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The American Housing Market Is Headed for Total Destruction


The issue with the recent robo-signing scandal is that clear title could disappear in the American mortgage market. Part of the outrage is that U.S. banks have been foreclosing on mortgages which they don’t even own. Part of the reality is that the convoluted process of securitisation means banks may not be able to prove at all they actually do own the mortgages.

Already large unions in the U.S are encouraging borrowers to challenge banks to prove they won your mortgage. They’ve set up a website asking the question, “Where’s your note?”

You can see where this is headed. No one in America wants to own a failure. The banks want to foreclose on homes and sell them and avoid taking losses. Borrowers (some of them, and some of them rightly) want to avoid paying a debt for an asset that’s worth less. No one wants to be responsible anymore because the most lucrative and least painful route is to abandon responsibility and your word.

This is a serious breakdown in one of the most basic elements of a functioning market: contract (doing what you said you’d do). People at every level appear to have cheated and lied during the housing boom. The borrowers who lied on their loan applications…the mortgage originators who made the loan without any documentation of work or income…the securitiser who packaged it up and sold it to investors…the ratings agency that rated the debt investment-grade…the insurance companies who sold default insurance against the bonds multiple times…and the government that encouraged home-ownership and subsidised the fraud with an implied guarantee on the bonds of Fannie Mae and Freddie Mac, the government-sponsored enterprises that bought a lot of the garbage bonds.

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1 Comments in Response to

Comment by Ned The Head
Entered on:

man somebody has their tenses totally screwed. It's not headed, it was headed. For total destruction. And that happened. The housing market is totally, has or was totally destroyed. "Extend and pretend" only put some distance between now and the reality in much the same way (but opposite) of a person who makes a positive change in their lives and it takes a while to see the benefits. Or like a gardener who plants  a seed knowing the seed is pretty worthless but the plant in time will bear fruit.

This train hit the wall 3 years ago, it's just taking a while for your car to pile up. It's a very long train. Put another way, previously Humptey Dumptey sat on a wall, Humptey Dumptey had a great fall and all the king's horses and all the king's men couldn't put Humptey together again. That was then. The now is the king's horses and men are all trying to shore up the wall, which itself is falling and all they know is what happens when Humptey falls. They think they are smart and have predictive power when anybody can see that walls are fundamentally unstable. Walls can only stand if they have enough doors and windows. Walls exist to keep things from changing. Windows and doors provide a transitional element between what somebody thinks we should have and what we might want to have. If you find the doors and windows you realize there never was a wall at all.

Humpey Dumptey did not sit on a wall. it was more likely a scaffold. Poor Humptey Dumptey believed them when they said he could sit on a wall.

There was no wall. never was atall.

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