Bottom line is look for RealtyTrac's foreclosure numbers to take a sharp turn lower in coming months as the foreclosure fiasco hits near and far, and all those banks holdings trillions in RMBS to renew their push against the FASB's recent MTM initiatives. Because as Bruce Krasting pointed out earlier, the 1,500 or so people that are sweating like a Wall Street whore in church and have chopped their left testicle off to never, ever allow the general public to catch a glimpse of the radioactive effluvium gracing the "asset" side of their balance sheets, have just upped the ante and are now throwing the right testicle in the pot as well. The reason is simple: suddenly banks will be stuck with properties which are technically on their books, but to whose cash flows they have no recourse, and no recourse to kick out their vagrant squatters! This means that until the foreclosure crisis is resolved, and that could take years, suddenly hundreds of billions in RMBS paper will have to be marked not at par, but at zero.
Furthermore, the 250,000 or so people who bought their foreclosed home in Q2 (not to mention the millions over the past two years) will be sweating bullets that the previous owner doesn't come back and demand a cease and decist on the transactions, as well as a full unwind and give up of all equity rights until the rightful owner of the underlying debt is identified. And since one doesn't exist, hundreds of thousands, if not millions of foreclosure transactions will suddenly become null and void, and nobody will be paying any mortgage on them, resulting in billions of incremental writedowns.
P.S. Homebuilders may well be the biggest losers in all this, as the end of foreclosures means someone will need to step in with a price point that is 26% below the prevailing one.
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