The Next Mortgage Crash

Banksters are sucking up bonuses like an addict snorts dope, and living the high life as they were when the last crisis hit.  The next may come sooner that we realized, because the their naked greed impelled them to such extreme haste that they left themselves open to potential liability with limits we can only guess at.  As long as our finances are dependent on Banksters, our economy will have a foundation of quicksand.

…Mortgage repurchase agreements are indemnification clauses that purchasers of mortgage backed securities put in purchase contracts.  These clauses stipulate that the buyer can force the seller to buyback the securities in the event that the underwriting (or other origination processes) for the underlying mortgages was defective and the mortgages defaulted.  Many investors in mortgage backed securities are currently looking into the possibility of pursuing mortgage buybacks against major lenders for violating purchase agreements.

According to Tarullo:

“During the third quarter of 2010, Fannie Mae collected $1.6 billion in unpaid principal balance (UPB) from originators, and currently has $7.7 billion UPB in outstanding repurchase requests, $2.8 billion of which has been outstanding for more than 120 days. Freddie Mac has $5.6 billion UPB in outstanding repurchase requests, $1.8 billion of which has been outstanding for more than 120 days. As of the third quarter of 2010, the four largest banks held $9.7 billion in repurchase reserves, most of which is intended for GSE put backs”.

The estimates of the liabilities that mortgage repurchases pose to banks vary greatly depending upon the source.  Most recently, Paul Miller of FBR Capital Markets estimated that putback liability could range between $54-106 billion.  Still others think repurchase liability could be far greater… [emphasis original]

Inserted from <Mortgage Rates and Trends>

To simplify this, the Banksters did not do the legally required paperwork to preserve properties’ titles as the loans were sliced and diced into securities, but many of the securities have a clause guaranteeing that the title is clear.  Investors can return defective securities to the banksters and demand a refund.  This is called a put back.

Chris Hayes puts the issue in terms we can all understand.

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Now, if the liability is around $100 billion, financial giants can survive it.  However, that figure is just a guess.  Only the banksters know, and they aren’t telling.

Personally, I think it is worse, because they slipped a bill through Congress a while back requiring courts to accept electronic titles.  It passes the House and Senate by unanimous consent, and I suspect it was presented as something routine and non controversial, so nobody bothered to read it.  It would have let the Banksters off the hook by making their bogus title records retroactively legal.  But before it got to Obama’s desk, Elizabeth Warren recognized it for the scam it was and tipped Obama, who vetoed it.  If it’s a $trillion or two, it’s meltdown time again.