Mortgage Foreclosure Crisis Visualized

Not many words required . . . (although I reserve my right to comment. Sorry.)

1.  Here’s the growth of the foreclosure crisis, the demon spawn of the financial system’s brilliant inNOvation called Mortgage Backed Securities (MBS).

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2.  The “REO” referenced above is Real Estate Owned by banks (the original lenders) after the home fails to sell at a foreclosure auction, such as when a home is “under water” relative to the amount owed on the home. The bank then owns the home and carries it as a “nonperforming asset” on its books. Is it just me or does the green line seem to be exploding upwards style?

(click for larger view)

3.  So, more and more of us are furtherer and furtherer behinder.  Of course, most of us have often heard of the marvelous mortgage modification programs that are available for one and all, so, “What me worry?”  Unfortunately, there are very few mortgage mods being approved due to the banks’ now obvious disinterest in following through on the promises made.  Basically, many homeowners have, through bank delays and disinclination in processing paperwork, U.S. homeowners are being “modified” into foreclosure.

In any event, the Federal Reserve Bank of Boston provides the handy little graphic below.  It describes what some call the “lender’s calculus” of mortgage mods.  It’s distressing. One doesn’t need to have mastered calculus to see this.  Just talk to you next door neighbor . . .
Roll tape!
(click for larger view)
4.  Enter MERS (Mortgage Electronic Registration Systems).  How convenient, and a nifty Internet inNOvation thunk up by the rhesus geniuses that created mortgage backed securities and have been wrong about everything for a very long time.  MERS  has, by actually living up to their promise – “Process Loans, Not Paperwork” – ineptly created a Mount Rushmore sized pile of legal paperwork for themselves and the banks (like Bank of America, JPMorgan Chase, Ally (formerly GMAC), Fannie and Freddie). 
MERS was designed by the financial industry to eliminate keeping track of that nasty legal title paper trail that developed as one of the red-headed stepchildren of mortgage backed securities (MBS). It used to be that a bank would hold onto its own mortgages until they were paid out, or foreclosed upon, etc.  The MBS revolution changed that and “bundled” mortgages of all kinds into an MBS bond – see the chart below, sections 1 through 3.  Seemingly this worked well – at least until recently, when the entire MERS inNOvation imploded and exploded simultaneously (neat trick, eh?).  The second half of the chart describes the process. 
Without being able to either locate or demonstrate legal title to a property, a bank cannot foreclose.  Have we all been raptured to Heaven?  Anyway, to see the huge amount of distressed home loans outstanding (and growing), have a look at the first chart again. 
Roll Tape!

(click for larger view)

Imagine, all this fuss about simply misplacing the TITLES (!) to those mortgaged-to-the-hilt homes . . . Certainly, the mortgage industry will now understand when we misplace our check books when a payment is due . . . you know, all that paper to keep track of . . .

Perhaps the Fed, having lately announced its plan to engage in quantitative easing, will buy up (and honor) all those toxic MBS’s . . . creating new money for the sellers (the very banks that caused this new crisis) to bury in tomato cans in the back yard. . .

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About Michael Matheron

From Presidents Ronald Reagan through George W. Bush, I was a senior legislative research and policy staff of the nonpartisan Library of Congress Congressional Research Service (CRS). I'm partisan here, an "aggressive progressive." I'm a contributor to The Fold and Nation of Change. Welcome to They Will Say ANYTHING! Come back often! . . . . . Michael Matheron, contact me at mjmmoose@gmail.com