Congressional Oversight Panel sounds alarm on Forclosure-gate

The foreclosure-gate is getting some more serious scrutiny. The Congressional Oversight Panel which was set up to oversee TARP has published its November 2010 report (PDF) in which they say:

Clear and uncontested property rights are the foundation of the housing market. If these rights fall into question, that foundation could collapse. Borrowers may be unable to determine whether they are sending their monthly payments to the right people. Judges may block any effort to foreclose, even in cases where borrowers have failed to make regular payments. Multiple banks may attempt to foreclose upon the same property. Borrowers who have already suffered foreclosure may seek to regain title to their homes and force any new owners to move out. Would-be buyers and sellers could find themselves in limbo, unable to know with any certainty whether they can safely buy or sell a home. If such problems were to arise on a large scale, the housing market could experience even greater disruptions than have already occurred, resulting in significant harm to major financial institutions. For example, if a Wall Street bank were to discover that, due to shoddily executed paperwork, it still owns millions of defaulted mortgages that it thought it sold off years ago, it could face billions of dollars in unexpected losses.

The consequences are rising uncertainty over financial stability. The need to paper over losses at the banks was at the base of TARP, the Fed’s buying of billions of securities, the propping up of Freddie and Fannie and the strong-arming of FASB to drop mark-to-market requirements for all bank liabilities. This may all come undone in the next few months.

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