5% SOLUTION: BANKS FRANTIC FOR PARDON (EXEMPTION)

LIVINGLIES—GARFIELD CONTINUUM BLOG
	COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

The pretender lenders have lots of problems. But there is one HUGE problem that is floating up to the surface that could cost them somewhere between $650 BILLION and perhaps three time that amount. The Dodd-Frank Bill has a requirement that the pretender lenders keep a 5% interest in the securitized loans. It doesn’t sound like much. The problem they have is that virtually none of the loans have actually been securitized YET. That’s why they have the paperwork mills working so hard. So the securitization of any of these loans might be deemed incomplete until somehow they come up with paperwork scheme that is acceptable to the courts.

The problem is that under the finance reform bill that was passed and is now law the pretenders (investment banks) probably would be required to come up with 5% of the deal on completion of each one. Oops. So instead of concentrating on the individual loan that is in dispute, they have to seal up the deal on all loans that are claimed as part of the pool and relate it (CUSIP) to the issuance of bonds to investors. Let’s forget about the fact that investors are not going to accept loans that do not qualify under the securitization documents. Let’s say they can do it, force it through or slip it by a Judge whose mind is crumpled by the complexity of the scheme times 10 for the complexity of how they varied their practice from the written scheme in the securitization documents.

THAT would mean the pretenders would have to cough up 5% of the deal. “The deal” collectively is estimated at a minimum of $13 trillion. 5% is $650 BILLION. If they don’t complete the deal, they don’t have a loan to enforce and there is no creditor because the loan originator wasn’t the creditor and now neither is anyone else. Remember the bonds were sold first; THEN the loan applications were accepted and the investor money was matched up with homeowner deals.

But the problem is worsens. Only a fraction of the total mortgages are in foreclosure, but the successful conclusion of the securitization process would require 5% from the investment banks on all the loans in every pool that has even one foreclosure in it. So on a $200,000 foreclosure of a loan made from investor funding (i.e., the real lender) the investment bank could be required to cough up 5% of the total deal. Each deal averaging around $2 billion, that would mean that to foreclose on a $200,000 mortgage, their regulator is going to insist they come up with $100 million, accepting 5% of the risk. The effect on their reserve capital will be, well, gargantuan.

Apparently this scenario is not as far fetched as you might think, because along with the MERS initiative, required because a majority of all mortgages name MERS, a non-existent nominee party with no interest in the deal, the pretender lenders are drafting legislation and pushing it on capital hill for an exemption. The exemption would effectively pardon them for their sins, exempt them from the 5% requirement and continue screwing the country by sucking all the capital out of it. The really interesting thing about this is that after all the money the pretenders spent electing people into congress and state houses, some of the bell ringers recognize two problems and are currently back-peddling away from the very proposals they promised when they took Wall Street money.

It seems that any relief granted to the banks would be unpopular across all demographics. These newbies and oldies want to get re-elected. And now they are also running into a second problem which is the ultimate third rail of American politics — states’ rights (remember that thing we call the Civil War or the War of Great Northern Aggression?) Apparently a lot of bell ringers and newcomers are concerned about the effort at federal preemption of property rights within the states, an area that has long been verified, ratified and acknowledged as exclusively subject to state legislatures and state courts.

It remains to be seen how this will all play out — whether Wall Street will maintain its death grip on government or if their 15 minutes is up — AGAIN.

Posted in bubble, Corruption, Eviction, securities fraud |