Deep Forclosure Thoughts by John Mauldin

"Who will want to buy a mortgage that is in a securitized package with no clear title?

Who will get title insurance?

Some judge somewhere is going to make a ruling that is going to petrify every title company, and the whole thing grinds to a halt.

…If we cannot securitize mortgages, there is no mortgage market. We cannot go back to where lenders warehoused the notes. It would take a decade to build that infrastructure. In the meantime, housing prices are devastated. Whatever wealth effect remains from housing gets worse, and the economy rolls over.

…If I did something in my business like the stuff described above, someone would come in and justifiably shut me down, fine me, and ban me from the securities business.

…the FDIC is now running several of the banks (think IndyMac) that are part of this foreclosure crisis. These are the guys who are supposed to be preventing something like this.

The Subprime Debacle: Act 2

…All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.

And all this coming as European banks are going to have to sort out their own sovereign debt problems. Shades of 2008. I hope I am wrong, but it's all connected."

John Mauldin