Tuesday, October 19, 2010

Chris Whalen on Property Tax, Foreclosure, MBS Note Crises (Video)

Chris Whalen of Institutional Risk Analytics explains the whole foreclosure crisis in 7 minutes on Bloomberg TV. He thinks the foreclosure crisis is a cancer, or a "slow wasting" deflationary process that is undermining our communities. Here are a few quotes from the video which is after the jump. What I took from the video is, not only did Wall Street / Credit Rating Agencies misprice the trillions in mortgage-backed securities, investors weren't even secured by the underlying collateral! The securitization process needs to be restructured (imho).
"We are turning our banks into REITs; we're turning them into operators of real estate and I think Washington has to take a page out of the depression..."

"The other thing we have to really think about big picture is property taxes. Every time there's a foreclosure somebody stops paying their property taxes" (muni crisis)

"When you have foreclosures, what's the next thing that's going to happen? Not a Federal moratorium; not a voluntary moratorium by lenders who can't deal with their backlogs anyway; we're going to have State moratoria the way we did in the 1930s and the Governors of those states are going to say "folks stay in your homes, keep paying your property taxes, default on your mortgage", that's Washington's problem"

"A lot of mortgage backed securities (MBS) have a case where the trustee may or may not have a note. Lets assume he's actually got a completed note in his files. He still may not be able to foreclosure because he may not have clear title to the underlying collateral... There's an awful lot of investors out there who don't know what they own. They may have unsecured debt instead of a fully collateralized piece of paper. The litigation's going to go on for years, you have trustees, custodians..."

"Most securities issued in the U.S. are governed by New York law.. Under New York State law there are certain things that have to happen when you set up a trust to issue securities.. The dealer has to deliver to the trustee the notes that evidence the obligation.. So if the trustee doesn't have those notes and if the name of the trustee is not actually inserted in the document in some cases, the contract isn't live. A lot of investors may hold securities that are in fact uncollateralized, in other words the trustee may not have the capacity to go out and foreclose on a home to make those bonds money good."

*This just in: Bank of America is being sued by PIMCO, Blackrock and the New York Fed! WE are in the midst of the financial crusades. "Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said." (Bloomberg).

Also read Chris Whalen's recent speech at the American Enterprise Institute (Chris Whalen: Less Than 1/4 the Way Through Foreclosure Process (AEI Presentation)).

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