Foreclosure Messes and Where We Are Now: A Quick Recap

… Well, ok. A recap, if not altogether quick…

I wanted to flag this story for my readers and give you a basic update of where things stand in the Subprime/ARM Mortgage/Foreclosure/Oblation of Fake Wealth story that’s dominated our economic landscape for lo, this past four years.

Bank of America holds a few trillion dollars (that’s right, trillion) in mortgage-backed securities it is responsible for, and the paperwork on the original mortgages is such a mess that there is dispute as to who actually owns what. Now the Fed is looking to force BofA to buy back some of the TARP assets it gave away during the 2008 bailout. All of this new scrutiny comes as the result of the foreclosure mess of late, where once again, the shoddy paperwork – in some cases, the non-existent paperwork – on mortgages led to even shoddier paperwork for the foreclosures.


Ok, here’s what happened. Back when things were ostensibly stable, banks were selling off more and more dubious mortgages to less and less qualified people. Many of those people didn’t even know there was a problem – after all, generally most of us take it on faith that banks not in the business of giving away money they don’t expect back. But behind the scenes, many mortgages were getting approved even when basic paperwork was either not filed or not checked. So, basically, there’s no particularly compelling evidence to suggest that anyone at all owns that mortgage, much less who should be held responsible when it goes into default.

Then the bottom fell out. And banks rushed to the Federal Government to get bailouts. And the government did bail them out, buying the “troubled” or defaulted-upon, assets in what became known as TARP. But they did so under the assumption that these mortgages were at least viable mortgages. Viable mortgages, even those in default, can be sold off and stabilized.

But now that banks are rushing to foreclose on more mortgages that didn’t fall under the auspices of the TARP bailout, they’re finding that lo and behold, they’re having terrible legal troubles doing it. Because, of course, they don’t have the proper paperwork. Because it never existed.

So, if you don’t have the paperwork to prove that someone owned the mortgage in the first place, you can’t file the paperwork to have that mortgage foreclosed upon. So, the banks have begun falsifying the foreclosure paperwork to cover for the falsified mortgage paperwork. And now that both investors and mortgage holders are suing for injunctions – and winning – the Fed has begun taking a closer look at the mortgages that it holds. Guess what? They’re crap, too.

Once again, we have come full-circle. Its back to the basic question of irresponsible lending and its back to the “troubled” mortgages that began the fallout three years ago.

There is, of course, another way to look at it: what’s really happening right now is banks, investors and the Federal Reserve all pushing the check around the table. In truth, what has happened over the last decade is that banks and investors – who include individuals and organizations alike – have made money off these CDO’s or Mortgage-Backed Securities. That money was entirely fictional, based on selling and buying back the same basic assets in ever-more complicated structures. A shell game, one might say, but one investors played on each other, generally with full knowledge that the ball had long since vanished.

The money was never there in the first place, but our entire economy has been operating as though it was. Everything that’s happened in the last three years – TARP, the Stimulus Package, the foreclosures, the layoffs, the vacant malls and stores – are all as a result of this monumental disappearance of fake wealth. That money is not coming back; we are not going to “recover,” in that sense. And banks will continue to try to push assets from place to place, holding off paying the piper as long as possible. And in the meanwhile, the economy will have to do the best it can without that money. Who can say for how long?

By Tommy Belknap

Owner, developer, editor of DragonFlyEye.Net, Tom Belknap is also a freelance journalist for The 585 lifestyle magazine. He lives in the Rochester area with his wife and son.