Mortgage Market Share Report September 2010

?Lots of folks confuse bad management with destiny.?

~Kin Hubbard

Is anyone really surprised by the latest foreclosure revelations that thousands of affidavits submitted to hundreds of courts in support of thousands of foreclosures were prepared with something less than careful attention to detail? Not to worry, though. As soon as the bank stock analysts started questioning the effect of this latest snafu on bank earnings we were told literally within hours, ?It?s ok now. No real problem. Let the foreclosures resume.? I?m certain that somewhere, a foreclosure processing manager is well regarded by upper management because his or her ?foreclosures processed per employee per month? metric is so high.

The vast majority of foreclosures are warranted. However, fifty state attorney generals are now investigating big banks and their foreclosure process. Many of the AG?s will ask why there are not more loan modifications, a politically popular question with a complicated answer. And to the extent that the investigations discover a callous and condescending approach to the rule of law, big banks will suffer. Foreclosure delays will increase costs. The increasing public perception of bank complicity in the problem won?t help things either.

These procedural errors will begat the inevitable onslaught of class action litigation. The plaintiff?s bar, with endless depositions and requests for production of documents will further increase the cost of foreclosures and lengthen the amount of time that it will take to work out of the foreclosure debacle. In the end these actions will probably extract small changes to the foreclosure process in the name of the consumer and big checks in the names of the attorneys.

There?s a bigger skeleton in the closet though. The Wall Street Journal? recently reported that the investors who bought all the securities containing bad mortgages are beginning to mobilize. The ultimate goal is to prove that the mortgages comprising the securities were not originated to the standards represented in the offering. That could result in those bad mortgages being put back to the banks who originated them. I?ve read some astoundingly high estimates of the big bank?s potential liability. Expect a long drawn out battle when this starts happening.

The sub-prime induced mess that we?re in started about three years ago. It is far from over. To the extent these recent developments retard the recovery of the housing sector of the economy, we all suffer.

~John Bethell