USA: the mortgage fraud reaches 60% and should cause a new financial crisis

That is what I understand from Washington Blog's latest report on this incredibly scandal of both dramatic and comic nature.

The case is that a ghostly entity known as Mortgage Electronic Registration Systems Inc. (MERS), with no employees, has been attributed with all mortgages by many banks and financial entities since the 1990s in a petty and ridiculously over-complicated attempt to avoid county recording fees. It creates a situation in which, according to established US legal principles, there is no mortgage whatsoever to begin with. Or more exactly: the mortgage exists but there is nobody actually owning it, or nobody with a clear claim to it, which may in the end render all those mortgages effectively void.

According to a law expert:

The mortgage is still owed, but there's going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you're stealing my money. You're going to then have trusts that don't have any assets that have been issuing securities that say they're backed by a whole bunch of assets, and you're going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they're going to do, and you're going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

You might? I'd say you will have all that happening in no time because housing is so extremely costly, the investment of a life in most cases, that any legal costs are worth it if you have a reasonable chance of getting your mortgage declared void, your payments returned, etc.

It is a clear case of someone being so twisted as to kick himself in the ass, but with this someone being a huge fraction of bankers and financial managers who should know better.

Another expert says that the actual loans were apparently not.

The incredible thing is that this massive fraud of law has been going on for nearly two decades unnoticed in the face of all, what increases the potential damage to the financial system as hardly anything could. It is already being compared to the Lehman Brothers weekend of 2007, but the Lehman case is clearly being favored in the comparison.

More expert legal opinions:

The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Id. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. Id. The mortgage loan became ineffectual when the note holder did not also hold the deed of trust.

And:

There is a compelling legal argument that loans originated through the MERS system fail to create enforceable liens.

And:

... in Chauncey [a legal case], the trial court, intermediate appellate court and New York’s highest court all agreed that the attempt to convey an “in blank” mortgage failed. The Court of Appeals explained, “No mortgagee or obligee was named in [the security agreement], and no right to maintain an action thereon, or to enforce the same, was given therein to the plaintiff or any other person. It was, per se, of no more legal force than a simple piece of blank paper.”

And there is more like that at the original article. 

So brace yourselves for the greatest ever legally valid private debt default in history. I have no doubt that the bankers will not fall without a hard fight but legally at least their case seems clearly lost, so they can only resource to illegal violence... at the central country of the current global political and economical status quo? Can they do that? Which will be the consequences if they resort to such extreme measures?

Brace yourselves, really.