Turn On The Lights, Watch The Roaches Scatter

Tyler Durden flags down this story on the mortgage lenders in the age of securitization.  The question of standing, that is, "Who really owns the mortgage to be able to foreclose on it?" is complicated.  In many cases, it's patently incorrect.  The megabanks are facing big trouble right now.

As we pointed out last week, a certain judge in Florida set quite a precedent when he found that JPM, as servicer for a Fannie mortgage, had committed court fraud by foreclosing while not in possession of the actual mortgage. We then concluded that "The implications for the REO and foreclosures track for banks could be dire as a result of this ruling, as this could severely impact the ongoing attempt by banks to hide as much excess inventory in their books in the quietest way possible." Not a week has passed since, and we are already proven right. Today, Bloomberg discloses that GMAC Mortgage, a unit of the affectionately renamed Ally Bank, has halted all foreclosures in 23 states, including Florida, Connecticut and New York. Who would have thought that being caught with your pants down, doing something so blatantly illegal as collecting on something you do not own, would actually have adverse consequences. And GMAC is just the beginning - we expect many more mortgage servicers to scurry now that the light has been shone on their shell game. The silver lining - the permabull pundits will cheer this development now that foreclosures will plunge off a cliff as mortgage holders and servicers scramble to reconcile who owns what, and just on whose balance sheet the mortgage flows should show up.

Could it be that banks are foreclosing on homes they don't own in order to get something out of nothing?  That big mortgage service providers are in fact ripping thousands, if not millions, of homeowners off and taking their homes in order to recover assets they lost gambling on the Big Casino wheel?

Gosh, who ever would have thunk it?

Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.

GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

Now things are going to get really, really interesting...if this story gets play.  If GMAC/Ally is playing fast and loose...so is everyone else...

But confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.


Now why is this a big deal? Go reread the boldfaced sentence above. If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own. 

This is the big dirty secret of the mortgage industry right now.  Banks are selling properties they don't own and are throwing around their lobbying weight in order to force a Too Big To Fail solution when they get caught.

And they've been caught.  Red handed.  The roaches are scattering.  It's 2008 all over again.

[UPDATE]  Rep. Alan Grayson is all over this story and is taking this fight to the Florida Supreme Court.

Three foreclosure mills - the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern - constitute roughly 80% of all foreclosure proceedings in the state of Florida.  All are under investigation by Attorney General Bill McCollum.  If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities.  This is lawlessness.

I respectfully request that you abate all foreclosures involving these firms until the Attorney General of the state of Florida has finished his investigations of those firms for document fraud.

Once again Alan Grayson is leading the way for the Dems.  More Dems need to follow his lead.