Monday, September 22, 2008

The Bailouts: Some Quick References

Hello, Comrades. Here are some links explaining what happened on last week, when the responsibility for the greed and bad financial decisionmaking of some was suddenly Socialized and given to us all.

"The Week That Changed American Capitalism," here. Barry Ritholtz's The Big Picture explains via graphics what-the-eff happened last week.

"Bubblenomics," here. Economics writer David Leonhardt explains how crazy the stock market is--and has been for the past 20 years--by giving examples of pricing and percentages of profits. Written for the non-pro. A chilling point:

"Traders sliced mortgages into so many little pieces that they forgot what they were really trading: contracts based on increasingly shaky loans. As the crisis has spread, other loans have started going bad as well. Hyun Song Shin, an economist at Princeton, estimates that banks have thus far absorbed only about one-third to one-half of the losses they will eventually be forced to take."

We all own bad mortgage-backed securities now.

"$700B Bailout for Wall Street," here. NYT article on historic move by President Bush, Treas Sec. Comrade Paulson, Fed Chair Comrade Bernanke.

"Text of Bush's Radio Address," here. W suddenly emerges to discuss the greatest financial crisis since the Great Depression.

"Text of Draft Proposal for Bailout," here. The blank check, exposed.

"A Rescue, But Will it Work?" here. News Analysis.

"Will a Crisis Create A Financial Scandal?" Floyd Norris, here. Short blog post by NYT Sr. Financial Correspondent lays out potential landmines.

"No Deal," Paul Krugman, here. Short blog post where Princeton economist smells future trouble in incorrectly assessing the value of assets.

"Thoughts on the Bailout," CaluculatedRISK, here. The finance/econ gurus explain the issues and problems of the rescue.

"10 Reasons to Be Cautious About the Motherland Rescue," here. Dr. Housing Bubble explains the bailout in terms of actual housing.


Anonymous said...

Simple question: Is there ANY way of determining who actually owns your mortgage?

Real C'ville - The Bubble Blog said...

Hi, anon--

We've asked the guys from The Mortgage Buzz to come over and address this question.

They're the local mortgage blog: themortgagebuzzDOTblogspotDOTcom

Montpellier said...

Ouch...I just don't know what else to say.

The Paulson Plan, as currently proposed, is a final raid on the tattered remains of the US Treasury. We'll be sending the crooks off with golden parachutes.

The really sad part, for the Greater Fools taken in during the boom, is that this money won't wind up in the pockets of homeowners. This bailout is what's needed to allow any lending at all, going forward.

Even if this does unjam the credit markets, and avoid broader economic damage, there will still be no return to lending at bubble prices. Prices will fall, foreclosures will keep happening, and with the taxpayer taking the loss for the bankers. So now J6P is out on the street, with a heftier tax bill hangover to pay for the party.

jason said...

The simple answer to your question is YES. The county courthouse keeps records of deeds/deeds of trust for every property in the county. You can view any deed of trust, which will tell you who the trustor (borrower) and beneficiary (lender) is.

But as your question suggests, it's a bit more complicated if your loan is sold to another bank or investor. It used to be (30+ years ago) that you made your mortgage payment directly to the bank that gave you the loan. Now, many borrowers send their mortgage payment to a servicer, who may or may not be the lender who issued the loan. This is due to asset securitization, where mortgages have been bundled and sold as securities (RMBS - residential mortgage backed securities) to investors all over the world. I'm not going to get into the pros & cons of securitization right now, but would be happy to discuss off-blog.

So how do you find out who owns your mortgage note if it's not the original lender and it's not your current servicer? The courthouse records may have a newly recorded DOT showing the new note holder, but not likely. And your current servicer may provide that information if they have it (unlikely as well). But because your loan was securitized, it was bundled up with thousands of other notes and sold, possibly several times, to the highest bidder. So you can try to follow the trail but I suspect it would be much more trouble than it's worth.

With all that said, knowing who holds who's mortgage note is, in my humble opinion, inconsequential. The note, ie. loan contract, still holds both parties responsible - the borrower is obligated to make payments according the terms, and the note holder/owner can't go and change them (terms, that is).

Feel free to contact me via email/phone if you have any questions

george h said...

It matters who actually owns the mortgage if the property is in foreclosure.

Judges have tossed foreclosures out of court b/c banks couldn't prove they held the mortgage:

And mortgage-backed securities are how the US got into such a huge financial mess!

RvR (née Anonymous) said...

Thanks Bubblers for inviting Jason, and Jason for his answer.

I'm not a troubled borrower looking to make contact with whoever owns my mortgage! This was, rather, just a "I wonder" question. I wondered if there was an easy means to determine my micro-network in the global web of securitized mortgages (which I assume mine to be). I suspected the research hurdles you describe.

Point of clarification: if my servicer doesn't have a record of new owner(s) of DOT, how would the ramifications of my (thankfully very unlikely) default follow back on the DOT owners? What's the chain of contact information? Who holds it? Who has access? Who vouches for the integrity of the information? (The last goes to George H's interesting links.)

jason said...


I remember reading about the case last year. My understanding of it is that it was an issue of Deutsche Bank's paperwork. Quote from article:
"Apparently Deutsche bank submitted several affidavits that claim that Deutsche was in fact the owner of the mortgage note, but none of these affidavits mention assignment or trust or successor interest. Thus, the Judge ruled that in every instance, these submissions create a “conflict” and they “do not satisfy” the burden of demonstrating at the time of filing the complaint, that Deutsche Bank was in fact the “legal” note holder."

Just a guess, but perhaps they failed to include the standard language required at loan origination: ISAOA, ATIMA -
"it's successors and or assigns, as their interest may appear".

I'm not as sure that the mortgage backed securities system itself is to blame. Few question that the drop in value of subprime MBS in 2007 sparked the credit crunch fire which turned into the financial crisis we're experiencing. Many suggest that it was the much more complicated financial instruments (in which subprime & AltA MBS was used) that is largely to blame: Derivatives (including credit default swaps) and Collateralized Debt Obligations (which often include RMBS, Commercial MBS & corporate bonds.

that's just my 2cents.

jason said...

If you went into default, you would get notices from the servicer (who may or may not be the original lender) and that is who you would talk to. If you went into foreclosure, the servicer (if authorized) or trustee would be in touch w/ you. But there is no centralized database that contains our mortgage information (sounds like a niche - feel like starting a new business?).

you raise great questions, and they make the point that it's not the good ol' days of mortgage lending anymore. but we may be headed back there if Paulson's bailouts don't work.

Marni said...

Montpellier is so right about "the tattered remains"--what could be left in the US Treasury right now except printing presses?

Which of course are going to be used, to some degree.

Why isn't there rioting in the streets?

If we were a different country, not one all fattened up on junk food and soda, anesthetized by TV, and a people whose primary activity is going to shopping malls and gathering crap, there'd be more response to this bailout.

Then again, we need a bailout because of the exact same behavior--too much stuff.

I sound like a vegan hippie wearing hemp and beads strolling on the Downtown Mall. Actually, I'm just enraged and saddened at what this does for the future of our children--and the childrens' children.

rvr (née Anonymous) said...

ason writes:If you went into foreclosure, the servicer (if authorized) or trustee would be in touch w/ you. But there is no centralized database that contains our mortgage information (sounds like a niche - feel like starting a new business?).

So in the case of a mortgage a part of a security there's nothing like stock certificate, bond coupon, bearer certificate, et cetera? Just the deed of trust?

And does that mean that every time my mortgage is resold, the new holder of the RMBS to which my mortgage is a part must prove to each of the servicing companies that he/she/they/it is now the rightful owner? What's that standard of proof? How do they find the servicer? How many mortgages in one of these securities? Do mortgages have serial numbers, or just rely on geographical identifiers?

Thanks for indulging my questions so far. Oddly fascinating, this issue is.

Real C'ville - The Bubble Blog said...

Rvr, if you want your mind to be blown by how internecine our financial system got, be sure to listen to the NPR audio interview, linked in the post below

The program is about mortgages and "Credit Default Swaps," which are what forced the bailout of AIG. This gigantic insurance co. had sold policies for millions of mortgages in the event of default, many of which were subprime, but didn't have the money to pay when the policies were redeemed.

How was this legal?

No regulation.

jason said...

yeah, the secondary mortgage market IS fascinating... and massive, in terms of capital and complexity. The following link doesn't answer your specific questions, but it gives a basic idea of how the system works: