Want to better understand the big foreclosure mess? John Carney of CNBC's NetNet has a great primer. He explains how the crisis began, what the problem is, and what it might mean for banks and the housing market. Here's Carney explaining the doomsday scenario for banks:
The most damaging thing that could happen to banks would be the discovery that they simply cannot prove they hold a mortgage on a house. In that case, the loan would probably have to be written down to near zero. Even for current loans, the regulatory reserve requirements would double as the loan would no longer be a functional mortgage but an ordinary consumer loan. Depending on the size of the "no docs" portion of the loan portfolio, this might be a minor blip or require a bank to raise new capital to fill the hole in the balance sheet.
Read the full story at NetNet.
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