Whalen, managing director of Institutional Risk Analytics, who earlier this month speculated the nation is only one quarter of the way through the foreclosure crisis, said the current situation is reminiscent of the early years of the Great Depression -- both in the severity of the crisis and the inefficacy of the government response.
"This is cancer. This isn't a sudden crisis that's going to erupt out of the ground like some monster trying to eat us. It's a slow, wasting process," Whalen told Bloomberg's Mark Crumpton. "Barack Obama is walking in Herbert Hoover's shoes. They're making the same mistakes, almost unconsciously."
An unforeseen consequence of the crisis, he said, is the blow to property taxes. When people lose their homes, they stop paying property taxes, and with states and municipalities in serious debt trouble, this will only make the situation worse. Whalen predicted disunity between Federal and local governments.
"We're going to have state moratoria, the way we did in the '30s," he said. "The governors of those states are going to say, 'Folks, stay in your homes, keep paying your property taxes, default on your mortgage. That's Washington's problem.'"
It's not just homeowners who are in trouble. Investors, Whalen said, should call their lawyers. In many cases, mortgage securities lack the notes that give investors their collateral. As Whalen put it, "the Street was very sloppy."
He discussed his own mortgage as emblematic. It was originated, he said, by Bank of New York and then sold to Lehman Brothers, who eventually packaged it in a security. But there's no court record of that.
"There's an awful lot of investors out there who don't know what they own," Whalen said. "This is a much broader issue than just contract law."
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