Turn On The Lights, Watch The Roaches Scatter, Part 12

That's how fast this story's moving folks, I have to write multiple posts on the issue a day.  Congressional Dems are now calling for that national moratorium on foreclosures as predicted. On the House Dem side, the battle is being led by Alan Grayson, who launched another broadside against the banks today.  His letter to the Obama economic team:

"So far, banks are claiming that the many forged documents uncovered by courts and attorneys represent a simple 'technical problem' with foreclosure processes.  This is not true.  What is happening is fraud to cover up fraud... The banks didn't keep good records, and there is good reason to believe in many if not virtually all cases during this period, failed to transfer the notes, which is the borrower IOUs in accordance with the requirements of their own pooling and servicing agreements. As a result, the notes may be put out of eligibility for the trust under New York law, which governs these securitizations. Potential cures for the note may, according to certain legal experts, be contrary to IRS rules governing REMICs. As a result, loan servicers and trusts simply lack standing to foreclose. The remedy has been foreclosure fraud, including the widespread fabrication of documents.  There are now trillions of dollars of securitizations of these loans in the hands of investors. The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts... The liability here for the major banks is potentially enormous, and can lead to a systemic risk." 

Grayson pulls no punches here.   Notice he summons the magical attention-getting words "systemic risk".  He knows how to speak banker, does our Alan.  But look at what he says elsewhere:  "forged documents",  "fraud to cover up fraud", "lack standing to foreclose", and my favorite, "trillions of dollars of securitizations" which should make any long-time reader here reach for your hard liquor of choice.

In a very real sense we're right back in virtually the same boat we were in October 2008.  In a lot of ways it's worse, too.  Grayson knows this, and wants Helicopter Ben and Timmy to know he knows this, and is anybody still wondering why Larry Summers and Christina Romer put in their notice?

On the Senate side, the state hardest-hit by foreclosures in the last three years is finally weighing in:  Sen. Harry Reid of Nevada.  He too is calling for a foreclosure moratorium, and given Nevada's massive foreclosure rate that leads the nation, the fact he's Senate majority leader, and his own tight race for re-election, Reid had no choice in the matter.

"It is only fair to Nevada home owners, consequently, that you also suspend foreclosures in our state until you complete a review of your processes that ensures a home owner’s loan documents are being adequately analyzed to properly determine the best, individualized loss-mitigation solution. It is my belief and hope that once such a system is in place, more Nevadans will avoid foreclosure and remain in their homes. This is the goal of the Obama Administration’s various Making Home Affordable programs, and should be the goal of a servicer acting as a fiduciary to investors."

The number of AG's and members of Congress asking for state and now a national foreclosure moratorium is reaching critical mass.  Democrats see an issue here that they have no choice but to pursue.  Notice that Republicans in Congress -- even the ones in hard-hit states like Florida and Nevada -- have been virtually silent on this.  I don't expect that to continue for much longer.

I expect that national moratorium by next week at the latest.  meanwhile, Jim Cramer says the housing market is better than you think, which is how I know we are truly screwed.