Enron cases some punitive judgement in its favor, it will be a case of…too little too late affair. Give hope and dash it upon the rocks of reality of the two tier world…rinse and repeat ad infinity.
In the Randian / neoliberal world of the Ownership Society exported under the pretence of *Individual Freedom* around this globe, one must remember everything is under a note of credit / title, land, houses, companies, banks, governments, judicature, religion, myself (as exhibited by my credit rating…the tool by which *they value_judge_* my humanity in their system), even my children are all property to those that create value (now out of nothing) and trade of it and rule by it, by any other name they call it save what it really is…enforced slavery.
Skippy…land / housing titles…bah…try getting free and clear unclouded title on yourself first…start by not voting ever again, till they have to come to the table face to face, then and only then…a contract can be hammered out. Until then we are but a form of mobile slaves unable to do much more than enrich the few for their pleasure, one of which is your sons and daughters servitude.
PS…until the Commons shows its ready to give back all the trinkets they are allowed to play with (for a time and with interest), the illusion of status, wealth, law, governance in the name of the people, by the people, and for the people, to demand a place at the decision making table *ON* equal terms with the *creators of value*, the slavery will continue..two tier world. Time to man up…get your ancestor on…humanitze your self…for the end game… for this world_as it is_ is fast becoming an over crowded American prison…where the only classes that exist are…BITCHES…BULLS…GUARDS…WARDENS…THE SYSTEMS INVESTORS and lastly the BOND HOLDERS (untouchables) that matter most…by their bequeath and unanswerable too any…even their God’s or other Ideology as they were created to_rule_ *buy* and for them.
Humanity is at the wall like never before (the house is full), every action has a equal and opposite reaction (this is indisputable), yet more of the same..nay Super Size it…is the answer to our dilemma.
The funny thing is…mass and volume are correlations (see value = mass) finite mass expanded only serves to diffuse its representation in any given volume, there by decreasing its value relative its original mass to volume ratio…subject to the laws of gravity have we reached escape velocity (see Exchanges ie American Dow/S&P/Nasdaq + global)? Humanity’s masters are ready to enforce a possible ELE (bees, biodiversity, toxicafation of the biosphere etc and for what[?] exchange price all ways going up?????[WTF] The template of MSM advertising insertion from our very birth…setting the standards of how we must live…and we laugh at our ancestors beliefs before the God of Abraham et al (how will we be judged by our ancestors…if they have life to even to take on such a endeavor).
So consumed (consumer) for today and not a thought about tomorrow…yet we fear lifestyle reduction (see MSM advertising template) to the further reduction of our species (forget all others they don’t matter…its a lifestyle thingy).
In ending as the aboriginals found out over 40 odd thousand years here down under…we are born of the land and not to rule it. It controls our destiny not we…until we respect it, it will not respect us. All other machinations are secondary too it. Humanity is approaching a state of no return, a self inflicted extinction event (study hobby to a few) and we will take as many with us just to prove our greatness..barf.
How about everything that makes up this planet having a vote…eh…as most of it was here before we strode upon it…worked hard to live / exist only to be introduced to human slavery…our optics are very short sighted eh…en fin.
I think there's actually two problems here. Number one, the mortgage note, interest payments, bond tranches, and the like. OK, let's assume that we create Weimer-levels of cash, pay everyone off, and sweep this problem under the (very lumpy) rug and agree to look the other way. The "Too Big To Fails" have survived another day. Hooray! Virgins and mead for everyone!
Um, now, about the second problem. WHO REALLY OWNS THE DAMN HOUSE? Who actually owns the title and can prove it in a court of law? If some of these mortgages have been sold into dozens of bonds, how many slimy lawyer-saurs are going to come flopping through the primordial ooze to represent clients claiming to have a one or two percent interest on the house in question? That is the biggest question in my mind. Will any of these properties really have a free and clear title after all of this? Will anyone ever be able to buy a house again without worrying for years that they really don't own anything at all because of some hidden defect in title?
This is not just a question of money. This is a question of property rights, title, and the right to buy and sell real property.
It will never happen, but the only way to solve all of this is with a jubilee year, forgiveness of all property debt, and retitling of all property, free and clear, which you presently possess, regardless of the liens and money owed. The super-smart PhD's (read: educated morons) who started all of this caused their own system to consume itself from the inside, and now it is starting to decay into a heap of smoking ashes. Those of us who did the right thing shouldn't suffer because of some useless eaters who thought they were better than everyone else. Screw them, screw the banks, screw the bondholders, screw the rating agencies. Hit the big reset button and let us start over. Can you imagine how the economy will take off when everyone is suddenly a homeowner with no mortgage? Yeah, I know that there are tons of details, like how do you treat those who lost homes in foreclosure. But, really, would such a reset be any more painful than the decades of costly litigation that is now in front of us? Banks are going to fail anyway because of this. The dollar is probably going to collapse anyway in part because of this. Confidence in US debt paper of all types will disappear anyway.
as a renter who has steered clear of this debacle, seen return on savings go to f-ing zero, not interested in "investing" in a market supported by a central bank in that last throes of its life, giving property rights to yet another group of retards who either can't or won't accept responsibility for their actions - would be just f-ing marvelous.
at least their is some justice with those that did do strategic defaults...
I know, there are lots of questions and there won't be a solution that satisfies everyone. Personally, I just cannot see how to unwind the snake-pit that was created by the morons down on wall street. It is one god-awful mess that can't be papered over, not this time.
I, too, did the honorable thing and paid cash for my place and steered clear of debt. Hang in there!
Bank fall away? you mean what supposed to happen in a capitalist system. you know where TBTF does not exist. the key principal of capitalism is not greed. it is being that the government should protect the rights of property holders and not much else? what your saying is that we use capitalism when its good for a hundred years and then abandon it during the down cycle. let them default the american way. let smart people with resources and know how allocate these "cheap resources" and fucking PRODUCE something in this country. if letting me off the hook lets the million times worse corperations off the hook and the right to continue to exist then ill take my lumps.
p.s. yes I'm fully away that not one of these assholes has taken there lumps yet. so there is a good chance I'm delusional.
Been saying for two years now, "It's going to be a great decade for lawyers, but, few others".
This situation should force all the TBTF into backruptcy or nationalization. If we had spent the TARP money on nationalization we would have a recovering banking system now (at least) and maybe be rebuilding.
However, I have no confidence that this won't be papered over also (with taxpayer money).
At least the delusion that it is a "government of the people, by the people, and for the people" has perished and we can move into the future with eyes open.
One of America's greatest strengths was the belief that ultimately we were the government and that despite its flaws our government was different from the corrupt, thieving regimes that most of the world has always, and continues to, live under. Was America ever really different? Was the constitutional Republic once real and is now corrupted? Can America survive without a belief in the rule of law or does it just become another banana republic (without the bananas)? Do we try to (re)build America into a constitutional Republic (as it once was?) or give up in disgust and just spend our lives trying to game the system like most of the world?
I know one thing--I'm glad not to be young because this brave new world doesn't look pretty from where I sit. It is "better to travel with hope, than to arrive." We have certainly arrived, and they were right. The journey was better than the destination.
At least Obama was able to change one thing. He took the average American's love of country and belief in his government and changed it into disgust and cynicism. He'll certainly be remembered in the history books for that. Maybe he'll even make the top ten "Last Emperors" list on some future late night talk show. Way to go, Barry!
Yesterday, a friend of mine was offered a refi by Wells Fargo to .5% above the current rate. There were no fees and they gave him an option of 30yr or 20yr. He took the offer. When he told me about it I laughed. The timing is so strange that I'm 90% sure there was a potential problem with his paperwork. I wonder if the lenders are trying head off these problems by offering a refi and getting brand new paperwork.
One thing the article is missing. While the servicers might get BKed by all the advances and lack of funds to reimburse, not to mention legal fees from fraud charges and lawsuits, the servicers usually financed these operations with debt, servicer liquidity facilities, when servicing RMBS transactions. So who gets screwed in the end? TBTFs and hedgies gave the servicers the lines of credit for this stuff thinking it was the most super-duper senior position of all. Whoops.
This WSJ article gives the impression that all the problems are in the private MBS market. I don't think that's true. I think the GSE/agency-backed MBSs have exactly the same problems.
In other words, a lot of these foreclosure sales are actually collecting money on behalf of the US public, as the federal government guaranteed the agency MBSs and has committed itself to bailing out all losses on GSE guarantees of GSE MBSs. If foreclosure is impossible on a publicly guaranteed mortgage, that's just more public losses tacked onto the public deficit and the public debt.
The federal government could try to recover some of those losses by suing the banks for failing to keep their commitments to properly handle all the paperwork that underlies these publicly guaranteed MBSs. But I doubt the government will do that, as these are the same banks the government just bailed out. The government already majority-owns GMAC, so no point at all in suing that one.
Talk about having you coming or going.
Yes, it's as I feared...the zombies have taken over the mortgage market!
http://www.youtube.com/watch?v=YX3suDKUJMM