Another Sign the Mortgage Documentation Mess Is Terribly Serious A couple of days ago, the Congressional Oversight Panel charged with monitoring the financial markets recommended that the nation's big banks be stress tested again, because if problems with mortgage-backed securities are widespread, the consequences could be dire. Now, the Federal Reserve has announced it will do so, in part to "assess their exposure to so-called 'put-backs' of mortgages," a move it would be unlikely to take if the risk was viewed as trivial.

Similarly, as part of a multi-agency investigation into the mortgage mess, the Fed is "evaluating the potential macroeconomic effects of foreclosure documentation problems to the mortgage and housing markets." Again, that would be an odd use of resources if the banks' spin that the problems are limited and easily fixable were true.

As I explained in a DailyFinance column Wednesday, investors may be able to force the banks to buy back the mortgage-backed securities they issued. Some investors are already trying or threatening to do so. But how great is the risk to each bank? The Fed won't tell, as "the results of the new capital reviews won't be made public," reports the The Wall Street Journal. The Securities and Exchange Commission, however, may make the banks come clean. Apparently, the SEC thinks current level of disclosure of litigation risks is inadequate, and wants to see that public disclosure beefed up, according to Reuters.

The SEC isn't looking for case-by-case estimates, but a real disclosure of aggregate risks, according to the Am Law Litigation Daily, and the regulator is so serious about it that, every time a large settlement or verdict is announced that has a material impact on a company's financial statements, the commission is going to review that company's past disclosures to make sure they were complete. As a result, I'd imagine that next quarter, the SEC filings of the big banks will shed some light on the put-back risk.

Meanwhile, the 50-state foreclosure probe rolls on, as the attorneys general push back against bank industry PR efforts that suggest a deal is imminent. Likewise, the multi-agency federal probe is expected to last another month or two at least. Given how broad that inquiry is -- it looks at banks, MERS, and foreclosure intermediaries like Lender Processing Services -- I can only hope that two more months really is enough time to do the job right. The government cannot be seen as yet again protecting the banking industry at the expense of everyone else.

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w.jerico

My parents have recently taken out a reverse mortgage-At first I thought it was a horrible idea since we have had the home in our family now for many generations but after speaking to my lender they explained that my parents home be mine as long as I can pay off anything that the borrow.


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July 21 2013 at 1:23 PM Report abuse rate up rate down Reply
Wayne

here it is Nov 22 and would like to hear more about what is going on with the Banks and Congress. Still homes going foreclosed on with no real paper work or proof of ownership.

November 22 2010 at 11:59 AM Report abuse rate up rate down Reply
jerald3739

Its tough for one collection of crooks to have to put the finger on another set but thats what is taking place. The Government failed to oversee the banks. Their inspections were just lip service. Banks took advantage of this and made toons of money used to reward themselves with exhobitant bonus payouts. Politicians enjoyed huge "campaign" contributions. Now the walls of Jericho are tumbling down. This "better take another look" by the Government is just a delaying tactic while they look for another way to disguise the real problem--dishonesty--fraud. The sad part is that the average american will be made to suffer for the actions of these arrogant --words can't describe them

November 18 2010 at 9:22 PM Report abuse +1 rate up rate down Reply
ernieob1

Hey!!! Did anyone ever thought about coming back to the Glass-Steagall Act of 1933? It was repealed in 1999, and BINGO: HERE WE ARE AGAIN.

November 18 2010 at 7:01 PM Report abuse rate up rate down Reply
me817

The investors who purchased these securities were not rubes. But they were fooled, first by banks who sliced and diced tens of thousands of potentially good and bad mortgages into a "investment product" The banks were able to get the rating agencies to stamp them AAA, the highest rating based upon computer models that indicated that only a small percentage of the bad loans would default. Now, if you mix a glass of dirty water with a glass of clean water, is it still drinkable? Not really. But if you add in a little Cool-Aid, who's going to taste the dirty water. As long as the rating agencies didn't take a sip from the tainted cool aid, all was well. The money flowed in to the banks, they spread it throughout their brokers and no one lived happily ever after. The simple con game is usually the most successful. The mortgage backed securities con was brilliant.

November 18 2010 at 11:37 AM Report abuse +3 rate up rate down Reply