Week in Review

The whole financial world here and abroad is positioning itself for the second round of  "quantitative easing" by the Fed to begin on November 3.

Last week, bond markets overshot hopes for the impact of Fed purchases of Treasurys with invented money, and this week yields have bounced back up. However, everything is on hold until we learn the duration, magnitude, and actual effect of QE2.

Adding to expectant tension: China's August exports to the US rose to $35.3 billion, and its imports from us fell to $7.3 billion. One effect of QE2 may be a currency war; despite the vulnerability to China feared by so many, these trade figures beg the question: Who exactly, needs whom?

The media, politicians, consumer advocates, ambitious state Attorneys General, and hungry lawyers everywhere have seized on RoBoForeclo, the nation's newest self-destructive mania.

Substance. Foreclosure resembles pregnancy in that one either has a mortgage in public record against real property collateral, or not; and one is either current on that obligation, or not. Every state and many counties have different statutes and procedures, but all have extensive time periods for the mortgagor to bring current a default, or to deny the existence of the obligation.

Substance. Despite frantic media digging, I have not heard a single documented case in which an owner lost a home who did not owe the money and was not in default.

We are a nation of laws, and hence procedures that must be followed; there should be embarrassment and penalties for bad-faith actors. However, when courts consider damage awards, separating actionable from incidental, culpable from sloppy, they ask who was harmed and to what degree. No one has been harmed in RoboForeclo.

Facts aside, this wounded and confused America, goaded to lash out may do terrible harm to what's left of housing and credit. A nation of scorpions in a bottle.

Mortgage servicers are a pain and have no friends. They don't deserve any. They send to us bales of mail and solicitations for things that we do not want. They make mistakes, and then threaten. They are organized to compress costs, which means -- as so much of the modern world -- they do not answer their phones. These are data-processing people, not underwriters, decision-makers, or "deal" people.

Mortgage bill-collecting ("servicing" void of service) began to separate from lenders and owners of loans with the creation of Ginnie Mae in 1968. Of today's $10.6 trillion mortgage stock, perhaps 75% is serviced by an entity that is merely a contractor to the owner of the promissory note. Servicers have no more to do with stupid and predatory lending than your car mechanic controls GM's design of your Chevy.

The natural rate of mortgage default in the 40 years before this disaster was less than 1% per year. In the 30-million-loan portfolio of Fannie and Freddie alone (no matter what shills and idiots say, the highest quality pool in the US), about half of the nation's total, 4.6% of loans today are 90 days or more past due or in foreclosure, and another 7.5% are delinquent. Perhaps ten times normal, and conditions are vastly worse for sub-prime, Alt-A, and Option Arm servicers. The Fannie-Freddie data resides at

http://www.fhfa.gov/webfiles/16687/2q10fprfinal.pdf

together with their servicers' immense burden to mitigate loans.

No big business can scale up ten-fold in 18 months. Imagine Toyota trying it, or Alcoa, or Exxon, or Microsoft. This RoBoForeclo lynch mob might recall the Fannie-Freddie regulator's demand last summer that servicers move faster to foreclose. Total filings, all loan types in September alone: 347,420 (RealtyTrac).

When I consider all of the real damage done in the Great Recession -- ruined hopes and dreams, honest and hardworking families simply run over, and the cheering at home-price declines by the hard-money liquidationists -- this national rush to pick nits by hangman's noose reflects an angry and pathetic helplessness.