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Weekend: Profit from the Foreclosure Fraud

Written By Brian Hicks

Posted October 23, 2010

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

“All is well,” the White House once told us.

We’re in a continued recovery that just “won’t feel terrific,” Bernanke explained.

And now they tell us that foreclosure fraud shows no risk of systemic fallout.

The Obama Administration can say they haven’t found fault with loans, but examples beg to differ.  

USA Today reported the story of a Wells Fargo employee from South Carolina who said she signed 300 to 500 foreclosure documents in a single day…

That her only other responsibility “was to make sure her name and title were written correctly… Shown a foreclosure affidavit that she had signed in 2009, she said she did not know if the information was accurate. ‘My knowledge of this affidavit is very minimal,’ she said in the deposition.”

And there’s overwhelming “spin” that these are merely paperwork problems.

The funny thing is that those claiming it’ll “work itself out” have no clue regarding the liabilities associated with this stuff. A Washington Post article explained:

“If the basic principles of property law have been violated here… it may be extremely difficult to fix,” said a source involved in government oversight of financial institutions, who spoke on condition of anonymity because of the uncertainties involved. “There is a chain of questions that no one seems to know the answer to.”

Even the Financial Times tell us:

This scandal is a mirror image of the lax and often improper lending practices that grew up in the years before the 2008 financial crisis as Wall Street raced to extend mortgages in order to have fodder for asset-backed securities. They never took seriously the importance of lending soundly and thoughtfully to homeowners.

Sham documentation and clerical gaffes aside, the systemic risk here is troubling.

No one knows how many fraudulent mortgages and proceedings are out there…

Some banks are acknowledging there’s a multi-billion dollar disaster on the books, not just a paperwork headache.

Other banks — like Bank of America and GMAC are getting back to the business of foreclosure.

And why not?

These banks need these homes off their books. With more than two million homes in foreclosure and another 2.3 million delinquent, the banks can’t go on making no money.

But that doesn’t mean the problem is just going away…

The last thing we need is a million homeowners losing faith in homeownership or falling values.

Leave it to banks to spin

According to JP Morgan’s Ed Reardon, “In our view, many of the mortgage foreclosure problems highlighted in the past few weeks are process oriented and can be fixed in the near term.”

But they said the same thing about “manageability” during the subprime crisis…

Ever the optimist, the bank even projects a total of $55 billion to $120 billion in losses will hit the entire industry. But it’s nothing more than a guess; and it seems those figures assume that a small fraction of foreclosure losses will actually hit the banks.

Higher fractions, though, could get far worse for Wall Street and its precious banks.

Of course, the banks will say that borrowers are also at fault —that not all of them should be in homes they couldn’t afford in the first place.

But who was it that loaned the money to the borrowers who bought homes they couldn’t afford?

Who relied on mortgage brokers for loans, while knowing that the broker didn’t get paid unless the loan was issued?

Who allowed banks to put borrowers into income brackets they shouldn’t have been in?

It’s like leaving your college kid at home alone for the weekend, pretending to be shocked when the cops call you and tell you there’s an underage keg party at your house…

Truth is, the banks have dug themselves a nice little grave.

I recommend shorting the banks or title companies. They’re all coming down.

That is… until Bernanke bails them out with our money again.

Unfortunately, he’ll never learn that banks are basically run by mental midget con men who keep thinking up new ways to cheat Americans out of their money — most likely because he’s one of them.

But it’s not all gloom and doom… Below are profit ideas from this week’s top stories in Wealth Daily and Energy and Capital. 

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

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