SAR #10293

Crime still pays.

First Things:   Bank of America, speaking for the TBTF, says it will dispute “any unjustified demands [that] it repurchase defective mortgages.” What it is talking about, specificity, is $47 billion in fraudulent MBS that PIMCO, BlackRock and the NY Fed seek to have made whole. [This may be just a feint, but sooner or later, Alice, to the moon!]  The banks will allege that “persistently high unemployment and other economic trends” [for which they deny any responsibility] caused the foreclosures that led to the decline in the MBS values.  Insufficient record keeping, fraudulent loan origination and multiple pledging of the same properties had nothing to do with it, so they say.

In order to hide some of their malfeasance, banks may begin offering mortgage modifications to many delinquent borrowers, for signing a modification creates a new and valid loan document.  Most mods go to default within 6 months, but if the banks get clean title out of the process it will be worth their effort.

The big loser in this will be the country as a whole.  If no one knows who really holds a mortgage, who may have legal rights to sell or foreclose, or what sort of limbo the other houses in the neighborhood are in – how can normal real estate transactions be undertaken?  The FHA is sending 'review teams' into FHA servicers “to see how they are handling foreclosures.”

The big threat is the systemic risk contained in these mufti-layered frauds. It is not just BofA.  All of the big banks that thought they owned the country.  Turns out the banks had a defective deed.  The losses will not be just the initial $47 billion claim – they could be in the trillions of dollars.

Maybe this time someone will go to jail. Until they do, this topic has lost most of its interest, as the usual and boring Kabuki theater is about to get under way.

Our Usual Programming Resumes:

One Size Fails All:  “The administration has never missed an opportunity to miss an opportunity.  And soon there will be no more opportunities to miss.”

Magnanimity:  Carefully re-asserting its position that the 1990 Oil Pollution act apples to the Deepwater damages, BP has voluntarily waived the $75 million cap for some oil spill claims, but only for a select few.  The rest will be evaluated .

Answered, Asked:  Sociologists and political pundits keep trying to divine the skeleton beneath the Tea Party phenomenon.  They talk about economic insecurity, about anger and bitterness, they even hint at jingoism and racism.  What no one dares point out is the obvious:  Tea Partiers are afraid.  They don't know what they are afraid of, they are just afraid.  But the thing we have to fear is not fear itself, but the ends to which a manipulative few will apply the fears of the masses.

Gymnastics:  Prices for commercial property in the US tumbled for a third consecutive month, falling to the lowest level in 8 years – down 45% from their 2007 highs.

Wolf, Wolf:  The first round of QE worked because of the willing suspension of disbelief by all concerned.  Everyone agreed that having the Fed buy up all the dreck somehow magically transformed bad assets into good assets.  That never happened, but everyone agreed not to notice the lie.  A second round may not be swallowed whole.

Cherry Picking:  The headlines scream “Housing starts increase in September.”  Yes, but the data lumps multi-family and single family housing together, and together they did increase because people are building a lot of apartments to rent to former house owners.  Single family housing starts have been stuck at the bottom of a trough for the last six months, with only slight twitches up and down.