Thursday, October 14, 2010

Mortgage Disaster Ahead?

Will all those messed-up mortgages come home to roost in the rafters of the banks that bungled them? Wall Street seems not to think so; a minute ago the DJIA still stood above 11,000.

Maybe Wall Street didn't read The Washington Post headline: Lack of proper mortgage paper trail could leave big banks reeling again.

Beyond sloppy documents, the foreclosure debacle has exposed one of Wall Street's little-known practices: For more than a decade, big lenders sold millions of mortgages around the globe at lightning speed without properly transferring the physical documents that prove who legally owned the loans.

Now, some of the pension systems, hedge funds and other investors that took big losses on the loans are seeking to use this flaw to force banks to compensate them or even invalidate the mortgage trades themselves.

Their collective actions, if successful, could blow a hole through the balance sheets of big banks and raise fundamental questions about the financial system ….
Do we have a new threat to the wealth that wealth managers manage or a false alarm?

No comments: