Fallout from the mortgage meltdown, who really owns your house?

Private property rights are a bedrock principle of our society. The Founding Fathers devoted significant effort into ensuring that those rights would be enshrined in our Constitution. But now, deep in the morass surrounding the latest mortgage and foreclosure scandals, we find ourselves facing a very real threat to those rights.

The plain fact is this, the problems associated with bad and/or fraudulent mortgage paperwork are not limited to properties in foreclosure. Oh sure the deadbeats are getting all the press. Government programs like HAMP are supposed to “fix” the foreclosure problem but their effectiveness remains elusive.

The good news is most of us are still paying our mortgages. Right? I faithfully write a check every month to our bank. And I have signed mortgage documents listing that bank as the lienholder. Eventually the loan will be paid off and I’ll own my home free and clear.

Or will I? When Fannie Mae and Freddie Mac invented the mortgage securitization business they were charting new territory. Sure loans had been bought and sold before, but never in pieces. How many of us know what tranches are? It’s French for “slices” and it means that mortgages were carved up into tiny little pieces and sold off to many different investors.

The monthly payment I send to my bank could literally be split between hundreds of different bondholders. In the complex world of mortgage finance each and every one of those bondholders could have a legal lien on my house. Or not. It all depends on the paperwork.

And unfortunately we’ve already seen just how untrustworthy that paperwork can be. That creates the underlying problem affecting everyone’s private property rights. If the chain of title is broken then nobody knows for sure who owns what.

Think about that. Even if you pay your mortgage you can no longer be certain that you own your home. What if the bank you’ve been paying is the wrong one? If your bank can’t properly document the title what’s to stop some other dude from showing up and foreclosing on you?

Think that can’t happen? Ask Jason Grodensky. He lost his house to foreclosure even though he paid cash for it!

“But Chris, what about title insurance?” Glad you asked. In theory it’s supposed to protect us against this sort of thing. In practice the title insurers aren’t sufficiently capitalized to start paying out billions of dollars in claims. And the hassles involved with unraveling the chain of title on millions of properties will overwhelm our legal system.

Right now no one is sure of what will happen next. And uncertainty is the mortal enemy of economic activity. Some title insurers have stopped writing new policies. Others are inserting exemptions for undisclosed foreclosures. Just imagine the mess that could create! Who in his right mind would buy a house under such circumstances?

Even worse, what happens when enough of us who have been following the rules start seeing the real world effects of indeterminate private property rights? Anarchy, that’s what.

Anarchy is very bad for business.

——

Cross-posted from WyBlog.us, where among other things you’ll note that VodkaPundit used one of my posts as the inspiration for this week’s installment of The Week in Blogs on PJTV.

Leave a Comment

Share this!

Enjoy reading? Share it with your friends!

Send this to a friend