Beyond this, it could also destabilize the banks themselves if they discover they technically still own millions of bad mortgages because they processed the foreclosures improperly. And, as previous reports have noted, big banks could end up owing billions from the foreclosure mess, mostly due to mortgage repurchases and legal fees.
While it might be tempting to take pleasure in knowing that banks feel some pain as a result of playing fast and loose with homeowners’ mortgages, this mess could seriously imperil banking institutions, and perhaps the economy as a whole.
“To put in perspective the potential problem, the mortgage-backed securities market totals approximately $7.6 trillion, so irregularities that affect even a small percentage of this market could have dramatic effects on bank balance sheets - potentially posing risks to the very financial stability that the Troubled Asset Relief Program was designed to protect,” the panel notes.
In a strange way then, we could be living through 2007-2008 all over again. The banks are public enemy #1, criticized for destabilizing the market, and potentially in need of another cash infusion. But who would be willing to bail them out this time?
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