Correct Me If I Am Wrong - Mortgage Division

Mish Shedlock is flogging the point that if someone is in delinquency, then they deserve to be processed out of their home.  In general, true.  But these are unusual circumstances, in which right order is simply not possible.  The sheer volume of loans in trouble is mind-boggling, and therein the problem assumes its own logic.

The boom allowed many people into homes they could not afford.  Each person who overbought, malinvested, could have as easily as anyone else studied a bit and figured out such a false economy was going to go bad.  So on one side we have wicked predatory lenders, and on the other side wicked predatory borrowers.  They deserve each other.

The problem is so big, to keep An economic system going, the powers that be bailed out the banks, and continue to do so in every way shape and form.  The bad part is since their system has not yet failed, the better system cannot emerge, yet.  The longer we wait, the more we bail, the worse the results.  It's like  sinking sailboat being blown offshore.  The longer you bail, the farther out you go, the more tired you get, the deeper the water, the lower the boat.  And hour ago you could have waded in to shore safely.  Keep this up and even the Coast Guard cannot find you, like a Kennedy.

Since the problem is so big, the banks and lawyers used robo-signing to process foreclosures. An industry is growing that figures out how to game the system to stay longer paying no rent ina house you can own.

The flipside is some people are not paying, strategic default, because they do not want to live in the house, get stuck with home in a rapidly deteriorating neighborhood.  Free rent for a year or two, and disappear.

Either way, each of these mortgages, which were sliced and diced into complex financial instruments, represents a very tough superior court case.  If you take ten years of legions of mortgage industry people, perhaps 100 times the size (likely more) of the superior courts in USA, writing massive amounts of contracts, which wee then rendered impossibly complicated, the result is there is simply no way the legal system can address the problem, especially since ten years volume needs to be addressed today, in like one day.  Correct me if I am wrong on this.

The end game we already know.  Uncle Sam will declare all default and bank owned property assets of the USA taxpayers.  (In essence, this has already been done with fannie mae and freddie mac and bank bailouts). The music has stopped, so where ever you happen to be, you will be means tested for rent (eventually rent to own) so that the backlog will be cleared in one fell swoop.  It is not a question of right or wrong, it is a matter of cleaning up a mess for which there is no other solution.

I think Mish misses that people are not fighting to save their homes, they are fighting for free rent, to pay down credit cards, to remain flexible come what may, and getting a back-door bailout, like a bank.

Mish also notes banks are booking fees on delinquent loans as profits. This is huge, and shows that the banks still experience not the slightest concern regarding soundness of operations.

The unfortunate part of all this is when it is sorted out by fiat, the taxpayer will realize that the USA criminal justice system is nonfunctioning; the us courts system is nonfunctioning.  Neither law enforcement nor our court system work.  We'll need to develop another legal system, one that takes into consideration how people really are.  Hint: free markets in protection and enforcement.

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