SeriousBull

Reform the Fed. Who would’ve thought?

Tags: Fannie Mae + Freddie Mac + Ginnie Mae

The credit crisis just won’t go away. Bloomberg News reported on Friday that mortgage lenders have been thwarted from foreclosing on loans by bankruptcy judges who side with defendants that lenders should be required to show they own the loan they are attempting to foreclose on. Believe it or not, many banks can not produce their proof of ownership, the original mortgage, and are losing their cases. What’s incredulous about this turn of events is

the implications for capital adequacy at banks and brokerages. Indeed should a lender be permitted to claim collateral deposits when they don’t have the original mortgages on file?  The recent trend in the US courts is that a copy is not adequate as mortgages have been pooled and sold so frequently nor is presenting a Affidavit of Lost Mortgage adequate. Well, why should it be for their collateral and banking reserves then?

As it turns out, according to the Bloomberg article, the home-loan industry has a central database to track mortgage ownership. Mers, a subsidiary of Merscorp, Inc., is owned by the 3246 mortgage company members including Fannie Mae, Freddie Mac, and Ginnie Mae.  Though started in 1997, only about half of all mortgages are on file. For the other half, there is no tracking mechanism. So as this half of all mortgage not in Mers database has been traded, perhaps an average of five or six times, the fact of the matter is no one knows where the original paperwork is. Aren’t audits supposed to sample actual, real paperwork? What does this purport for the US Financial system? Talk about failure of oversight. If this doesn’t scream for Congress to Reform the Fed, FDIC, and Comptroller Generals offices, Please tell us what does?

February 24, 2008 - Economy, Markets