QE2 and the stink leaking from the pit

We note today that the stink of death is leaking from the foreclosuregate pit. It doesn’t seem to have hit the markets yet, but we think it is only a matter of time.
Earlier last week we asked:

The loans on these foreclosed properties were on-sold ( in some cases many times ) into the MBS market. Given that the title documentation was not legally complete, then this should never have been allowed to happen. If there is legal doubt about the title of the securities on these “packages” then they are not worth their face value, and therefore will only trade at a substantial discount, if at all. Worse, If they are found to be illegal then what happens then ? Will the transactions be reversed?

The answer looks like it YES. As noted by Zero Hedge, Wells Fargo has now fired the starting gun on the de-securitisation process.

If attempts to refute the demand or MI rescission are unsuccessful, Wells Fargo will be obligated to repurchase the loan from the investor or accept the MI rescission. Likewise, Wells Fargo will issue a demand to the Seller for the repurchase of the mortgage loan pursuant to the provisions of the Loan Purchase Agreement or reimbursement for costs and expenses, if applicable.

This has the potential to cost the banks trillions, how could they survive. Well they could be declared bankrupt, completely nationalised, the non-government share and bond holders told bad luck, and finally the mess could start being cleaned up properly OR



It looks like QE2 will be arriving in port just in time to once again feed money back to the banks to fill the massive hole left by de-securitisation. Yeah !!!

So if you thought:

  1. The MBS market was about to go to the cr*pper.
  2. When it did, the government was once again going to backstop the banks while they were paying back the owners of MBS packages that they could not find documentation for;
  3. You had the legal firepower the make sure you got every last penny.

what would you do ?

Would you sell other investments and purchase as many crap rated MBS tranches as you could get your little hot hands on. Yes you probably would.

Disclaimer: The content on this blog is the opinion of the author only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author has no position in any company or advertiser reference unless explicitly specified. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult someone who claims to have a qualification before making any investment decisions.

Latest posts by __ADAM__ (see all)