No Free Houses

Mortgage Foreclosure Mess

Two weeks or so into the mortgage foreclosure mess, some of the dust is settling regarding what could potentially be hundreds of thousands of homes improperly foreclosed upon by the big banks.

First, what's not going to happen: people who lost their homes in such fashion are not going to get them back, with their mortgage somehow erased.

My guess is that people are watching too much CSI, or Perry Mason re-runs, or whatever TV program shows "perps" walking because of a technicality (due to police improperly seizing evidence, not informing defendants of their Miranda rights, etc.).

News flash: if you were months (or years) delinquent on your mortgage and were foreclosed on as a result . . . the courts ain't giving you your house back.

Issue #2: Banks' Put-Back Exposure

Meanwhile, the issue that very much appears in play is whether the big banks will have to effectively buy back billions in mortgages they sold to investors.

The same sloppy documentation that led to defective foreclosures apparently may also be legal grounds for investors to escape billions in losses on now very soured mortgages.

If investors can show that the banks misrepresented the types and characteristics of the mortgages they securitized (bundled) and sold, they may essentially be able to return them for a full refund.

Bracing for that possibility (and the huge losses that would result), the stock market has punished the share prices of several big banks.