Thursday, October 01, 2009

Show me the note, part deux

This expands on a previous post, which is referenced in the title of this one.

From Roger Ebert’s review of Michael Moore’s "Capitalism":

The second is the reckless, immoral gambling referred to as "derivatives." I've read that derivatives are so complex they're created by computers and not even the software authors really understand them. Moore asks three experts to explain them to him. All three fail. Essentially, they involve bets placed on the expectation that we will default on our mortgages, for example. If we do, the bets pay off. What if we don't? Investors can hedge their bets, by betting that they will fail. They hope to win both ways.

Our mortgages are the collateral for these bets. Moore says they are sliced and diced and rebundled and scattered hither and yon. He has an interview with Rep. Marcy Kaptur (D-Ohio), who advises her constituents: If a bank forecloses, don't move, and demand they produce a copy of your mortgage. In many cases, they can't.
And even if they can, the current holder of the "security" (that's starting to look like a rather ironic term, huh?) may not have the legal standing to foreclose, as mentioned in the previous post:

MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal. The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a “security.” The lender has been paid in full and has no further legal interest in the claim. Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement. They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief.
After all, it's not the homeowners' fault that a bunch of traders have essentially paid off the mortgagee by buying fractions of the sliced-and-diced mortgage as part of various bundles, and left themselves with no legal recourse should the homeowner stop making payments, is it?

Once again, as before, I urge, warn and direct you to speak with an attorney with expertise in real estate law before taking any action. I am not an expert on real estate law, so acting on my impressions of the current landscape would be to act as irresponsibly as the securities traders who now appear to have paid through the nose for worthless paper.

In reference to millions of American homes, if it turns out that nobody can prove who owns what, millions of mortgages will be unenforceable. But what’s bad for the banking industry might just be good for the rest of the economy. Finally, a bottom-up solution to a bottom-up problem, which is how I think the government should have handled this mess in the first place: If the banking crisis was due to widespread mortgage defaults, why not just pay off the delinquent mortgages? The money ends up going to the same banks as it went to anyway, but that way at least someone got something for it instead of it being a simple giveaway of taxpayer money. Instead, the banks collected free money and still got to collect mortgage payments and foreclose on properties, which presumably will increase in value someday.

And just think of all the shit people could have bought to stimulate the economy with the money they no longer had to use for mortgage payments. The top 1 percent may have most of the money, but they aren't going to be able to support 100 percent of the economy. Even those greedy swine can buy only so many cars, TVs and houses.

UPDATE: More on the Kansas Supreme Court decision from someone who knows more about real estate law than I do.

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