We’re entering the “Bleak House” period of the mortgage bubble. The action has shifted to the courts. Worse, it will drag on for years and cost hundreds of billions of dollars.
As with Dickens’ mid-19th century tale of the English legal system, lawyers become enriched and families and communities get shattered one court file at a time.
So, what will the courts discover in our mortgage mayhem? That thousands of documents were ill prepared and possibly fudged because Wall Street couldn’t wait to get their hands on them for securitization. It was all about the bond market, stupid. Mortgages literally became back-of-the-envelope ways to get rich.
How much will this cost investors, banks and middlemen? I’ve seen estimates of $100 billion, although it certainly will be more if it swiftly envelopes mortgage and title insurers like Ambac, Assured Guaranty, MBIA and others; banks like Bank of America, Citigroup, Wells Fargo, et al; and mortgage servicers and ratings agencies like S&P, Moody’s.
To see what’s going on, I visited the nation’s largest unified court system in Chicago’s Cook County. To say that the chancery court, where foreclosures are heard and decided, here is swamped, as it is in other cities, is like saying the Pacific Ocean has a few drops of water.