Fraudclosure

Here comes the rain again
Raining in my head like a tragedy
Tearing me apart like a new emotion
--Eurythmics

One issue that is still flying below many if not most mainstream market radars is the 'frozen' mortgage foreclosure process. Foreclosures have largely ceased because banks skipped key steps during the mortgage origination and/or foreclosure processes--which now calls into question who has legal title to perhaps millions of properties.

Some of the best discussion I've seen of this issue can be found on Barry Ritholtz's fine site (scroll down thru the last week or so of posts for some excellent data and analysis).

The issue now for the banks is that they may have to 'put back' many mortgages to the borrowers--in addition to slow future mortgage foreclosures and origination processes to a crawl. Banks may also face fraud charges and civil suits.

This issue found CDS spreads on many banks blowing out this week. Many bank share prices also took a hit in the face of rising general markets. Bank of America (BAC) shares, for example, are off about 10% in two days on gigantic volume. B of A naturally claims that concerns are overblown.

Hard not to liken the present situation to the deterioration in mortgage markets in summer/fall of 2007 in the face of rising stock prices. That situation wound up setting up the trade of a lifetime for those with the gumption to get short.

position in SH