Matt says this is a potentially gigantic story. How so? A federal court has recently ruled that about half of the mortgage market has indeed been run as a criminal enterprise, for years -- which may well invalidate any potential foreclosure proceedings for about, oh, 60 million mortgages. The court ruled that the electronic transfer system used by the private company MERS -- a clearing system for mortgages, similar to a depository, that is used for about half the mortgage market -- is fundamentally unreliable, and any mortgage sold and/or transferred through MERS can't be foreclosed upon, at least not in Kansas.
All over the country, lawyers are now contesting foreclosures because of similar chain-of-custody issues. Matt will report more about this in his next Rolling Stone story, so stay tuned. At the very minimum, lenders and the banks were extremely sloppy about their paperwork -- perhaps there is instead an issue of fraud here? -- jamming up the system with missing and/or mismarked mortgage notes. Since a sale isn't legal unless there's full transfer of the physical note, a lot of the sales of mortgage-backed securities were not entirely legal, since the actual notes were often not transferred. So what are these millions of mortgage-backed securities now worth if the mortgaged houses in question cannot be foreclosed upon? Could their worth be negligible, or nearly negligible? And if so, what are the implications for the U.S. economy?
William Black is the former Director of the Institute for Fraud Prevention who recently explained to Bill Moyers how we got into this mess, who is to blame, and how it can be fixed. Black now teaches Economics and Law at the University of Missouri, Kansas City. During the savings and loan crisis, which ultimately cost American taxpayers about $500 billion, it was Black who accused then-house speaker Jim Wright and five US Senators, including John Glenn and John McCain, of doing favors for the S&L's in exchange for campaign contributions and other perks. The senators got off with a slap on the wrist. But so enraged was one of those bankers, Charles Keating -- after whom the senate's so-called "Keating Five" were named -- he sent a memo that read, in part, "get Black -- kill him dead." Metaphorically speaking, one must assume.