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Tuesday, October 26, 2010

TBA Mortgage Bonds

The mortgage foreclosure scandal is interesting. Summarizing, the legal paperwork for many mortgages is defective. Without proper paperwork, the current mortgage owner lacks legal standing to foreclose. They may even lack standing to collect mortgage payments.

The paperwork was forged at nearly every step. This applies to "liar loans", when the mortgage was sold to a bank, when the mortgage was placed in a CDO, when the CDO was falsely given an AAA credit rating, and now when foreclosing. It's a systemic problem, and not just a couple of lazy/dishonest people. If you're "too big to fail", then there's no penalty for incompetence or fraud. Why be honest and skilled, when you can get a bailout?

There's a widely cited article about "document forging services". One firm had explicit fees for forging mortgage paperwork.
"Create Missing Intervening Assignment" $35

"Cure Defective Assignment" $12.95

"Recreate Entire Collateral File" $95
How can anyone publish a price list like that? That's blatant flagrant fraud. One firm explicitly said "Don't worry if the mortgage paperwork isn't in order! We'll forge and backdate whatever documents you need!"

As usual, the lawyers who organized the "document forging service" will face no penalties. They will get, at worst, a slap on the wrist.

The paperwork was left vague on purpose. This way, if someone asked questions later, documents can be forged as needed. If you have proper paperwork, you can't retroactively change your story.

There's a special type of mortgage bond called a TBA mortgage bond. Here's a source. Big banks trade billions of dollars a day of these.

For a TBA mortgage bond, the bank is buying an *UNSPECIFIED* mortgage bond. It's based on mortgages that haven't been issued/bundled yet. The mortgages are supposed to meet certain criteria.

Who would do that? Who would buy a bond without knowing any of the details? These are still heavily traded.

Is it really that much work to review every single mortgage? If a mortgage is worth $200k+, then wouldn't you hire someone to spend a few minutes verifying each of them before buying? If you figure $30/hr and one person can do 10 per hour, that's only an expense of $3 per mortgage, a negligible expense. The banks don't do this, because they don't really care what's in the mortgage bond. They can trick some fool into buying it. If you slap an AAA rating on it, then insurance companies and pension funds will buy without thinking.

Banks are willing to buy any mortgage bond, without bothering to read the details. That explicitly encourages fraud. All the big banks still heavily trade TBA mortgage bonds.

A lot of investment money is "stupid money". The fund manager is almost always gambling with other people's money. Why should he care?

I was really surprised when I heard about TBA mortgage bonds. Who would buy a mortgage bond where the details are unspecified? That explicitly encourages fraud and incompetence.

The housing bubble and foreclosure scandal are a symptom of a much bigger problem. All the leaders are psychopaths.

If all the leaders are honest and intelligent and emotionally strong, then the psychopaths are excluded. When all the leaders are psychopaths, then the honest and intelligent people are labeled as deviant.

When most/all leaders are psychopaths, they collude to keep out honest and intelligent people. Via State violence, psychopath-led organizations are not subject to market competition. A really free market is the best way to provide protection from psychopaths. With a government violence monopoly, psychopaths seize control of the State. Then, "color of law" provides the illusion of legitimacy for their crimes.

TBA mortgage bonds are a symptom of a much bigger problem. Big banks still heavily trade TBA mortgage bonds. Who would buy a bond where the details are unspecified?


Scott said...

"When most/all leaders are psychopaths, they collude to keep out honest and intelligent people"

We also have this problem with the police, prison guards and the military.

MP said...

This isn't related to this blog entry but I noticed something that I'm sure you would find interesting. The Vikings head coach Brad Childress was fined 35k for breaking the rule the prohibits public criticism of NFL officiating. What makes this funny is that the officials admitted that the call Childress was complaining about was indeed the wrong call. "Don't say anything bad about the officials even when the officials mess up" Funny.

FSK said...

If you think umpire=judge and player=slave, it makes sense by State parasite.

In court, if you question the judge's authority, you are jailed for "contempt of court". Similarly, a player may not question the umpire, even when the umpire makes a questionable or wrong decision.

Many NFL umpires also work as judges.

"Don't criticize State leaders!" is an aspect of pro-State brainwashing.

Anonymous said...

In the United Kingdom I read in a newspaper that some credit card companies did not possess original credit card agreements with the credit card holder.

Maybe they lost the original agreements or one company took over the credit card agreements from another company and somewhere in the process the signed credit card agreements were lost.

So the credit card companies just "reconstituted" the credit card agreements i.e. they spirited a new credit card agreement out of thin air with no consumer signature. This new agreement with no signature may or may not be the same as the original one signed.

As such the consumers could be forced to accept less favourable agreements.

It is nice how you can just make up a new agreement out of thin air when you lose the original agreement.

Perhaps consumers could just spirit agreements out of thin air saying the banks owe them 1 billion pounds! Well it is the same principle as employed by these jokers.

Anonymous said...

You clearly have no idea how the TBA mortgage market operates. You really should get your facts in order prior to making your incorrect assupmtions public.

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