Foreclosure-Gate: The Impact of Error From Securitization to Foreclosure

10-15-2010 • ritholtz.com

4. Assembly Line Financial Services: Like MERS, the costs of doing things fast and cheap — versus doing them correctly – has been revealed as far greater than advertised. Could mass securitization have taken place without these shortcuts, bad documentation, and illegalities? If the true costs of doing this correctly were actually accounted for, could sub-prime securitization even have occurred at half the size and pace it did? 5. Regulatory Oversight: The banks have demonstrated — yet again — that they are too irresponsible and reckless to operate without strong oversight. Just a few quarters after being bailed out for their reckless lending, they find themselves in trouble for irresponsible foreclosure proceedings and all manner of illegal behavior. Is it they — or we — who never learn history’s lessons ? 6. Selling REOs & Foreclosed Properties: Relative to the economy, here is the greatest concern: Banks are sitting on millions of foreclosed properties. Given their mishandling of foreclosures, there are now credible concerns that Title companies will not insure new REO transactions due to the banks’ administrative negligence. Without Title insurance, these houses are worth from 25-50% less than they would have otherwise sold for at REO sale or auctions. If this affects a million REOs times even $100k, that is a lot of money. And, it is potentially much worse.