Turn On The Lights, Watch The Roaches Scatter, Part 40

Hey Congress?  Welcome to 40 posts ago in this series.  Glad you could join us.

The Congressional Oversight Panel reports that the effects of the current foreclosure documentation crisis may have been underestimated.

In a new study entitled “Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation” the panel states that “companies servicing $6.4 trillion in American mortgages may in some cases have bypassed legally required steps to foreclose on a home. The implications of these irregularities remain unclear, but it is possible that `robo-signing’ may have concealed deeper problems in the mortgage market that could potentially threaten financial stability and undermine foreclosure prevention efforts.”

The panel believes that the trouble may be even worse than that. “The risk stems from the possibility that the rapid growth of mortgage securitization in recent years may have outpaced the ability of the legal and financial system to track mortgage loan ownership. In essence, banks may be unable to prove that they own the mortgage loans they claim to own.”

The Congressional Oversight Panel has been known to be harsh in its analysis, but that does not mean that its analysis is not accurate. The group says as many as 33 million mortgages could be affected, an avalanche almost beyond imagination.

Well gosh, no foolin' boys?  You reckon ya'll might want to do something about this problem I've been going on about for the last couple of months now?  A whole third of mortgages in this country have questionable paperwork and nobody's sure who owns the note on the house, gee that might cause some problems down the road.

However, the larger point is if Congress has finally gotten it through their thick skulls that something is badly wrong here and it's a time bomb waiting to wipe out the banks (and not to mention screw tens of millions of American homeowners), it means that what Congress is doing will get a lot of scrutiny, making it less likely they sneak a bill through.

Obama and company are going to have to tackle this one head on.  Trillions in mortgages are at stake here. And the solution needs to be rather elegant.

Good luck with that.