Primer − New Term: What IS a Zombie Mortgage − Yves Smith article

by Ken Kappel on October 15, 2011

Before we present the article below, which deals with bank lender fraud, by Banksters, here’s a pull-quote from the article to set the tone for what follows.

“Second is that the inability to foreclose and the resulting “zombie” mortgages are not due simply to servicer discretion but due to likely difficulties in foreclosing due to chain of title problems.” [Emphasis Added.]

In other words a zombie mortgage is generally one where the amount owed is higher than the true market value of the property, which, in itself creates additional burdens on any party that would attempt to foreclose. Key to this supposition is the point made directly below (another quote from the article). One other, there is also a category used by bankers that you’ll get a kick out of: “limbo loans.” Read on to know about that one. Heck, you may just have one.

“Why have foreclosures slowed down dramatically in New York, for instance? Because it appears that the requirement that the foreclosing attorney certify the accuracy of documents submitted to the court has thrown a wrench in the process. Now mind you, this measure does not increase the liability an attorney faces, but it makes it easier for opposing counsel (homeowners attorney) to challenge the validity of submissions to the court (and false submissions are sanctionable).”

In other words, the courts can and are now “sanctioning” (making lender attorneys filing false paperwork pay the court a fine out of their pocket.)

Yves Smith, at the No. 1 rated economic blog, Naked Capitalism, wrote the following piece. We believe and think that she is likely the most astute non-lawyer analyst regarding the rapidly evolving mortgage-based litigation front. In order to understand the depth of Yves’ prowess and intellectual capacity, pick up a copy of her book, “ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism,” available from her web site click here. Her recent article is titled: “Zombie Mortgages” Mean Delay of Housing and Economic Recovery Well Past 2014 “  The link is live, or read it below. To the short article.”

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“A new research piece from Barclays raises some far reaching implications.”

“Many economic pundits forecast the housing market will bottom in 2012 and start recovering thereafter. I’d like to know exactly how that happens when the odds of a Eurobanking crisis is the next six months look high, and it’s bound to blow back to the US.”

“But even the more realistic pundits (meaning those not in the employ of financial firms) may be unduly optimistic. For instance, Martin Wolf was one of the hosts of a Financial Times conference last week, and mentioned that he thought whoever would win in 2012 would look like a winner: the recovery will eventually take hold, and he believes, per Carmen Reinhart and Kenneth Rogoff, that the housing market will bottom in 2014 and a recovery will kick in then.”

“The person sitting next to me leaned over and said, “Japan”. And he is more likely to be right, for two (at least) two reasons. The first is, as the Barclays report indicates, via American Banker, that there is a very large shadow inventory and that is not adequately reflected in most tallies of how many homes will need to clear, ex more radical action to stem foreclosures (I would not hold my breath on that one).”

“Second is that the inability to foreclose and the resulting “zombie” mortgages are not due simply to servicer discretion but due to likely difficulties in foreclosing due to chain of title problems. Why have foreclosures slowed down dramatically in New York, for instance? Because it appears that the requirement that the foreclosing attorney certify the accuracy of documents submitted to the court has thrown a wrench in the process. Now mind you, this measure does not increase the liability an attorney faces, but it makes it easier for opposing counsel to challenge the validity of submissions to the court (and false submissions are sanctionable).” [Emphasis Added.]

“Our Tom Adams has estimated that it would cost $20,000 to $40,000 more per foreclosure (no typo) to dispense with robosigning and prepare court documents properly in judicial foreclosure states. Think that might not have something to do with why foreclosures have slowed down a lot? Needless to say, I don’t buy the line that the government is leaning on banks to slow foreclosures, particularly when Fannie and Freddie have consistently pushed for faster foreclosures.”

“From Kate Berry at American Banker via e-mail:”

“Delinquencies on credit cards and auto loans have largely fallen back to levels seen before the recession, but debt-strapped consumers are still struggling with “zombie mortgages,” says Dean Maki, managing director and chief economist at Barclays Capital.”

Zombie mortgages are home loans that are worth more than the underlying collateral of the house, Maki says. The backlog of zombie mortgages is impeding a recovery in home sales, because many sellers are stuck with loans they cannot repay even if they sell their home. Meanwhile, that backlog is encouraging buyers to delay purchases of new homes in the hopes that housing prices will drop even further.”[Emphasis Added.]

“What we have is an overhang of zombie mortgages,” Maki said in an interview Wednesday.”It’s a housing market problem rather than an overall household indebtedness problem. Unlike the zombies that stagger around in the movies, these contracts will not remain forever undead.”

“About 20 million borrowers are trapped in these zombie or “underwater” mortgages, in which they owe more than their home is worth. When those loans become delinquent, they are often referred to as limbo loans, because the government has urged mortgage servicers to hold off on foreclosures.” [Emphasis Added.]

“But the longer a borrower fails to make mortgage payments, the higher the likelihood that the loan will eventually go into foreclosure. And it will take years for many of them to go through the foreclosure process or for the loans to be restructured through modifications, further prolonging the glut of properties on the market and depressing housing prices.” [Emphasis Added.]

“Banks and mortgage servicers are trying to avoid exacerbating the situation by not putting all of their real-estate owned properties on the market at once.”

“There’s a lot of inventory but it will come through methodically over three to four years, which will prohibit any price appreciation,” says Evan Gentry, the CEO of G8 Capital LLC, a Ladera Ranch, Calif., buyer of distressed properties.” [Emphasis Added.]

“More than 2.1 million homes are in the process of foreclosure and another 1.8 million homeowners were 90 days or more past due on their mortgage at the end of August, according to Lender Processing Services Inc.”

“Maki says that any policy initiatives that delay or threaten the resolution of “zombie mortgages” should be viewed as bad news, since such policies could ultimately delay a broad economic recovery.”

“He argues that investors should pay more attention to the foreclosure process and any local upturn in residential construction than to overall household debt levels.”

“If homebuilders continue to hold off on construction, an eventual rebound “could be quite strong,” Maki says.”We see the potential for a stronger cyclical recovery once the ‘zombie mortgages’ and the associated foreclosure pipeline are relegated to the history books.”

“There are some interesting assumptions in the article. The first (and this is in all analyses of the housing market) is to assume that household formations continue in line with historical patterns. But we’ve seen a rise in people having to move in with relatives in this downturn. If unemployment continues to be high, we may not only see a persistent shift in attitudes towards renting versus owning, but towards nuclear v. extended families.

It also seems to ignore how important second homes were in the last cycle, and it isn’t clear that we’ll see as strong a vacation home market as we once had. Second is that it ignores the looming and still unresolved chain of title issues. No one has come up with a way to cut the Gordian knot of mortgages that were not properly conveyed to securitization trusts. There are a lot of homes that cannot be foreclosed upon (legally, anyhow) until this issue is resolved.”

“But regardless of the particularly, the general focus is correct: the US has never had an economic recovery without housing playing a large role, and there is no good reason to think that pattern will change.”

Ken here. Yves wrote: “No one has come up with a way to cut the Gordian knot of mortgages that were not properly conveyed to securitization trusts.”

This is not necessarily the case, as individual homeowners are discovering and following up on what is called the Administrative Process Act of 1947. Which allows homeowners to avoid utilizing the slow and tedious court system, which is loaded with pitfalls, and yet, have the Title of the home re-conveyed to them at the County Recorder level. This relates to your first obtaining a Securitization Audit, which proves out the fraud in the Securitization Process.

What comes next, if not simultaneously with re-conveyance process, is dealing with the Promissory Note. Sticky wicket, but, can be dealt with in a number of ways. Usually, nearly always utilizing litigation, if not bankruptcy counsel. Few enough attorneys understand and can deal with what we just wrote. Finding one is difficult, and, finding an honest one is even more challenging. We’re tracking some of them down, and beginning conversations. So stay tuned. Read our book, all of this blog, to educate yourself. Then let us know you have, and we can work with you to show you some “tools” you can utilize to obtain your objectives. In order to Confront Fraudulent Housing Debt.

We can not and do not offer legal advice. However, we can and do share some legal information we have discovered over time, and, also, in working closely with various lawyers.

So, start here,read: this Article First, click here.

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