Obsolete Certainty

Ticor Title, a mortgage title insurance company, has sued Countrywide over the title claim to a Chicago home that was reportedly bought and sold THREE TIMES during a period where the previous owner, Randy Johnson, sat mummified in a chair next to his dead dog.

The 2007 loan in question is a $360,000 first mortgage loan on a Victorian on the south side of Chi-town in which Tricor insured title. However, Ticor argues Countrywide was “reckless and grossly negligent in its underwriting of the mortgage.”

It seems that the owner Johnson had grown up in the house but seemingly dropped off the face of the earth in 2005. Cook County officials then discovered that a fraudulent deed had been backdated to 1996, which improperly transferred the property from Johnson’s deceased mother to a woman named Rhonda Evans. Evans then “sold” the house to a Donald Franklin who borrowed the money from Countrywide. The loan reportedly soon went into foreclosure and was then sold to another owner who discovered the bodies of Mr. Johnson and his loyal pet.

The Royal Bank of Scotland, the second largest bank in the U.K., posted a net loss which was the first loss recorded by the bank since becoming a public company 40 years ago.  However, the apparent good news is that the company believes that the $11.4 billion (U.S.) in write-downs announced earlier this year may be the only markdowns needed for the remainder of 2008.  Of course that hasn’t been true for other large banks, so we will all have to wait and see.

The mortgage meltdown continues as Freddie Mac reported a worse than expected loss in the second quarter driven by a $2.5 billion dollar provision for loan losses.  The second quarter loss of $821 million or $1.63 a share was significantly worse than analyst expectations.  Freddie will now cut the third quarter dividend and continue to seek new ways to improve the mortgage giant’s capital position.

Bill Gross, who manages the world’s biggest bond fund, estimates that the total write-downs related to the current mortgage mess will hit a trillion dollars.  Gross, manager of the Pacific Investment Management Company (often referred to as PIMCO) states that the total investment in “risky assets”, such as subprime and Alt-A mortgages, total $5 trillion. He estimates that 25 million U.S. homes are at risk for negative borrower equity.

Gross wrote that “The problem with writing off $1 trillion from the finance industry’s cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth.”