off the pan and into the ether...,
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I was so wrong for so long it just proves that you can't be right...,
A University of Iowa study last year suggested that companies servicing mortgages are often negligent when it comes to producing the documentation to support foreclosure. In the study of more than 1,700 bankruptcy cases stemming from home foreclosures, the original note was missing more than 40 percent of the time, and other pieces of required documentation also were routinely left out.
This gives us some rough parameters for the shape of William Black's nightmare scenario:
A) because the biggest originators of nonprime loans were mortgage bankers, B) because every large mortgage banker that specialized in nonprime loans went bankrups, C) because many of them went into Chapter 7 liquidations and even those that went into Chapter 11's had little incentive to hang on to files on mortgage loans they had sold to other entities -- the loan files on many nonprime loans may no longer exist.
Under this nightmare scenario it will be extraordinarily hard to determine loan quality and losses and very hard to foreclose against borrowers that can afford attorneys (admittedly a minority) and that claim fraud in the inducement.
If a bank can't prove they own the home you're living in, they can't easily force an eviction and you can just keep living there with legal title. In that case, we have a quick and easy solution for the foreclosure side of the crisis that's far superior to Dean Baker's idea that home owners just pay market rent rates - live there for free! In fact you could hasten the economic recovery by immediately suspending your mortgage payments (if you haven't already!) on the expectation that the bank has no proof that you owe them anything, and redirecting that income towards the consumption and investment the banks are no longer supplying.
This would also seem to have the benefit of bringing a pre-mature close to the banking crisis by ending our doubts about the future of these loans: any mortgage without the paperwork would be assumed to be non-performing, bringing the banks who invested heavily in this steaming pile of fraud to a fast end and resetting the financial system through their ultimately necessary collapse.
By the time the banks found some legal recourse to lash back at the particular brand of civil disobedience, they should already be thoroughly stripped of any remaining assets and find the employment of the lawyers quite beyond their financial limits.
But I'm probably being too flippant. This is after all the nightmare scenario.
update: See, these fine folks need to lawyer up with some boilerplate and letterhead.