The process of turning loans (mortgages) into securities was vaguely understood by the folk who generated these "tradable" pieces of paper. But as we sorta knew then, it did muddy the water of ownership of the loan.
Heck, it turned it into sludge!
Consider the latest revelations. The big banks are so backed up with foreclosures that some of them resorted to hustling through repossessions without the proper paperwork. Some of them—including Bank of America, J.P. Morgan Chase and Ally Financial's GMAC Home Mortgage—have announced a temporary freeze in some states on further foreclosures while they sort through the mess.Thinking about this, I wonder if the wave of defaults is just beginning, and if the financial community has even the faintest hint of how to handle the result.
In one case, a bank employee said she was approving 8,000 foreclosures a month. By my math, that's roughly one for every minute and a half. No, she wasn't reading all the documents thoroughly. (As one wit observed, the banks paid about as much attention to foreclosing on the loans as they did to making them five years ago.)
In many cases, thanks to the fallout from securitization, it's not even clear who owns the mortgage. The payments may be due to different financial institutions around the world, some of which have gone the way of all flesh. [More]
Farm mortgages are not in trouble, of course, and they are remarkably straightforward. I can point to the folks to whom I owe the bucks. Which makes you wonder if more lenders won't want farm real estate lending as part of their business, or more of it if they are doing it now.
Couple that with the continued slide in long term interest rates, and surging commodity prices, and my wildly bullish land price forecasts could seem embarrassingly tame.