Foreclosure mess update: Why this is important

Barry Ritholtz clearly explains why this foreclosure mess is so important and how all the cutting of corners by the loan servicing organization has gotten completely out of control.

http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/

I could try to paraphrase it but you really must read it ALL to understand why this scandal is more than just some 'goofed up paperwork'

http://www.marketwatch.com/story/bank-of-america-halts-all-foreclosure-wsj-2010-10-08?siteid=bnbh
Bank of America halts all foreclosures.  This is a few days old but just the latest in a long march of banks who are calling a full halt to foreclosures.

BofA's sterling efficiency is demonstrated by them foreclosing on a house with no mortgage. Whoops!
http://www.businessweek.com/news/2010-10-07/man-who-had-no-mortgage-faced-foreclosure-anyway-ann-woolner.html

This is going to get worse before it gets better . . .

Inflation expectations

The recent rumors of an imminent second round of quantitative easing (QE 2.0) by the US Federal Reserve has sent ripples throughout the entire financial market.  One series I occasionally check in on is the implied breakeven inflation rate by looking at nominal versus inflation protected rates in the treasury market.    The threat of QE 2.0 can be seen here as well.

Source: Federal Reserve

10 year inflation protected rates (TIPS) have fallen to levels not seen for this entire data series.  In other words people are bidding up the value of inflation protection.    However in the context of comparing TIPS rates to nominal the spread is trending downwards but is not out of the ordinary. 

Interesting. 
Of course the Fed threatening to buy up outstanding T bonds (instead of just buying more at auction) also creates a supply demand issue but this trending divergence bears watching.

Volatility measure goes bonkers

One of the indicators I follow just hit multi year lows and that's not a positive sign for the equity markets.  (Stockcharts link)

Scroll back through history and notice when this ratio of short term volatiliy to longer term volatility was so low . . .

Another sign of money market stress

Short term lending rates in Europe are creeping upwards, showing a measure of bank stress. Here's the Bloomberg link

I'd be concerned if this keeps going upwards . . .

Initial unemployment claims - Treading water

While I touched on initial unemployement claims before in an attempt to see if Google Trends could accurately predict changes, (failure!)  other people have shown the change in initial unemployment claims provides some predictive value. Creditwritedowns writes about how looking at the year over year change in unemployement claims provides insight into changes in consumer spending in America.   In short, a year over year decline in initial unemployment claims forebodes postive growth in the economy.

Let us take a look at the data (Source: Federal Reserve)

Looking at the year over year percent change in initial unemployement claims all appears well. The year over year number is negative meaning fewer people are getting laid off each week. 

There is a problem with this prognosis however and you can see it looking at the absolute numbers in the second graph. In chart two initial unemployment claims have remained quite stubborn for 2010, refusing to drop below the ~440k number for the entire year.   In a couple months if unemployment claims don't start falling our year over year metric will flatten out.  Right now the employement situation is treading water and this meshes well with the general sluggish feel to the economy.  

Right now this economic indicator is flashing Yellow.

Foreclosure mess roundup

I have not commented on the foreclosure mess but considering how it may impact you, gentle reader, I thought it worthwhile to repeat.

In short, the mortgage processors and servicers did not keep a proper chain of custody and MBS Pool 'C' which believes they own the mortgage does not have the paperwork proving they purchased it from Loan Company 'A' which sold it to 'B', who packaged it up into MBS (Mortgage backed security) 'C', and Bank 'D' now owns said MBS.

Some people along that chain over ownership have been caught forging paperwork.  It's a long and nasty tale that will remain stuck in the courts for a while.

If you know of someone who is going through foreclosure and they want to keep the house this is something to keep in mind. Talk to a lawyer about ensuring the bank has all the proper paperwork.


From the WSJ, October 4

First, the affidavits IndyMac used to file the foreclosure were signed by a so-called robo-signer named Erica A. Johnson-Seck, who routinely signed 6,000 documents a week related to foreclosures and bankruptcy. That volume, the court decided, meant Ms. Johnson-Seck couldn't possibly have thoroughly reviewed the facts of Mr. Machado's case, as required by law.

Secondly, IndyMac (now called OneWest Bank) no longer owned the loan—a group of investors in a securitized trust managed by Deutsche Bank did. Determining that IndyMac didn't really have standing to foreclose, a judge threw out the case and ordered IndyMac to pay Mr. Machado's $30,000 legal bill.

From Bloomberg, October 4

Citigroup Inc. and Ally Financial Inc. units were sued by homeowners in Kentucky for allegedly conspiring with Mortgage Electronic Registration Systems Inc. to falsely foreclose on loans. The homeowners claim the defendants filed or caused to be filed mortgages with forged signatures, filed foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages.

Video from NBC Nightly News, October 1
http://www.mefeedia.com/video/33073666

Calculatedrisk blog:
http://www.calculatedriskblog.com/2010/10/nightly-mortgage-mess.html


Nakedcapitalism has posted several entries regarding this topic.  Here's just one entry:

Lender Processing Services, a crucial player in the residential mortgage servicing arena, has been hit with two suits seeking national class action status (see here and here for the court filings). If the plaintiffs prevail, the disgorgement of fees by LPS could easily run into the billions of dollars (we have received a more precise estimate from plaintiffs’ counsel). To give a sense of proportion, LPS’s 2009 revenues were $2.4 billion and its net income that year was $276 million.

Here's one MSNBC Video on the mess:


I don't do this nasty tale of cutting corners and deception any justice with this overview. Read all the links above for a fuller story. 

Hugh Hendry watch - September 21, 2010 on BBC

Hedge fund manager Hugh Hendry has a long conversation on BBC Hardtalk regarding taking risk and the public bailouts.  It is refreshing to see a 25+ minute discussion regarding taking risk and losses, unlike the nanosecond blipverts so common in American business TV.

Part 1



Part 2



Part 3