Lengthy explanation of the mortgage mess and the continuing sub-prime mortgage debacle

Well worth reading if you’re interested in what’s going on. The frightening part, I think, is that author thinks that the mortgage mess is the lesser of the two problems. If things cut the wrong way, we could see the collapse of the entire home mortgage lending system, and wouldn’t that be a bummer.


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19 responses to “Lengthy explanation of the mortgage mess and the continuing sub-prime mortgage debacle

  1. anony

    I was thinking last week that while JPMorgan probably thought they looked responsible accruing only 39% of revenue for compensation (as compared to say 50-60% at Goldman), they should probably ratchet down to something much lower in order to cover the costs of the mortgage mess. On second thought, in 2011, bankers will be lucky if they enjoy the luxury of earning $125k as they may not even be in business.

  2. Dumb question perhaps, but who is the Hans Brinker for this financial collapse? Geithner? Bernanke? Fountain? Seriously, who is out there to stop this mortgage mess from crumbling into Roman ruins?

  3. Donato Loscalzo

    Dear Chris, excellent post. I subscribe to John Mauldin and I had already saw it. That is why I have been commenting: a lot of people thought and perhaps still think, naively or induced by the media influenced (advertising) by the banks, that the foreclosure mess was just a technical hiccup and after all it was all the borrowers’ fault. What is really sad is the level of greed, and disregard for the rule of law that bankers keep on showing to have whenever the law stands in between them and a way to make a fast buck. If anybody of us, children of a lesser God, were caught doing what they have been doing for years after years, we would go to jail, pronto. Instead, bankers will earn $144 billion in bonuses for 2010. I am speechless………………… I am really losing faith in everything. We do not live in a civilized society: this is the jungle, where only the strong survive.

  4. Inagua


    This latest phase of the mortgage mess might be easily fixed:


  5. Inagua, you ought to know me by now. That article is way too deep for this English major. Cliff Notes, please.

  6. fred

    The Congress and Senate really came out of the closet with the Interstate Recognition of Notarization Act.

    The credit bubble was designed as an asset grab and it was working perfectly, except for a little paperwork glitch. Congress will fix it and the theivery will continue.

  7. Inagua


    The author predicts that the government will help the banks by passing a law absolving them of all paperwork mistakes. It would be consistent with everything the government has done so far.

  8. Walt

    Dude –
    You keep pissing and moaning about this mortgage crisis. You caused it, for Pete’s sake. Yes that’s right. It is your fault. You told folks buy Greenwich dirt. You can’t go wrong. It ALWAYS goes up!! So admit it.

    All you cared about was COC. Commissions On Close. Bernie was a boob compared to what the real estate “professionals” have pulled off.

    Your Pal,

  9. Donato Loscalzo

    I am honestly amazed at the fact that almost nobody sees the only logical and legal outcome to this mess: since no borrower can claim he or she did not receive the initial money, the only question is whether the claim is a SECURED or an UNSECURED one. It seems obvious to me and to a growing number of lawyers that a legitimate claim does exist but since the chain of title has been, for unlawful reasons, broken or for that matter never properly started, the claim has in all aspects lost (?) its status as SECURED. Welcome creditors to the new world: your once supposed SECURED credit has, because of your incompetence and bankers’ greed, been downgraded to UNSECURED. That means it will be valued by Judges under EQUITY law. Mmmmh, at the moment unsecured creditors get about 60%………………. You do the math. But whatever you do, do not fault the borrowers: they are responsible for a lot of things but, please, they had no part at all in the chain of title mess you created.
    They just simply couldn’t…………………
    Read more: http://www.businessinsider.com/welcome-to-the-subprime-debacle-part-2-2010-10#ixzz12dW2L7Kh

  10. fred

    sort of, but not really. u c many of the ‘missing’ notes are not really ‘missing.’

  11. Pan


    Don’t forget that the creditor has the burden of proof that he is indeed the party owed the money and entitled to collect.

    The claim is still secured, there is a mortgage on the property. Without the proper chain of title of the debt instruments the court cannot give relief–foreclosure–against the debtor.

    And if the creditor does not win the first lawsuit, under res judicata he very likely will not be allowed to sue again and could be forced to release the mortgage.

  12. Walt

    Dude Meister –
    This is what I love about lawyers. “res judicata” Who the frig knows what that means? I am pretty sure it means the common man is about to be cornholed. But that is just a guess.

    You load. Do you get that?
    Your Pal,

  13. Retired IB'er


    Do you honestly think that Congress/White House/FED/Banking Lobby is going to stand by while 40% of mortgage debt gets written off as unsecured?

    Have you been paying attention to the last three years where we’ve thrown trillions at the financial system because of “systemic risk”?

    Do you honestly think this won’t get worked at to the satisfaction of the banks/GSEs?

    If not, we’re back to the whole system collapsing. So I’ve no doubt based upon past government intervention a solution will be found.

  14. anony

    does anyone else feel like the dow will (should?) close down more than 300 pts on monday?

  15. Patrick

    Aren’t we missing the point that a homeowner took out a loan and knows that? I can’t imagine under oath many homeowners could say otherwise. If not, explain how they got the $.

    There seems to be a lot of comments that speak about the homeowner being the victim and the banks the villians. The fact is the homeowner took out a loan and was more than happy to do so. If there was misrepresentation about the terms, then I agree that it’s an issue – but otherwise a loan was granted and they owe the $. Let’s see what the world looks like when the villians – banks – no longer lend funds to buy a house.

    I agree with previous comments that this will in the end not be as big a crisis as the media is making it out to be. Fundamentally a homeowner took out a loan and by sending a check into a servicer there is an implied contract – the owner believed they were paying XYZ company for their loan.

    This will get solved by revised processes in foreclosure processing (i.e. what JP Morgn and Citi are doing now) and if necessary federal regulation that will enforce the original contract. If a homeowner is honest – they believe they took a secured loan out from a specific bank. Honor the contract by either foreclosing or paying the bank. Having a large part of the market get a pass on a technicality that is principally against what was largely agreed to by both parties is in the end not going to fly….

  16. fred

    yeah but, 60% of said ‘executed’ mortgages went to a bank shell holding company called MERS. There they sit. From there they-thenotes -were electronicly re-assigned, sliced nd diced. May have electronicaly changed hands 2, 3, 4, times. Electronic is key. This was designed for bank paperwork expediency but also to circumvent the wait for and the paying of local recording fees. So where are the notes/deeds in question? SPLIT UP. Probably stored in Va somwhere. Why dont they produce them? Becuase it would clearly show that they were never assigned as colateral for securitization. Electronicaly yes. Physicaly no.

    So who unlawfully holds these mortgages? MERS

    Without wet ink signatores they never left the custody of MERS.

    PK Arnold conviently says tha they thru away the paper trail every time a reassignment took place.

  17. fred


    Typically, the same person holds both the note and the deed of trust. In the event that the note and the deed of trust are split, the note, as a practical matter becomes unsecured. Restatement (Third) of Property (Mortgages) § 5.4.

    The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note.

    Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation.

    The mortgage loan became ineffectual when the note holder did not also hold the deed of trust.

  18. edgewater

    not a single new thought in the post. waste of time, unless you are rip van winkle and just woke up.

    • It’s a summary of the issues, Edgewater – learn to scan quickly, and you won’t waste your time. A number of readers have told me that they’re just getting up to speed on this problem, which is why I posted it.