When banks can’t collect mortgage payments or foreclose on assets that they claim to own, then the securities (MBS – Mortgage Backed Securities, etc.) made up of those assets become worthless.
This is one of the big problems facing major lenders, and according to the Congressional Oversight Panel over TARP funds, the robo-signing debacle could be very bad news for the entire real estate market and stability of banking institutions:
The ongoing “turmoil” roiling megabanks and their faulty home foreclosure practices may represent deeper, more systemic problems regarding the origination, transfer and ownership of millions of mortgages, potentially putting Wall Street on the hook for billions of dollars in unexpected losses, threatening to undermine “the very financial stability that the Troubled Asset Relief Program was designed to protect,” a government watchdog warns in a new report.
Recent revelations regarding mortgage companies’ use of “robo-signers” when processing foreclosure documents “may have concealed much deeper problems in the mortgage market,” according to the Tuesday report by the Congressional Oversight Panel, an office formed to keep tabs on the bailout.
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In the worst-case scenario, the “robo-signing of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure,” the panel said in its report. “In essence, banks may be unable to prove that they own the mortgage loans they claim to own.”
The results of this would be “severe,” according to academics, industry experts, regulators and the panel’s report.
“If such problems were to arise on a large scale, the housing market could experience even greater disruptions than have already occurred, resulting in significant harm to major financial institutions,” the report states.
Lots of “little” problems all over the world, in every sector imaginable, add up to major problems for the entire system.
The real estate market was doing just fine getting hammered on it’s own and probably didn’t need any help in it’s continued downward slide. We have not yet felt the full effect of the ripples from the robo-signing foreclosure debacle, which if left unresolved, may lead to another (powerful) leg down in real estate and threatens to wipe out major banking interests.
