naked capitalism

First Topic of the day: Foreclosures

Robo-signers: Mortgage experience not necessary Yahoo! Finance (Mortgage servicers hired hair stylists, Walmart floor workers and installed them in "foreclosure expert" jobs. Here’s a quote from one of these experts: "I don’t know the ins and outs of the loan, I just sign documents." Gee, I wonder who will be the fall guy here. )

U.S. Home Seizures Climb to Record as Banks Review Foreclosure Practices Bloomberg

A Look at How Unregulated Servicers Are, and the Consequences for Leaving this Crisis Mike Konczal

Emptywheel on the Stress Tests, Servicing Fraud as a Counter-Cyclical Diversification Strategy Mike Konczal

Florida’s 30-Second Foreclosure Dash Hits Wall of Fraud Claims Bloomberg

The enormous mortgage-bond scandal Felix Salmon

The Real Foreclosure Crisis: Who Owns the Mortgages? HuffPo (note that Yves has said the MERS issue is secondary. She says the issues created by the RMBS are not easily remedied.)

Second Topic of the Day: Currencies

Krugman: China is ‘Really the Bad Guy’ in Currency War Credit Writedowns

Krugman: We Need $8-10 Trillion Worth of Quantitative Easing Credit Writedowns

Do not overreact to China’s currency delays Michael Pettis

Currency race that everyone is trying to lose FT

Other links

Ireland, Portugal join sovereign risk elite FT Alphaville

Moody’s looks to Finland – to explain Ireland, Spain FT Alphaville

Build America Bond Record for Lowest Cost Set by AAA Virginia: Muni Credit Bloomberg (Virginia was one of the states Meredith Whitney said looked best)

One in three Britons could not survive a week on their savings The Guardian

Gold, silver reach new record as US dollar slides The Guardian

Revisiting Toxic Asset Purchases A Year Later Cullen Roche

Orwell first edition found in charity bin ABC News Australia

"A Perspective on the Future of U.S. Monetary Policy" Mark Thoma

Hård kamp för USA:s fattiga Dagens Nyheter

Top General: Rumsfeld Was Worst Leader Ever Swampland

Barack Obama and The Fundamental Attribution Error Swampland

Woman becomes US citizen 101 years after crossing border The Daily Telegraph

Antidote du Jour: The Cat Train (thanks, Mary)

Anyone with good antidotes, pass them to Yves, who will pass them to me. :)

Bank of America announced a foreclosure halt in all 50 states; JP Morgan and GMAC have stopped in 23 judicial foreclosure states.

Or have they? Florida is a judicial foreclosure state, and local reports suggest the banks are still moving forward with foreclosures. Note the inconsistencies between the statements of the bank employees versus the action on the ground. From the Fort Myers News Press:.

JPMorgan Chase & Co. and Bank of America Corp., along with some smaller lenders, have announced that they were holding off on court-based foreclosures…

But in Lee County, court records show both of those banks have continued to get court judgments allowing the sale of mortgages on foreclosed houses at public auction.

That’s despite statements from both banks that they stopped doing that about two weeks ago.

April Charney, a Jacksonville-area legal aid attorney who’s an expert on foreclosure issues, said she’s hearing similar reports from around the country.
She scoffed at the banks’ protests that they didn’t intend for the judgments to be issued.

“It’s a farce,” she said. “We’re all being played.”

JP Morgan spokesman Tom Kelly said Tuesday he didn’t know the bank’s attorneys were continuing to get judgments allowing them to go forward with auctions.

Twelve judgments have been issued in Lee for JPMorgan since Oct. 2, the latest on Tuesday, according to court records.

“We reached out to our local foreclosure counsel and asked them to ask the courts not to enter judgments,” Kelly said. “I don’t know what happened there.”

JP Morgan always intended to continue filing new foreclosure lawsuits, as it has been doing, he said.

Bank of America spokesman Rick Simon said in an e-mail Monday night that “the bank continues to process foreclosures on delinquent accounts, but will not take the process to the point of judgment or sale.”

However, county court records show judgments have continued for the bank, the latest being issued Tuesday.

Simon said in an e-mail Tuesday afternoon that contributing factors “include that the judgment might not have been a loan we serviced, but one we were the trustee or owner for. Also, there are several reasons beyond our control that the Court might have gone ahead and entered the order.”…

Simon said in an e-mail that after the bank’s Oct. 1 announcement of the freeze, it continued with auctions that resulted from judgments before Oct. 1.

On Friday, Oct. 8, the bank expanded its ban to include all states and delayed future auctions, he said.

No public auctions were held Monday or Tuesday in Lee County.

Now in fairness, this failure to halt the foreclosure factory could be a function of the difficulty of reining in foreclosure mills. But how could they NOT know? The freezes are a major news story and have electrified the mortgage industry. So the idea that these mortgages slipped through the cracks sounds a tad convenient.

This account contrasts with the push by the Obama administration and banks against a “national foreclosure moratorium.” And I have to say, formulating it that way plays into the hands of the banks. There is no reason to freeze foreclosures of mortgages made by institutions where the original lender still holds the mortgage. Even at the peak of the subprime mania, 75% of those loans were securitized, which implies 25% weren’t. The problems exist in securitized mortgages and probably also certain vintages (say 2004 onward). Even though the mortgage market is rife with problems, it’s important to focus on the relevant (and still very large) subset.

But back to the main thread. Given the Administration’s and banking industry’s continued alignment, the insistence that a mortgage halt would be just awful is pretty dubious. This situation is just awful, and any remedy is likely to be as pleasant as major surgery.

The Executive increasingly looks to be hectoring the banks rather than applying effective pressure, and that is likely a feature, not a bug. As we’ve noted repeatedly, the officialdom sees its interests as aligned with those of financiers, and at best believes the bank party line that demanding that they behave will wreck the economy.

This limp wristed response isn’t surprising; in the meeting the Treasury held with bloggers in August, Geithner claimed the Administration had little influence over the banks. That’s patently false; I mentioned the considerable leverage the Treasury has over the banks (all it has to do is threaten to enforce the IRS REMIC rules on securitizations. There are literally thousands of examples that one can find in court filings of banks having assigned mortgages to securitizations for th purpose of foreclosing. That is a violation of IRS rules, both because the asset was transferred way too long after the creation of the trust, and because trusts can accept only qualified assets, meaning sound ones. Dud loans aren’t permitted. This type of violation is likely an “impermissible act” which means any income to the trust would be taxed at a 100% rate. Since the proceeds of these sales are used, among other things, to pay fees to servicers and repay advances of principal and interest, enforcing the regs would have more than a little impact on servicers. This isn’t the only cudgel the Treasury could employ; it simply illustrates that the Treasury has ample tools but no will).

The Washington Post reports that regulators are getting more insistent, but they really appear not to have a grip:

Federal regulators sought Wednesday to prevent the growing furor over improper foreclosures from escalating, pressing mortgage lenders to replace flawed and fraudulent court documents while insisting that foreclosures continue apace.

Yves here. Huh? “Replace flawed and fraudulent documents” and press forward? This is nuts. Why do you think servicers and foreclosure mills provided bogus documents in the first place? Because they had made such a botch of things that that was the least bad approach, from their perspective. You don’t make up documents if you have the real ones, and if you don’t have the real ones, you are really stuck. So the idea that the banks can somehow magically find documentation they clearly DON’T have and get back to life as usual is a complete non-starter.

And the regulators appear also to assume that the courts will tolerate banks showing up with different documentation. If the bank discovers it has filed a case in the name of the wrong party, it will probably have to refile the case. And some judges will not accept new affidavits, since it’s an admission the earlier submissions were improper, which is a sanctionable offense.

And notice now that courts are starting to push back. Again form the WaPo:

Some consumer advocates and lawmakers said the policy was soft on banks and industry insiders and may have little effect, because many lenders are already taking such steps. In addition, the handling of individual court cases is the province not of federal officials but of judges at the state level.

Judges handling foreclosure cases in the Maryland suburbs said Wednesday that they have begun to take concrete steps to cope with alarming problems now apparent in legal documents.

In Prince George’s County, which has the Washington area’s highest foreclosure rate, the circuit court has ordered a special review of cases in which lawyers have acknowledged they did not sign the documents as they had earlier claimed. The circuit court is scheduled later this fall to slowly begin reviewing some of the 14,500 foreclosure cases pending in the county. A judge in Montgomery County said the court is putting about 400 foreclosure sales on hold while waiting for lawyers to explain why they had not actually signed the legal paperwork in those cases as they had initially said.

The officialdom needs to come to grips with this mess, rather than hope it will somehow go away if the banks clean up their act a tad. Now it may be that Team Obama hopes to diffuse the situation until the elections, then go full bore into what will no doubt be bank favorable remedies. But we don’t see any quick fixes here, and the Administration’s efforts to minimize problems this deep seated are likely to blow up on it in short order.

There’s nothing like a bank being shown to be a liar.

I was told yesterday that Wells Fargo has been making the rounds among policy types in DC this week to tell its story that (of course) the foreclosure crisis is overblown. Moreover, Wells reportedly said that it was not like the other major servicers, that it ran a tight shop and hadn’t engaged in the bad practices of other firms, particularly the use of improper affidavits, aka robo signers.

This was a particularly stupid claim to make, since there are depositions which attest to the Wells’ use of robo signers. And in an interesting bit of synchronicity, the Financial Times got hold of one and made it the subject of its lead article today.

The FT story confirms the account we got, that Wells has been maintaining that it didn’t have serious procedural lapses. Hhm, does that mean its legal department is so out to lunch as to not be aware of the damaging deposition, and/or to have failed to do adequate internal checks once the robo signer issue came to the fore? Or more likely, does Wells operate in parallel universe in which the submission of improper affidavits (and more serious lapses that they are probably designed to cure), which is a fraud on the court, is no big deal?

Note also that Wells’ robo signer reports to have signed up to 500 documents a day. This level is coming to look like an industry norm.

From the Financial Times:

The US mortgage foreclosure crisis deepened as it emerged that Wells Fargo may have used practices that prompted rivals to halt home repossessions, and JPMorgan Chase said banks might be fined over the issue.

Bank of America, JPMorgan and GMAC have halted foreclosures after learning that “robo signers” had rubber-stamped thousands of mortgage documents without checking their accuracy…..

Legal documents obtained by the Financial Times suggest that Wells Fargo, the second-largest US mortgage servicer, also used a “robo signer”.

Unlike its rivals, Wells Fargo has not halted foreclosures. The San Francisco-based bank said on Tuesday it was reviewing some pending cases, but it has maintained that it has checks and balances designed to prevent serious procedural lapses.

In a sworn deposition on March 9 seen by the FT, Xee Moua, identified in court documents as a vice-president of loan documentation for Wells, said she signed as many as 500 foreclosure-related papers a day on behalf of the bank.

Ms Moua, who was deposed as part of a foreclosure lawsuit in Palm Beach County, Florida, said that the only information she verified was whether her name and title appeared correctly, according to the document.

Asked whether she checked the accuracy of the principal and interest that Wells claimed the borrower owed – a crucial step in banks’ legal actions to repossess homes – Ms Moua said: “I do not.”

Ms Moua nevertheless signed affidavits that said she had “personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo”. The affidavits were used by the bank in foreclosure proceedings.

By Wallace C. Turbeville, former CEO of VMAC LLC and a former Vice President of Goldman, Sachs & Co, now Visiting Scholar at the Roosevelt Institute. Cross-posted from New Deal 2.0

Why would such a large swaps market be a possible exemption from FinReg?

The traded foreign exchange market is the big enchilada. It is the largest financial market in the world. The Bank for International Settlements estimates that the daily turnover in this market, including swaps, futures and spot purchases, is $4 trillion as of April 2010. This turnover increased more than 20% in the last 3 years. Trading is concentrated in London, accounting for 36.7%, while the New York share of the market is around 18%.

Since FX swaps and forwards are based on currency values, it is very easy to embed other financial transactions in a dealtransaction that involves exchange rates on its face. For instance, a loan can be the primary purpose for a swap of currency values. The danger in such obfuscation is illustrated by the foreign exchange transactions between the Greek government and Goldman Sachs, which disguised the debt burden of Greece and triggered a crisis.

In the Dodd-Frank Act, clearing (if available) is mandated for most derivatives, with “end user” hedging transactions carved out. But a second carve out, for FX swaps and forwards, is permitted if the Treasury orders it. There is significant concern among progressives monitoring the implementation of Dodd-Frank that the Secretary will soon exempt FX instruments from the clearing mandate. (See Mary Bottari, “Is Geithner Planning a Stealth Attack on the Wall Street Reform Bill” and David Wigan, “Traders Angered by Swaps Legislation.”) Why did the Act envision this enormous exception? Why would Treasury implement the exemption? Why would it act now? These and other questions are shrouded in mystery, and that fact alone is of great concern.

Several knowledgeable individuals who were involved in the discussions of this provision during the drafting of Dodd-Frank report that Treasury never articulated a coherent rationale. It was clear that the New York Federal Reserve sought the exemption, but their motive was obscure. There was no structural impediment to mandating the clearing FX instruments: the Chicago Mercantile Exchange has a thriving FX futures business. It follows that Congress did not have the information to assess the proposed exemption, and the decision was delayed and delegated to Treasury.

According to Dodd-Frank, the Treasury Secretary must consider the following in deciding whether to grant the exemption:

1) “whether the required trading and clearing of foreign exchange swaps and foreign exchange forwards would create systemic risk, lower transparency, or threaten the financial stability of the United States;

2) whether foreign exchange swaps and foreign exchange forwards are already subject to a regulatory scheme that is materially comparable to that established by this Act for other classes of swaps;

3) the extent to which bank regulators of participants in the foreign exchange market provide adequate supervision, including capital and margin requirements;

4) the extent of adequate payment and settlement systems; and

5) the use of a potential exemption of foreign exchange swaps and foreign exchange forwards to evade otherwise applicable regulatory requirements.”

If the Secretary decides to grant the exemption, he is required to submit specific information to the relevant congressional committees, including:

1) “an explanation regarding why foreign exchange swaps and foreign exchange forwards are qualitatively different from other classes of swaps in a way that would make the foreign exchange swaps and foreign exchange forwards ill-suited for regulation as swaps; and

2) an identification of the objective differences of foreign exchange swaps and foreign exchange forwards with respect to standard swaps that warrant an exempted status.”

It is hard to imagine that, in the months of discussion that preceded the enactment of Dodd-Frank, these issues were not thoroughly analyzed by the Treasury and the Fed. Certainly there is nothing that has emerged since enactment that is relevant to these issues. Granting the exemption now doesn’t make sense with the flow of events. Congress could have been presented with all relevant facts and arguments so it could have decided instead of delegating the decision to Treasury.

The process suggests that this delay and the procedure were designed to appease opponents to the exemption and those who were concerned that the rationale was insufficiently presented. If this is true, the result is probably inevitable, at least in the minds of those in charge of the Treasury and the Fed. It is really maddening that the administration and the Fed were unwilling or unable to lay out the necessary factors to allow Congress to decide on such an important segment of the market.

We are left to guess at the reasons the FX market is to be treated so differently from other derivatives markets. There are several distinctions:

• As stated above, it is large. Worldwide, it is the largest of the financial markets.

• There is no meaningful distinction between a forward purchase and sale and a swap. Buying euros for future delivery at a fixed dollar price is not materially different from a euro/US dollar swap. In contrast, if someone sells a bushel of corn, he or she must deliver it.

• There has been much debate about the proportion of hedging and speculation in the FX market. However, it is clear that, compared with other markets, the amount of speculation is quite large.

• Relative currency values are directly related to central bank activities.

• The London market, being twice the size of the US market, plays a central role.

• The market presence of US financial institutions is significant, but the larger participants are European banks.

None of these distinctions compels a decision to exclude FX transactions from mandatory clearing, a process in which trade data is reported and a standard system for margining is imposed. Until the Treasury and Fed fill the public in on their thinking, it is pointless to speculate (unless you are a bank speculating on foreign exchange rates). It is ironic that, in implementing legislation designed to bring transparency to the financial markets, the Treasury and the Fed are so unconcerned about their own lack of transparency.

I get on an airplane, and there are more dramatic developments by the time I land.

Even though the headline item is the fact that the attorneys general in all 50 states are joining the mortgage fraud investigation, the real indicator that the banks are stressed is that they have started abandoning MERS, the electronic database that passes itself off as a registry for mortgages. JP Morgan has quit using it as an agent on foreclosures; it clearly can’t withdraw from it fully, given that it has become a central information service.

Despite this being treated as a pretty routine event in the JP Morgan earnings call, trust me, it isn’t. The withdrawal of JP Morgan from the use of MERS as the face in foreclosures is a tacit admission that the past practice of using MERS as the stand -in for the trust is problematic. I’ve heard lawyers discuss the possibility of class action litigation to invalidate all MERS-initiated foreclosures in states with strong anti-MERS rulings; this idea no doubt will get more traction given JP Morgan’s move. (An attorney who is in the thick of this situation told me another major bank has made the same move as JPM, but I see no confirmation in the news as of this writing).

The triggers for the sudden escalation appear to have been the release of a research note by Citigroup which included a grim assessment (which we did not consider to be dire enough) by Professor Levitin to Citi clients on likely path of the mortgage crisis. This was no doubt compounded among the cogoscenti by the research note published by Josh Rosner, that most if not all notes (which are the borrower IOU in a mortgage) were endorsed in blank, which creates near insurmountable problems in foreclosure, worse even for the RMBS ownership of them as de facto mere unsecured paper.

But the stunner is the withdrawal of JP Morgan from the purported mortgage registry system, MERS. 60% the mortgages in the US are registered through MERS, and not at the local courthouse as was the long established, well settled custom in the US. Countries that have moved to central databases (such as Australia) have them operated by the government, and they are transparent and run with sound standards of data integrity. As noted, banks like JP Morgan can’t fully withdraw; MERS has become too integral, but its announcement is an admission that all is not well.

The fact that major MERS members are suddenly resigning from MERS is a sign that tectonic plates are moving. MERS has become central in mortgage securitization; Freddie and Fannie have required its use since early in this decade.

From the Associated Press:

JPMorgan Chase’s CEO says the bank has stopped using the electronic mortgage tracking system used by major financial institutions.

Lawyers have argued in court proceedings that the system is unable to accurately prove ownership of mortgages.

JPMorgan Chase & Co. and other banks have suspended some foreclosures following allegations of paperwork problems in thousands of cases.

The trigger may have been the publication of a simply devastating analysis at the end of September, “Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory” by Christopher L. Peterson. Even though I have read the critical MERS unfavorable opinions, this is the first time I am aware of that someone has looked at the operation of MERS from a broader legal perspective. It finds fundamental flaws in virtually every aspect of its operation. To give a partial list: the language used by MERS in its registry at local courthouses is contradictory (it claims to be both the owner of the mortgage and as well as a nominee; legally, a single party can’t play two roles simultaneously), rendering it unenforcable; MERS has employees of servicers and law firms become “MERS vice presidents” or secretaries when fit none of the criteria that fit those roles, and also have clear conflicts of interest given that they are also full time employees of other organizations; MERS record keeping has the hallmarks of being poorly controlled (there have been cases of mortgages basically being stolen from other MERS members; some contacts have suggested that a single MERS member can assign a mortgage, meaning checks are weak; MERS members are not required to update records). And most important, every state supreme court that has looked at the role of MERS has ruled against it.

As much as I have heard the case against MERS in bits and pieces, and regarding it as very problematic, seeing it assembled in one place (with solid references to judicial decisions) makes for a overwhelming case. The best resolution the author can come up with is that lenders with MERS registered mortgages would be granted an equitable mortgage as a substitute for the flawed MERS registered mortgages:

While awarding equitable mortgages is surely a better approach for financiers and their investors than simply invalidating liens, it would not solve all their problems. Replacing legal mortgages with equitable mortgages would give borrowers significant leverage. Historically, state law has not uniformly treated equitable mortgagees vis-à-vis other competing creditors. Generally, the holder of an equitable mortgage had priority against judgment creditors. But, it is likely that an equitable mortgage could be avoided in bankruptcy. Moreover, it is likely that financiers would have less luck seeking deficiency judgments when foreclosing on equitable mortgages.

In Florida, the so-called rocket docket has apparently slowed to a crawl, between some banks suspending foreclosures and at least some judges starting to take borrower allegations of fraud seriously. From Bloomberg:

Home to more foreclosures than 47 U.S. states, Florida sought to clear out its backlog with a system of special court hearings that dispensed with cases quickly, sometimes in less than a minute.

Homeowners like Nicole West now threaten to slow that system, Florida’s so-called rocket docket, to a crawl. West, who has been fighting to save her Jensen Beach house from foreclosure, has leveled a new allegation in her three-year battle: the entire process is based on fraud.

West said her case is rife with the kind of flawed mortgage documents that have caused lenders including Bank of America Corp. and JPMorgan Chase & Co. to stop the process of foreclosures and evictions across the country. The banks said they are investigating homeowner charges like West’s that signatures were forged and documents were backdated…..

The bank moratoriums are already thwarting the initiative by Florida officials to clear jammed court dockets. Now, efforts by homeowners such as West to bring claims of fraud to the attention of judges are further prolonging evictions, and in turn slowing purchases of foreclosed properties.

The focus so far has been on what the foreclosure mess means for borrowers. Not enough media attention has been given to the implications for the major banks, particularly their trust businesses, and RMBS investors. Neither the facts nor the law are on the financiers’ side, but they are either in denial or doing a full bore job of obfuscation.

As readers no doubt know, we’ve indicated from early on in the foreclosure crisis that problems with foreclosures of mortgages held by securitizations went well beyond the now well known “robo signer” issue. The most difficult to resolve and apparently widespread problem is the failure to convey the note (the borrower IOU) properly to the trust (the legal entity that holds the notes on behalf of the investors) as specified in the pooling and servicing agreement.

Kate Berry of American Banker reports that the banks that are reviewing their internal processes are looking beyond the robo signers’ verification (or more accurately, failure to verify) borrowers’ indebtedness. One area of vulnerability being highlighted is the use of “lost note” affidavits. We had flagged this earlier as a possible way the banks could be finessing their failure to convey the notes correctly to the trust. In particular, the Florida Bankers’ Association made a very odd, indeed implausible claim, suggesting that borrower notes were routinely destroyed because they had been scanned electronically. Tom Adams, a securitization expert, and I both found that farfetched; it would be like burning down a warehouse full of cash (although we have learned that one defunct subprime originator did appear to have destroyed some notes, but the lawyers we have spoken to about this are of the view that this is not a common activity).

So why would the Florida Bankers’ Association claim that banks had engaged in a hugely irresponsible activity? Perhaps to provide legal cover for the use of lost note affidavits to cover for the fact that the not had not been conveyed properly; claim it’s lost rather than use the other apparently common route for finessing the problem: fabricating documents that show that the note was signed by all the relevant parties in the proper manner, which includes on a timely basis.

From American Banker (and note the section we boldfaced):

Servicers are looking more broadly at all other documents involved in foreclosures, including “lost-note” affidavits and mortgage assignments, to ensure the chain of title actually lets them foreclose on a borrower in default.

The resulting delays will hamper the filing of new foreclosures — not just those already begun — as judges take a tougher stance on documents being used to verify that loan information is correct, and that the servicer has the right to foreclose in the first place.

“The courts are going to be much more skeptical,” said Mark Ireland, a supervising attorney in the Foreclosure Relief Law Project, a unit of the nonprofit Housing Preservation Project in St. Paul. “It would be silly to show up in court with a lost-note affidavit when there is widespread evidence of an industry practice that calls into question the affidavits.”

Mortgage servicers have filed thousands of lost-note affidavits, which must be signed in the presence of a notary, claiming that the original promissory note on a property has been lost.

Whether such documents will now hold any weight in court is unknown and probably will be decided case-by-case, further delaying foreclosures, lawyers said…..

Some states have a one-year redemption period during which a foreclosed-on borrower “can say the foreclosure was not done properly and the servicer has to start all over again,” Ireland said. “This is a legal grenade.”

Patricia McCoy, a law professor at the University of Connecticut, said judges may ask to see a photocopy of the underlying mortgage note or they may go further and ask for the actual note itself….

Problems with foreclosure documents have led Ally Financial Inc.’s GMAC Mortgage and JPMorgan Chase & Co. to suspend foreclosures in 23 states, and Bank of America Corp. has suspended foreclosures in all 50 states. Goldman Sachs Group Inc.’s Litton Loan Servicing LP has also suspended some foreclosures, and PNC Financial Services Group Inc. is reviewing its processes.

Derrick Gruner, a partner overseeing the banking and lending group at the Pinkert law firm in Miami, said a wide range of documents — affidavits of indebtedness, lost-note affidavits, postdated mortgage assignments — were “being robo-signed,” a term used to describe employees who rubber-stamp documents without verifying the information in them or signing them in the presence of a notary….

(Citigroup Inc. said Tuesday that it had stopped initiating foreclosures through a Florida law firm, the law offices of David J. Stern, which is being investigated by the Florida attorney general.)

A few analysts have tried to quantify the magnitude of the problem. Paul Miller, an analyst at FBR Group Inc., said foreclosure delays will cost at least $6 billion, or roughly $1,000 per loan for every month that a foreclosure is delayed.

Laurie Goodman, a senior managing director at Amherst Securities Group LP, has estimated that $154 billion of nonperforming loans are affected by the current moratoriums….

A crucial problem, she wrote, is the way that servicers chose to cut costs by using Merscorp Inc., the Vienna, Va., company that runs the mortgage industry’s electronic loan registry system. The system let mortgage lenders reassign loans on the registry but not through county recorders.

The paperwork needed to transfer ownership and maintain a legal chain of ownership “was often neglected by sellers-servicers,” she wrote. “Servicers cannot prove to the courts that they have a valid ownership and right to foreclose,” Goodman wrote, “and the appropriate affidavits are being contested in court. To clean up the matter, servicers may need to redocument the transfers and refile the appropriate assignments, presumably at a large cost to the servicers and investors.”

Brazil urges fiscal measures – elsewhere beyondbrics

Wall Street Journal ataca a España: "¿Es muy grande para caer o muy grande para salvar?" Cotizalia

Why America is going to win the global currency battle Martin Wolf, FT (hat tip Swedish Lex)

Italy’s crackdown on Gypsies reflects rising anti-immigrant tide in Europe WaPo (Xenophobia is increasing in the developed economies)

More Fed easing likely won’t help economy: Hoenig Reuters

Know Your Fed Heads: Here’s the Hawk-O-Meter MarketBeat

America should open its vaults and sell gold FT (This is not a piece from the Onion)

Why printing money makes sense Dean Baker

Yellen: "It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage" Credit Writedowns

A “Gate” Worthy of the Name—”ForeclosureGate” Dean Starkman (h/t Richard)

Moral Hazard and the Foreclosure Crisis Synthetic Assets (h/t Richard)

nakedcapitalism.com is probably written by a male somewhere between 66-100 years old Urlai (h/t Richard Smith)

Fears of global currency war rise FT

(hat tip Yves)

Antidote du Jour:

Ed Harrison will graciously be providing proper Links later (I’m traveling today and have to be back up in four hours, and so a bit jammed), but I know e-mail subscribers get unhappy if they miss their Antidote du Jour, so I’m putting one up (Ed will have one in the proper Links later) with one wee item:

Fears of global currency war rise Financial Times

Antidote du jour:

It’s time to resurrect that 1960s expression, “credibility gap,” since it applies so well to the bank and Administration posture towards the foreclosure mess. The banks continue to insist, despite the unheard specter of foreclosure freezes, that they just need to check some things and tweak some processes and they will be back to normal programming soon.

Now, admittedly, there are some palpable signs of anxiety amongst the officialdom. David Axelrod, in his Sunday Face the Press chat, repeatedly stressed the need to resolve this crisis quickly, when there is simply no way that can take place. Similarly, Freddie and Fannie are cudgeling servicers to hurry up and make this go away. Per the Washington Post:

To protect themselves from those losses, Fannie and Freddie have threatened to penalize thousands of lenders if they fail to rapidly fix the way they seize the homes of borrowers who missed their payments, according to letters sent by the firms to lenders.

Yet this isn’t going to go away quickly. The rumored-since-last-week investigation by up to 40 attorneys general (wonder who is fence sitting) is getting close to going live; New York state AG Andrew Cuomo has expanded his own probe; Obama continues to alternate bank friendly actions (his Administration’s stance against a national foreclosure freeze) with playing to the consumer crowd (saying today that the Administration supported the AG investigations).

Astonishingly, despite mounting evidence that the lapses in industry conduct were egregious and widespread (the failure to adhere to their own contracts; the widespread use of fabricated documents), the industry is trying to keep the focus very narrow and pretend the only thing at issue is the, um, improper affidavits, and surely that will be fixed shortly, really there is nothing wrong with the underlying process. The abject failure to convey notes says otherwise, as does more and more evidence of people losing their homes due to servicing errors or other abuses.

Before readers start arguing that these problems are small and therefore inconsequential, consider Barry Rithotz’s remarks:

There are multiple failsafes and checkpoints along the way to insure that this system has zero errors. Indeed, one can argue that the entire system of property rights and contract law has been established over the past two centuries to ensure that this process is error free. There are multiple checks, fail-safes, rechecks, verifications, affirmations, reviews, and attestations that make sure the process does not fail.

It is a legal impossibility for someone without a mortgage to be foreclosed upon. It is a legal impossibility for the wrong house to be foreclosed upon, It is a legal impossibility for the wrong bank to sue for foreclosure.

And yet, all of those things have occurred. The only way these errors could have occurred is if several people involved in the process committed criminal fraud. This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.

That it is being done for expediency and to save a few dollars on the process is why the full criminal prosecution must occur..

In another widely-circulated sighting, Georgetown professor
Adam Levitin provided a prognosis that some sites touted as a surprisingly dour forecast. I was actually found his remarks to be pretty moderate; I’ve been told by litigants who have sought his input that his private views are more pointed (although it is possible they cherry picked his views). From the Citigroup report (hat tip Karl Denninger):

Levitin articulated three possible outcomes to the aforementioned issues and assigned an equal likelihood to each. In his best case scenario, these issues are deemed merely technical in nature and are successfully resolved but it takes at least year to do so and all foreclosures are delayed by at least a year. Levitin disputed the claim by banks that these issues can be resolved in a month or so and attributed the banks’ claims to “legal posturing.” In the medium case scenario, litigation ensues and it takes years to sort out these matters. In the worst case scenario, the aforementioned issues become a “systemic problem” which causes the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes

I see the odds that the problems are “merely technical” as zero. Levitin hedged his bets on how widespread the problems are with the conveyance of the notes. The reports I am getting are providing more and more confirmation for the notion that the notes were seldom, if ever, conveyed correctly from 2005 onward. And if that is the case, the problems are not technical but fundamental.

It would be better if I were wrong, but brace yourself for a rocky ride.

A lively session on BNN. Enjoy!

You can view the segment here.