Turn On The Lights, Watch The Roaches Scatter, Part 5

The NY Times has picked up on the Ginormous Foreclosure Nightmare and things continue to move at a rapid pace as the entire industry is heading into the abyss.

“Maybe this is like shock therapy,” said the economist Karl E. Case. “Maybe this will actually get the lenders to the table and encourage them to work out deals that are to the benefit of everybody.”

While such a happy ending is possible, the near term is more likely to produce paralysis and confusion.

As more defaulting homeowners become aware of the lenders’ problems, they are expected to hire lawyers and challenge the proceedings against them. And if completed foreclosures were not properly done, families who bought the troubled homes could be vulnerable to claims by the former owners.

Apparently alarmed about such a possibility, one of the major title insurance companies, Old Republic National Title, has sent a bulletin to agents saying that “until further notice” it would not insure title to properties foreclosed upon by GMAC Mortgage, the country’s fourth-largest home lender and one of the two big lenders at the center of the current controversy.

GMAC declined to comment, and Old Republic representatives did not return calls. 

With no insurance underwriting of GMAC/Ally's foreclosures, the game's up for real now.  If insurance companies won't touch foreclosures now, then they will not move forward.  JPMorgan Chase is also knee deep in this mess.  And now, Bank of America is checking its foreclosures too while Wells Fargo is trying to sweep everything they can under the rug before the light on Florida's foreclosure farms reaches the West Coast.  That's pretty much the entire mortgage industry right there in those four banks, folks.

The only properties selling now are short sales and foreclosure sales.  With no foreclosure sales now that just leaves short sales and even those will begin to dry up as everyone in the business will want to triple check the title deed.

That means home sales will grind to a halt across the country.  The Tyler Durden prophecy is starting to look like a very real outcome, folks.  No foreclosures.  Potentially hundreds of thousands of lawsuits.  Mass obliteration of the housing market as values wither because there are no sales.  The mortgage banks get slaughtered in the markets because nobody knows who owns what in real estate.

Game over.  Starting to look potentially catastrophic, folks.  This one could very well be the trigger of the next financial crisis.

Stay tuned.  This may be one hell of an October surprise.