Foreclosure Crisis May Well Be Catastrophic In Any Case
John Cole asks a bunch of questions about what a foreclosure moratorium would accomplish.
I just don’t understand what good would come from a national moratorium. Forty state AG’s are on the ball, what exactly could a national moratorium do? The idea is to stop the bad foreclosures, not grind every single transaction in this sector to a damned halt.You aren’t hurting the banksters when you do something like that. You’re hurting every single buyer and seller in the market. It would be catastrophic. On top of that, under what legal authority does the White House declare a moratorium on a specific type of business transaction? How would that happen? Who would be in charge of it? Geithner? Warren? Under what legislative or Constitutional authority? [my emphasis]
At the start, let me say two things. First, I am a buyer and seller at the moment–a pretty cranky one about being in this limbo as this shit hits the fan, to say nothing about already losing 1/3 of the value on the house I’m selling (though I have the luxury of being in a month-to-month apartment, which means I would be less screwed by a moratorium on the purchase side). Second, I don’t think I–or anyone else–knows what the least bad solution to this problem is going to be.
But I do suspect it’s probably going to be catastrophic in any case.
John frames this as an issue of stopping bad foreclosures. But that’s not the problem, not by half. The problem is that the problems exposed by foreclosures in judicial states are problems that exist throughout mortgages that were securitized in the last 6-10 years. The reason the servicers are going to such lengths to make up for deficient paperwork–including robo-signing affidavits or counterfeiting notes–is presumably because for at least a significant portion of mortgages that were securitized, the paperwork is not in order. What we’re seeing through the foreclosure process is just what is getting exposed through the random sampling of foreclosure, and any other random sampling of securitized mortgages would presumably have the same level of deficient paperwork.
Perhaps the best description of the stakes comes from that hippie publication, CNBC. It suggests the problems being exposed by the foreclosure process are probably systemic, affecting a good portion of mortgages securitized in the last six to ten years (or more). Which means it’s not entirely clear who owns a good percentage of the housing stock in the United States, which could set off a free-for-all among those trying to resolve that question.
So with the chain of documentation now in question, and trustee ownership in question, here is one legal scenario, according to Prof. Levitin:
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.
Keep reading, if you have the stomach, for the suggestion that this could be worse than the Lehman bankruptcy if–as some think–every single loan written during this period was written without the proper endorsements.
This may well be catastrophic whether or not there’s a moratorium on foreclosures until such time as people start admitting what’s going on.
If that’s true (and as I said, I don’t really know, but that seems to be the obvious implication of all the fraud that was going on), then the question is, which catastrophe is going to be least bad for the American people? And which catastrophe best preserves the rule of law and property–the bedrocks of our country? Do we enter this catastrophe on the banksters’ terms, or on more equalized terms?
As I said, I can’t say I know the answer to that; I doubt anyone does.
But I believe one reason to halt foreclosures is because the current default state in foreclosures gives banks an advantage over homeowners. What banks claim in non-judicial states is assumed to be accurate, which puts homeowners who would want to challenge their foreclosures at a big disadvantage. That’s a problem in any case, but particularly given the mounting evidence that the paperwork underlying these mortgages may be questionable. The best way to fix that power imbalance is to halt foreclosures until it’s clear foreclosures have some kind of paperwork to justify a foreclosure.
It’s also a matter of admitting precisely what the problem is. When David Axelrod first announced the Administration position–admitting the seriousness of this but not supporting a moratorium–he said, “‘there are in fact valid foreclosures that probably should go forward’ because their documents are accurate.” But that endorses the claim that the banks just got sloppy with some foreclosure paperwork not with mortgage paperwork through the process of securitization more generally. The truth is, David Axelrod doesn’t actually know whether those foreclosure or mortgage documents are accurate, because no one yet knows the extent of the underlying problems with the documents.
And the ability to frame the issue, at this point, is the ability to control the timing of how this unravels. If it’s true the issue is the underlying mortgage paperwork and not just the foreclosure paperwork, then the framing that happens now will affect whether we deal with this catastrophe based on a one-page proposal over a panicked weekend (as we did in fall 2008), or whether we start planning for the best way to unwind a gigantic rupture to our system of private property. It will affect whether we, as a country, get input into the way to deal with the catastrophe created by the banksters, or whether the banksters and a few Administration officials do so in private. It will affect whether we get to impose some conditions on the banksters before we bail them out this time, or whether the real people continue to bear the burden of the banksters gambling.
And then there’s the question of what happens to these foreclosures in the market (and as I said before, I’m in the market). Granted, I’m a pretty news-savvy buyer. But whereas, as recently a month ago, I considered short sales and even foreclosures, at this point I’m looking skeptically at anything that might have been sold in the height of securitization. Either foreclosures should be regarded skeptically at this point, or peoples’ realtors aren’t informing their clients of the risks they should be. But if you’re putting foreclosures on the market that buyers should regard skeptically, you’re not helping anyone; because they’re just going to lower property values for all properties, whether or not they’re on the market.
And then there’s the issue of the President’s authority to do something about this. As DDay suggested, there’s the possibility that the regulators (Office of Thrift Supervision or Office of the Comptroller of the Currency, for example) would impose a moratorium. Or, as Alan Grayson has requested, the government could (and probably should) declare this a systemic risk, which gives them the authority under Dodd-Frank to do what they need to do to protect our system. That doesn’t make it legally or (especially) politically easy to declare a moratorium (as the deepwater drilling Obama imposed makes clear). But once you regard this as an issue that may affect securitized mortgages more generally (and not just some foreclosures), then the claim that this may be systemic seems fair.
Now, as I said, I can’t say I know more than anyone but the banksters.
Marcy, do you think there’s ANYONE out there — other than yourself and other distinguished FDL writers — who has a handle on even FRAMING THE QUESTION the way you have here?
Does Elizabeth Warren “get it”?
I’ve been traveling, so haven’t read Krugman or Stieglitz in a while. Do they “get it”?
Since the first requirement for finding a solution is to understand the problem, I’d sure like for there to be some work on THAT front, rather than what’s apparently the Administration’s approach: “what will be best for the banks?”
Karl Denninger has a pretty good take on this at What Must Be Done – Today.
This is a post that deserves to be sent to your elected officials in Washington.
Bob in AZ
Bob, I’m a little skittish re trusting in Denninger because of what I understand is his devotion to libertarianism.
Am I wrong on this?
Thanks for the cautionary note, but take a look at Denninger’s proposals and judge them on their merits. Look pretty good to me, but I’m open to his list being deconstructed here; perhaps I’m missing something.
Thanks,
Bob in AZ
I agree. the facts are the facts and Denninger has been reporting on them since 06. have yet to see any Libertarian flavuh in his reporting – you will see some of it among his commenters, but even they seem to hew to the facts
Looking at Denninger’s recommendations, they all rely basically on legal action. There’s no room in his action plan for *regulation*– which, of course, would require a government bureaucracy. That’s the only Libertarian slant weakness in his proposals.
Bob in AZ
First, it will be good to clarify what the halt is about. It is not about the original loan documents. It is about the documents filed for the foreclosure itself. The contention is that these documents were robo signed and not examined as the signature is supposed to attest.
So, the problem is THIS case is related to documents involved in the foreclosure PROCESS.
Through that old school yard exercise of one person in a line telling the next person in the line what they were told and the last person has a completely different idea of what was said, it seems to have worked into the idea that the problem causing the halt dealt with the loans themselves.
Now, there very well may be problems with the loans themselves, but that isn’t the bone of contention in THIS problem.
All that said, yes, it could conceivably develop into a much bigger problem. But, really, we all better hope it doesn’t because along with the banks, we will all go down the tubes. And likely, the big tube with grease on the sides.
This is really VERY tricky.
NO. You are repeating what the BANKS claim this problem is, but not what the evidence suggests it is.
There is abundant evidence there is a problem with the loans themselves.
So you have a choice of depriving people of their private property when you have reason to believe the case for doing so is flawed. If you’re wrong, then the banks eat a tiny bit of risk, particularly compared to the benes they’ve gotten. But if you’re right, then foreclosing robs them of their property unfairly.
Or you have a choice of letting the judicial system that governs private property the chance to work.
I understand what you are saying, but you are talking about another matter altogether.
Yes, as i said, there very well may be problems with the underlying loans. But, THIS problem, the REASON for the halt, is the documents related to the process. They are not stopping because of the loan itself.
Now, YOU may want them to do so, but that isn’t why they are halting sales. Remember, they are NOT stopping any actions of foreclosure PRIOR to the sale. They are ONLY halting the SALES temporarily.
What you are really talking about is “Who is going to eat the loss of value?” That’s on one hand.
also, if the people can’t pay the payments, and many can’t pay even modified payments based on what would be considered honest ratios, etc., they can’t keep the house.
The main point is that the market is too big to give everyone their equity back or continue loans without payments. There is not enough equity in banks–which really is YOUR money–to absorb that loss and not even enough in the US government to absorb it.
But, for sure much of society is based on criminal exchange–something for nothing. and by society, I mean all parts of society; invidual and collective.
I’m all for crooked banks and transactions paying the price, but if you can’t make the payments, you’ve got to do something else no matter what the original situation when the loan was made. You’re not being deprived of your equity because, in most cases, there is no equity for anyone.
Taking back the houses IS a big penalty because most of the houses are not worth the value of the loan, so there is a huge loss in most cases.
You’re making two assumptions.
First, that the homeowner can’t pay the mortgage. While this is probably true in most cases, in the absence of proof, no one knows and too many mistakes have been made to assume–as you and Axe are doing–that they can’t.
Also, you’re assuming the homeowner can’t make modified payments. Frankly, no one is making a concerted effort to do that, because no one is forcing the servicers to do so because teh Admin keeps giving up leverage it has over them. So on that count, I’m quite certain you’re making assumption that is unlikely.
Which is why I’m not addressing a different point. Sure, the banks don’t yet want to admit that the reason they’ve been engaging in massive fraud is because they lost the note. Which is precisely why society needs to do so, now, so we can work out a more appropriate solution than having the banksters destroy communities by foreclosing on homeowners w/o making a fair effort to modify the loans.
Also, I appreciate your concern for criminal exchange, something for nothing. But that’s precisely why we need to halt all mortgages–because the banks have been taking something for nothing for years now, and that needs to stop. If you’re concerned about property, you need to be concerned more about the assault on property the banks are making, because they’re having a systemic affect on it.
Until we have a real baseline…we can’t know what a borrower owes. I am willing to bet and have saying for years now, that these balances are not correct. My account number changed out of the blue in 2005. Numbers and balances change for no reason I can find on my statement. Every lawyer who has looked at my statements from GMAC has commented (and this includes the bankruptcy judge) that my statements are impossible to read for accuracy.
“they lost the note” that is the crux of the problem. If they cannot find it, one day the real note could turn up and then what? You cannot take away a person’s property on a guess, or forged documents, which seems to be what is going on. And if you buy one of those properties and someone turns up with a note, he’s going to try to evict you. I wish I were a lawyer. Lots of work out there I would presume. Then there is the case of all those CDS which could all go belly up. what a shit storm.
I am not sure the WH can fix this thing since the property is a local issue.
Interesting story,here:
Jim and Danielle Earl at HousingWatch.com
Oct 12, 2010… the previous owners of a foreclosed house in Simi Valley, … But Jim and Danielle Earl and their nine children returned to the home …
http://www.housingwatch.com/tag/Jim+and+Danielle+Earl/Evicted family breaks locks, reclaims home
NOTE:The couple said they were working with the bank to catch up on payments until they discovered a $25,000 difference between what they owed and what the bank said they owed. They were evicted from their home in July. The home has been sold, and the new owner was due to move in soon.
The Earls and their attorney are claiming that they were victims of fraudulent paperwork.
|
Oct 9, 2010 … SIMI VALLEY, Calif. (KABC) — A battle over a foreclosed home is … Jim and Danielle Earl, along with their nine children ranging in age …
abclocal.go.com/kabc/story?section=news/local/…id… – Cached
KTLA: Evicted Simi Valley family takes back its home | L.A. NOW …
Oct 13, 2010 … A Simi Valley family has reclaimed its foreclosed home in what is … Jim and Danielle Earl, along with their nine children ranging in age …
latimesblogs.latimes.com/…/ktla-simi-valley-family-takes-back-their-home.html
O boy. Talk about a shit storm. These motgage people have to be put in jail to stop this stuff. I don’t really know what went on here but it sounds bad.
Just an opinion, but when enough people begin to reclaim their homes, I expect the National Security advisor to declare these foreclosure investigations to be a threat to national security-and be stopped immediately. /s
That’s why the news that BoA is backing one of the big title insurers is such big news.
You can’t evict someone who bought your house even if you were unjustly evicted. The only one you have an issue with is the bank that evicted you. So it would go to the title company, which will either sue the bank for improperly evicting you (presumably enough to make right your claim and for dealing with the trouble). or the title company is going to pay you directly.
But the problem is title companies are NOT deep pocketed. So they won’t be doing this for very long. Probably you will see more people doing what BoA is doing–becoming the deep pocket for title companies, just to keep properties moving. But that means the banks are assuming they’re TBTF, that the govt will backstop those title losses.
Phew …. thanks for saying that. I thought I misunderstood your article completely.
Great analysis!
It may not necessarily be about the actual closing the homeowner participated in, but it is about a hell of a lot more than simply the foreclosure process, although it is certainly about that. See, after that initial closing with the homeowner, there were, in almost all loans, numerous other “transactions” where the note was sliced, diced, bought and sold. These are all very much in play too.
Again, that is your feeling about the general situation, but it is NOT why the banks are temporarily halting the sales. And, it is the sales only that are halting, not anything leading up to the sales. they are still going to give notices of default, etc.
Yes, I know that you hope it will be MADE into a larger issue, but it isn’t there yet. IN your mind, in parts of the press, but not with the banks.
That’s the ISNESS of it. You may suspect it, you have some proof of it, but that is not why the banks are stopping.
Get the difference?? there is the clamor and then there is the real actions and reasoning of the banks. YOu might disagree, and you might have good reason to, but that doesn’t mean that isn’t what they are doing and why.
Why should we care what the banks’ motivation is? Letting them dictate the terms of this is precisely the problem? Precisely since there are judges and prosecutors involved–they’re not much interested in stopping at the forged notes.
Here is the #1 reason:
NO ONE can buy a home in the US without a bank to loan them money. Oh, yes, a few very rich people can, but John or Jane Q can’t and NEVER will be able to.
So, a well functioning and low risk system of mortgage lending is essential.
The old system, not that long ago, was that no one got a mortgage loan with less than 50% down. Therefore, at that time, not many people owned houses.
Lots of changes made the lending LESS risky to the banks, and therefore, more people got loans. But, the basic of it all was this:
If all went to hell with the loan, you could always get the property back and sell it to get the money back–to then lend to someone else.
Really, in the real world, so what if the original loan docs were “lost.” You, as the home owner know what loan you agreed to–at least in the overall sense. If you’re not making the payments, it doesn’t matter if the bank burned the documents, lost them or pissed on them. You don’t deserve to keep the house and thereby keep that amount of money from being re-loaned to someone who CAN make the payments.
Kind of like the person who tells you they will give you a raise after 6 months of working and then tells you, “Do you have anything in writing?”
There is legal baloney and then there is your own personal integrity–which exists independently of anyone else’s integrity.
Now, I’m talking about payments that have been adjusted to a correct fit, or were a correct fit to begin–as likely 90% were to begin.
I know this is causing you a great deal of cognitive dissonance, but there hasn’t been a well-functioning system, not for some time. And the incidences of fraud are so widespread, letting the banks get away with simply abolishing the system of property and inventing one of their own that allowed them to change records at will is not the way to reinstate one.
Exactly!!!
How is it we have come to this, considering our near worship of;
1. The right to private property?
2. The sanctity of contracts?
3. The rule of law?
It seems from my perspective that we’re being asked to accept that all our rights are entirely conditional on the whether they inconvenience the rich and powerful.
As if King George wasn’t bad enough.
Perhaps the $141 Billion in Wall Street bonuses
should be put into an escrow account and used
to help unravel this mess. If anything is left
after that,the remaindar could then be distributed!
In order to foreclose on a homeowner in states that use a judicial foreclosure the banks holding the securitized mortgages need to show they are in possession of the original mortgage note.
Recently, when the banks cannot find this mortgage note, the banks are allegedly forging a mortgage note, thereby committing a fraud on the court, a fraud against the home owner, and a fraud on the investors whom bought the securitized mortgage under the express understanding that the mortgage notes were backing the securitized mortgage.
So yes, the banksters will say that the problem is with foreclosure paperwork. But this problem exists, because, in many cases, the original mortgage notes (the original paperwork justifying the securitized mortgages) were never transfered properly from the originator to the servicers or to the securitization guarantors/trusts. In fact as Representative Grayson stated in his letter to Geithner and the FSOC
(I quoted it before in a prior post)
Without foreclosure, the missing documentation wouldn’t be a problem (for the banks) or noticed by you until a few decades from now when you try to pay off your 30-year mortgage and find out the banks “lost” your papers.
Maybe the servicers/securitization guarantors were only interested in misplacing mortgage notes of homeowners deemed to be high risk for default (at the time of mortgage origination), in which case the banks will have an incentive soon (like right now) to lose paperwork on many of the low-risk homeowners’ mortgages, in order to cloud the pattern, especially if this industry undergoes an industry wide inspection by lawyers, judges and AGs.
Well the employment opportunities for this fiasco may jump start the economy. I was a fair investigator back in the day. I need up update my resume!
We cross posted. Good point. It could be expensive however flying all over the world collecting documentation that needs to be returned to the proper town/city/country.
I read that England is privatizing part of its postal service. Maybe they could get into the business of flying mortgages notes back to base.
Let’s take a moment to clarify the fact that it will not “conceivably develope into a much bigger problem”, the much bigger problem already exists, it was created at the time of the fraudulent and illegal non-assignment of mortgages to the investment conduits creating the MBSs.
We’ve already passed through the greasy tubes, it happened so fast that we hardly noticed and now we’re being asked to take advantage of an offer by our masters to just forget the whole thing in the interests of avoiding the disagreeable cost of throwing them in jail?
As liberalarts October 11th, 2010 at 12:47 pm wrote in a comment on another thread (26),
We’re gonna need a scorecard to keep all the groups of players straight.
Bob in AZ
Gee, and just a few short months ago some folks were worried that there was insufficient work for newly-minted lawyers. Law firms were rescinding their offers & laying off folks.
Looks like bonanza time now!!
This was intended as a reply to ew @ 4
Additionally, when the mortgage/trust deed is sold to a service company(second mortgages as well), as seems to be a general practice in finance today, either or both parties may have corrupted or disposed of required paperwork, so in my opinion, it’s endemic and not limited to foreclosures. Not only are home owners at risk but also mortgages with inferior positions.
And why just those mortgages? What about, also, mortgages that are paid in full? Who has the paperwork to sign back over to you after you complete 30 years of mortgage payments?
That’s the mortgage burning party us serfs have participated in for eons. When full payment is rendered, or refinanced, the mortgage holder/trustee reconveys title. It used to be a no brainer. Now the ability of said parties to reconvey is in serious question and so is clear title and ownership.
I hope in this day and age people burn a photocopy instead of the actual mortgage paper.
Makes me wonder what the current status of “squatter’s rights” is in our country, or is squatter’s rights something dealt with at the state level?
What has long been clear to those following this problem is that mortgage lenders attempted to pixie dust away their need to do the paperwork in the first place. Many now need to construct it from scratch; they don’t have it, told themselves and everyone in the mortgage-securitization chain it wasn’t needed. Pretending they could do away with the need for such paperwork was a central tenet of the securitization process, as was stiffing local governments of at least hundreds of millions in filing fees. How, what and when would you file, anyway, when thousands of parties own fractional interests in a mortgage and those parties frequently change hands? There are answers to those questions, but they were too cumbersome and costly for lenders to comply with, so they told each other they didn’t need to. Most of the original lenders, of course, no longer have an interest in their house loans, or only a fractional interest that Wall Street promised would be as fungible and good for you as a kernel of wheat in a grain elevator.
Systemic risk this certainly creates, and not simply to the securities or lending industry. It guts the 50 state-wide systems that document who owns land, and whether they own it outright or have granted liens to it to lenders, and who has an obligation to maintain that land and pay taxes on it. That’s part of the responsibility-free system of making money designed by Wall Street, and it has the nerve to decry the homeowners’ inability to pay their mortgages when due.
Much of the mainstream coverage of this issue has, like the administration, taken the lenders’ perspective – “Hey, these people haven’t paid their mortgages for months! They deserve to be kicked out; the “missing paperwork” is an administrative technicality.” Not or rarely heard is the consumers’ argument, that the banks constructed a system that depended on not needing the paperwork and simply hoped to power their way through individual problems one at a time, in isolation. They have also gutted bankruptcy and other consumer protections that hemmed in their ability to make money through fraudulent and deceptive or reckless practices.
The resulting legal nightmare is one of the banks’ own creation, like the monster Dr. Morbius created in Forbidden Planet: an invisible monster that can draw on all the power an entire planet, or the national banking and political system, can produce to achieve its own real, cruel ends. Just as predictable, the MSM coverage’s assumption is that if there is a problem beyond a few missing files, the govt will sing our crazy bankers to a peaceful sleep with a new TARP. Ugly, you bet this is going to be ugly.
One of the most important things the conservadem Obama administration could do is to re-institute cram down in bankruptcy for first mortgages. That would do away with quite a few foreclosures and bankruptcies and help pierce the oh, so resistant housing price bubble. Expect Mr. Obama to do that after he invites Marcy, Jane and Glenn Greenwald for an upbeat private breakfast meeting.
There would be a lot fewer foreclosures if banks were obligated to renegotiate their loans down to fmv, if multiple, exorbitant, wildly creative fees and penalties were null. Cram down would accomplish the first part of that, and Elizabeth Warren and other banking regulators could accomplish the second, if there were any amount of political will to do so.
Those anti-consumer rules were essential to the securitization process, because they made it much harder for borrowers to unwind or renegotiate their loans, which has ripple effects for every mortgage-backed security.
In another diary from earlier Tue, David Dayen tells a woeful tale that shows just how important it could be for the borrower to be able to locate the note —and therefore possibly a reason why someone might want to make that difficult. Mike Konczal in the second part of his foreclosure primer reminds us what the note contains that is so important to a borrower in distress:
Clearly, Tina Kimmel’s shivaree was topped off by the fact that the note was never produced where she could (have her lawyer) examine it and prove that even if she had been in default, which it seems at some point she was not, she would not have owed certain of the fees charged her.
A minute or two of thread music: “Milonga Picaresque.” That’s picaresque as in pertaining to the adventures of clever rogues. Or I think more likely in this case, “clever” rogues.
Consider the following:
Johny Lunchbucket owns a home, pays on time and has a real hard time doing it. He struggles to make ends meet, and worries constantly about tough choices he has to make. He works hard, loves his kids, baseball, and apple pie, and is a generally good American who wants to do the right thing. However, Johny has been watching his neighbor Jimmy Deadbeat not pay his mortgage for a year and a half and not only is Jimmy still in his house, not paying, living rent free, and actually making out way better than Johny because Jimmy doesn’t have to worry about a little expense called his mortgage payment and thus has a tremendously unfair percentage of more disposable income . Johny doesnt like it, actually resents the hell out of Jimmy, but Johny knows he is doing the right thing by paying his mortgage on time because he believes Jimmy will get his. Well, Johny is going to get up late on Sunday, flip on “Meet the Press” and start seeing talking heads discussing facts that quickly lead Johny to understand that Jimmy wont be getting thrown out of his home for living up to his last name.
Johny is pissed. Really pissed.
Thoughts start occurring to Johny. Thoughts like “Why should I bother paying MY mortgage on time?” and “I’ve been paying on time and have gotten NO relief, but I know of plenty of others who are way late who not only qualify for govt programs and modifications etc., but now CANNOT be even be evicted”
Johny gets even more pissed. Gets his wife riled up. Talks to his neighbors and co-workers about these and other injustices that Johny is fed up and mad as hell about.
So what does Johny do? He say’s F-U to the grassholes at the bank and stops paying.
There are millions upon millions of Johnys.
To me, this is the real systemic risk, because it cannot be controlled. Cannot. Can…..Not. Can? Not!
Perception is everything, and this prior scenario is very very real, and so is the systemic risk.
There are millions of Americans like Johny who have been barely able to hang on to their house and every month debate whether to pay the mortgage or….health insurance. Then mortgage or….second car. Mortgage or….food. You get the idea.
What if these millions upon millions of homeowners who have been on the fence about whether to pay the mortgage for months now suddenly have the same thoughts that Johny starts to have?
This is a classic moral hazard. And its real, and its happening already. Is Jimmy Deadbeat really a deadbeat? What would you do? Over the coming weeks more and more homeowners will reach the same conclusion that Johny and Jimmy have, and simply stop paying. And why wouldn’t they? The servicers collecting have no legal right to. Period. Hell, the servicers really have nowhere to send the money they arent allowed to collect anyway as claims were paid out via a CDS on the RMBS.
So back to Johny. Now that he and his millions have discovered these cruel and rather ironic twists, they just stop paying. But they don’t do it overnight. Mortgages run on calander months, so Johny and his gang have weeks to stew this over as well, thereby creating even more fear and uncertainty…for the banks!
They know this, and they know they have screwed the pooch, and they are crapping biscuits. BOA is being set up to fall on their sword very soon. Wells probably also figures that by not halting foreclosures yet, that BOA, chase etc will be in the crosshairs first just by virtue of the media attention and subseuquent run of defaults for reasons mentioned earlier.
Im sure the line of thinking is that BOA will go down first, promting the gov to step in with “Son of TARP” and to bail out the others. The issue is, that amount of money would be simply to big to bear, even for the US.
How can BOA stay solvent with no way to move their REO tape, million upon millions of new defaults CAUSED by the foreclosure freeze, dubious claims to title on all their other mortgage backed collateral and the amazing amount of litigation they are about to experience?
I can see a very quick nightmare scenario started early next week as these truths become evident to all these populist blowhard politcians screaming for a “foreclosure freeze” and BOA’s stock literally tanks overnight, causing the dominoes to all start falling just like 2 years ago, except its all gone so FUBARed that you cannot stop what has started. Next step, nationalization of the banks, and more than likely, the US govt. becomes de facto owner of most of the mortgages in America. Nice.
Even if it doesnt happen that fast, its still going to happen. Remember Johny and Jimmy? Well, they are real people. Thats what everyone forgot when they made these MBSs, that the bond itself were made up of little parts that were backed by actual real property and owned by millions of Johnys; you simply can’t jut sweep that under the rug because the Johny’s of the world have one simple piece of leverage, the ability to NOT pay on their mortgage, and suddenly have an almost unionized opportunity to unwittingly stick it to the banks. The question really is does this new found moral hazard not only stick its to the banks, but eventually to all of us?
Delicious irony to be sure.
Johny’s coming kids….and he is really pissed.
‘The question really is does this new found moral hazard not only stick its to the banks, but eventually to all of us?”
Banks have been fucking Americans for decades. Banks are the moral hazard. So lets protect the “BANKS,” BECAUSE WE WILL ALL GET FUCKED? Lets protect the institution of slavery because we might all get fucked?? Would you protect the behavior and deleterious effects of the alcoholic father, upon the family? Guess we have, as well a form of collective societal fetal alcohol syndrome? Maybe America should take a page out of the “Polish Solidarity movement.” STRIKE! Shut it all fucking down until the politicians respond to the needs of the electorate, not corporation’s lust for profit at life’s expense!!!!!!!!!!!!!!!!!!!!
People are not living rent free for years…right now. They are being foreclosed on and kicked to the street with literally thousands in debt following them and ruined credit. I am not saying this couldn’t happen down the road, but this is not the scenario…thousands have lost their homes, their credit to illegal behavior and bogus fees. All you have to do is google the complaints. People paying their bills on time were forced with insurance payments when they had insurance already and then foreclosed on with a bogus balance. The courts believed the banks. The courts were siding with the banks. It was very difficult for people to win cases against these banks. People had their mortgage company sold and suddenly had a new balance out of the blue and a new account number. They had to prove the loan amount did not belong to them. Again…it’s easy to show the statements etc…but the borrower was treated with incredible skepticism in these cases.
Morality has nothing to do with it. Most houses are substantially under water, that is the mortgage exceeds fair market value. Under those circumstances it makes no sense to continue to pay the mortgage other than to consider the payment rent and the price of living in the house.
It may be mortgagors can throw enough sand in the title issues to forestall foreclosure, (doubt it) but in the end it is the banks who are foolish in the extreme. They refuse to reduce the mortgage to fair market value,thereby encouraging the mortgagor to make reduced payments, pay taxes, insurance and the like. The banks have no hope of collecting deficiency judgments from mortgagors. You cannot get blood from a stone. The banks destroy neighborhoods and reduce property values, cause great pain with no hope of getting anything in return. Their (the banks and investors) money is lost. Foreclosure will not get it back. The government may continue to feed the banksters (big mistake). If it does, that’s an even better reason to keep people in their homes, paying on a realistic debt.
The title problems, though real-some title insurers supposedly are debating whether to insure the title of foreclosed properties and B of A supposedly agreed to indemnify Fidelity Title for losses due to defective foreclosure titles. These problems are less significant than the problem of homeless families and decimated neighborhoods.
You buried the lede:
That was the point of the exercise. One would love to hear what Naomi Klein has to say about this, because to me it looks like the beginning stages of land reform in reverse.
We’ve seen just how thoroughly the banks’ ownership of Congress works, last week with the notarization law. They passed that through in no time flat and almost got away with it – and with minimal if any lobbying. And we know what a whore to the banks Obama is.
This will not end well. Trust me on that.
roger that
I am not necessarily concurring w/ this fella’s conclusions, but there sure is a lot of similar sentiment being expressed
Land reform in reverse.
I agree that if this is the case, and it sure has some hallmarks that even I can spot, the scenario is potentially horrendous social-upheaval wise.
I have a question for anyone who cares to take a stab at it…
If the fundamental problem here has to do with the title (as in, no one seems to know who has it), then how would cramdown solve the problem?
Cramdown would forestall foreclosure, but as pdaly notes, that just means a person gets to keep paying on a house for up to 30 years only to find in the end that no one has a title to turn over to them.
So how does the title problem get resolved?
cram down would allow the judge to follow the title. It also would allow judges to “change” balances that are bogus or based on bogus fees so that we could get a real baseline on the value behind these mortgages. Almost all of these are padded with exorbitant fees and passed on…bought out with portions of these bogus fees in the mix. This is part of what made the real estate market peak. People were needed to ask for higher and higher amounts on their homes to cover these fees. For awhile, the market could withstand this, but the fees were bogus, not collectible but they were jacking up the stated value of these loans. This added a dimension to the mortgage crises that had never been there before.
This allows mortgages in bankruptcy to be reviewed. Right now bankruptcy judges see this stuff but they have no jurisdiction to stop it. In my case, the bankruptcy judge saw the fees (for hauling me in for non payment, legal and “miscellaneous” fees) and told the servicer to remove them. I was told at the time by my bankruptcy lawyer (chapter 13) that they would put the fees on the balance of my loan and that the bankruptcy judge could not force them to remove these fees. He said back then that we would have to sue them to prove that I owe those fees. The fees are highly unregulated, there are many loop holes and gray areas in regard to these fees. Once the judges could regulate this aspect of the loans, it would take away one of the most powerful means used to force people in to bankruptcy. The refinancing and Hamp programs only ended up refinancing the bogus pay off amounts WITH The fees. This is why even with a reduction in interest most people did not see their payments go down more than 25 to 50 bucks a month. THis was not enough to provide relief to people who had seen their payments increase in fees by as much as a third of the original loan payment.
My judge said two things while “witnessing” my case. One, that the statements provided were unreadable. That having hauled me in for non payment twice was negligent. And three, that the fees in regard to these bogus lawsuit for non payment against me, should be removed from my loan, but that he could not make them do this.
You can quote me all the laws in the world…but this is what is happening in the courts. This Judge is supposedly one of the more sympathetic to foreclosure fraud in Omaha. But her take on this was that she could not make them remove these fees without cram down legislation.
We are suing for them to prove what I owe…it should be very interesting in the end.
Thanks wavpeac, that certainly helps and I’ve learned a lot from your experiences over the years (cold comfort for all of your suffering I know : )
But, here is where I get confused… If the paperwork wasn’t done properly, was lost, consumed by roaming packs of stray dogs, what have you, then how can the judge “follow the title”? How does a title get recreated years after it was “lost”?
And further, how does the claim to the title get sorted out when the securitization process sliced it and diced it in such a way as to lead multiple parties to believe they have claim to that title?
I understand that cramdown will absolutely help, if for no other reason than slowing down foreclosures sufficiently to allow time for a resolution to the title problem. It’s just not clear to me how the missing/contested title problem at the heart of the crisis gets resolved.
I think we’re talking modification, not cramdown, as the solution here (bc most of the people whose loans will be affected are not in BK).
The thing that has been preventing mods thus far are the hopelessly conflicted motives: the first mortgage, second mortgage, and servicer all have different motives, and for two of the parties (second and servicer) they’re incented to foreclose, even though it destroys the value of the property.
But if no one owns any of this–or if they have to break IRS rules to assert ownership (one of the things preventing the trust from going back and fixing the paperwork is that the trust has been tax free for years, but would incur a penalty if someone went in to fix the paperwork now), then it becomes easier to impose a solution. Furthermore, if–as is likely–this threatens to expose the original fraud in the property values (the Goldmans of the world claiming this stuff was anything but junk), then you’re going to have real incentive to cooperate.
Frankly, I think we’ll see something like we saw with Chrysler: a lot of effort to claim this shitpile isn’t a shitpile.
But ultimately, the parties are going to be faced with either getting the homeowner to pay a significantly reduced amount in exchange for being allowed to fix the documentation, or selling the mortgage as what it now, unsecured debt which is worth far, far less.
Thanks EW. So the idea would be to simply start over and create new cleanly held titles and in exchange for their cooperation in this process the homeowner gets a loan modification that also comes with shiny new (and squeaky clean) paperwork. Right?
And as Nancy Pelosi would say banks, servicers, and investors would all get a haircut. ‘Bout time, the shaggy lot of them have appear to be quite disreputable ; )
I think that’s the best possible scenario — everyone, homeowner included, takes a haircut (which is an inevitable result of declining housing prices) but the question of who owns what and who owes what to whom is settled and closed. Very nearly everyone ends up better off under this scenario than under any other possible scenario.
So, looks like the Prex should be asking the lame ducks to pass cram down legislation that allows modification plus quiet title solutions, and then let the courts sort it out. But cram down goes with bankruptcy, and what we also need is cram down plus modification plus quiet title relief done as an alternative judicial proceeding that is not just foreclosure.
So what will Tim , who thinks banks care about avoiding injustice, propose!
No problem! We are now expert an extra judicial procedures, just set up a Military Commission to resolve this issues, and use drones ro kill the homeowners who do not cooperate!
Uh,by alternative proceeding, I wasn’t suggesting an alternative to the court system, only changing the issues that current foreclosure courts could consider and resolve.
Alas Scarecrow, I shudder to contemplate anything that Timmeh might propose. As EW reminded me on another thread, Tim couldn’t even figure out how to use TurboTax properly. How on earth he was confirmed as Treasury Secretary is completely beyond me.
Marcy,
Why is this the case?
On what gain would they pay tax?
This is best as I understand it.
The trusts are set up to be passive vehicles. That’s the basis on which they are tax free. If someone is “managing” the portfolio, then they don’t qualify for tax free status, and there will be a big IRS penalty.
The problem is not in the way title is held, but rather in the way it has been recorded and if the ways the recordation and subsequent transfers of the right to collect on the debt have been sliced and diced and if any or all of that violated the laws of the state where the property is located and if any of that violation is sufficient to vitiate the equitable interest in the property protected by the mortgage.
The way equity impacts on this depends on the state because there are at least three different ways title to real estate is held: deed subject to a mortgage, deed of trust, and one other I forget right now. You get very familiar with the forms used in the state where you practice and pretty much forget all about the other forms because you aren’t exposed to them.
There are two components to the title to land: the legal title and the equitable title. The legal title is reflected in the deed; it’s who the owner is. The equitable title is intangible but no less real, it’s used to enforce “what should be done”. This division between legal and equitalbe titles came about in early English common law, where creative lawyers split the titles thusly for one of the perennial reasons driving all sorts of things in Anglo-American history: to avoid royal taxes on land transfers (land being The source and measure of wealth back then). Issues as to the legal title were dealt with in the common law courts under the laws of contracts and property. Issues as to the equitable title and equity generally – “what should be done to effect justice” – were dealt with in the chancery (equity) courts run by the Church, where the chancellor (a subordinate of the Church’s ranking bishop) acted to enforce justice through use of the injunction to prevent unjust results from the law courts from taking effect.
When it’s a deed subject to a mortgage, the deed holder holds the legal title, subject to the equitable interest in the title protected (secured) by the mortgage. Remember – the mortgage is not the debt. It is an agreement to use the property as security (collateral) for the debt. The debt is reflected in the Note, which is enforced by suing in the law courts to get a judgment saying “debtor owes creditor $XXX”. Foreclosure is a procedure in the chancery (equity) courts where the creditor who holds the mortgage (i.e., the paper showing the land is collateral for the note) seeks to convert that intangible interest reflected on the mortgage paper (the equitable title) into actual ownership of the land (i.e., compelling the debtor to involuntarily transfer the legal title to the creditor). In other words, it’s a glorified judicial process not dissimilar to a repo man coming to take the car. You sometimes see people going through a “deed in lieu of foreclosure”, which is essentially the same thing – they give the creditor a deed (transferring the legal title) in lieu of forcing them to go through the pocess of foreclosing.
When you have a “deed of trust” state, the creditor holds the actual deed to the property (reflecting the legal title) and that deed is “impressed with a trust” in favor of the purchaser. That is to say, the purchaser does not own anything other than an equitable interest in the property – they are the beneficiaries of a trust which says, in so many words, that “so long as you make the payments, you get to keep the property and when you have paid the full amount we will convey the deed to you free and clear but if you default, the trust is over, we owe you nothing and we own the property outright.” The deed of trust system facilitates non-judicial foreclosure because the onus is on the purchaser to (a) not default and (b)prove there was no default if the creditor says there was. That’s all I remember about them, because I worked in a deed, mortgage and note state and that’s what I’m familiar with.
In deed-mortgage-note states, when the mortgage is paid, the mortgagee (the creditor) is supposed to provide a document called a “discharge of mortgage” (or something similar) to the mortgagor (the debtor). What the discharge of mortgage says (under oath) is “the debt has been paid and the mortgage is discharged” (“discharged” as in “over and done with and released”), such that the mortgage is no longer a lien on the title. When the discharge of mortgage is recorded in the books down at the county, it references back to the deed and the mortgage and a title searcher sees that “yes, there was a mortgage but it was discharged, so there is no mortgage.” In essence, the discharge of mortgage is a document reflecting the transfer of the equitable title from the mortgagee (creditor) to the mortgagor (debtor). Now the mortgagor (former debtor) owns both the legal and the equitable titles; in other words, all the title to the property. The legal and equitale titles “merge” at that instant and the property is now owned free and clear.
To return to your question, cramdown would help resolve the problem in a couple ways. First, bankruptcy courts are equity courts – they can fashion all sorts of remedies to make sure justice is done. They can force creditors to take a haircut, particularly when one asshole is holding out for every penny he’s owed and is thereby screwing everyone else. Cramdown is just another name for forcing someone – the mortgagee – to take a haircut. It would definitely come into effect because the bankruptcy court would be able to (and definitely interested in) looking behind the poapers of the transaction to see whether there is any fraudulent conduct going on there – on any side. If they find the creditor is trying to collect a fraudulent or fraudulently-induced debt, that debt might be wiped out. And, most importantly, the bankruptcy court gives people – the debtors and the creditors whose debts survive the bankruptcy – a fresh start. It’s the ultimate “looking forward and not looking back”. Creditors would get two important benefits out of cramdown: (1) they would have some definition to who owes what to whom and the bogus claims would be wiped out, and (2) they would clean up their balance sheets by compelling them to record their assets and liabilities at a true value. Right now, no one knows what these bundles of mortgages are worth, and no one knows who owns the right to collect them.
The problem is, unlike Don Corleone, these banksters do not want to hear bad news immediately. They want to push it off into the future by which time they can either schmooze their way out of it or bury it where they think it will never be found and exploit the gullible for their profit.
I neglected to mention: cramdown is something only available in bankruptcy. You have to file for bankruptcy to go through a cramdown. (Even then, because of the 2005 amendments to the bankruptcy code, you might not be able to get to a cramdown because it might have been ruled out by statute for someone in your position.)
While forclosure is a judicial process (in judicial-foreclosure states) the only issues presented to the court in a foreclosure are: (A) is the foreclosing plaintiff entitled to compel the defendant to convey legal title to the foreclosing plaintiff and (B) does the defendant have any valid defenses to foreclosure? This is why many states preclude a foreclosure defendant from pleading any defenses which are not germane to those two issues I’ve named. Fraudulent conduct by the plaintiff (or someone ahead of them in right to foreclose) might, or might not, be something addressable in the foreclosure.
Allowing loan modification outside of bankruptcy – which many are (sloppily) calling cramdown – would make this process of rectifying the mortgages a lot more available. You would not have to go bankrupt to get your mortgage fixed. Even though going bankrupt is not as bad a thing as the bankster-preachers would have you believe, there are a lot of issues which come up in the context of bankruptcy that are not necessary to rectifying someone’s mortgage. But the equitable power of the courts to rewrite the mortgage is currently not available outside the bankruptcy courts and those few equity courts hearing foreclosures that have decided the mortgages are invalid.
So is new legislation required to make loan modifications possible? Or is it just a case of banks willingly accommodating such modifications out of their own self-interest (i.e., avoiding exposure of fraud)?
Right now, there are big gaps in how modifications can be effected.
For people who have enough assets and liabilities, particularly second homes, cramdown is available. IIRC, it’s not currently available in Chapter 7 (not that Chapter 7, post 2005 amendments, is reasonably available to the ordinary debtor anyway). IIRC, it’s not available in Chapter 13, which is where ordinary debtors are shunted. IIRC, it is available in Chapter 11, but Chapter 11 requires debtors to have pretty substantial assets (and liabilities) to begin with, and the debtor pretty much loses control of his life when he files an 11 anyway.
So, there are big gaps encompassing most of the average people who might file bankruptcy, where cramdown is not available.
The mortgage modifications are not available unless the creditor wants to cooperate – you can’t just go to court and sue your mortgage company when they won’t cooperate in modifying your mortgage. It’s purely voluntary on their part and they don’t want to. The creditors’ systems are set up not to modify mortgages (because that means they realize a loss) but rather to push people into foreclosure and the deficiency judgment where the bank winds up owning the foreclosed property (an asset on the bank’s books) and a judgment for the amount owed (also an asset on the bank’s books).
As I said above, there’s very little basis to bring up a loan modificiation in a foreclosure suit because those issues are not before the court.
So, right now, there are gaping holes in getting loans modified.
Of course, this would all go away if there were decent-paying jobs for people, who could then pay their mortgages. But these banksters, even if they are not short-sighted, are still up against their own systems which prevent them from doing the sensible thing and putting people to work.
Thanks again scribe. Although I’m not sure this bit is quite correct:
Even if people are paying their mortgages, that doesn’t clean up the underlying title problem, does it? Over at The Seminal Cynthia linked to a story by Diana Olick where she quotes a lawyer who points out that this isn’t just a problem with mortgages in foreclosure, it extends to performing mortgages as well.
Yes and no on the title problems. It winds up being a matter of the pace of things. If people have jobs and pay their mortgages, the rate at which title problems in foreclosures will take place will be slower and they will not get to be the bums’ rush avalanche we are looking at now.
As to performing mortgages, the title problem only becomes a problem at the end, when either the owner sells or the owner completes his payments and wants his discharge of mortgage. If he can’t get the servicer to produce the discharge, the sale will not go through until the servicer does – the title insurer won’t allow it. If the servicer won’t provide a discharge of mortgage when the payments are completed, the property owner sues for one – it’s a relatively simple suit, and shows their payment history to compel the servicer to produce one. The payment history and lack of a foreclosure work strongly in the owner’s favor and against the servicer’s in such a situation. To be short about it, if you come in and show the Court “I’ve made 30 years of payments. They took the money, never complained and never foreclosed.” the judge is going to say to the servicer “give them the discharge” and often “pay their lawyer’s fees”.
The discharge of mortgage pretty much closes off challenges to the validity of the title. Which is why its important to have it recorded.
So, at the point that the judge tells the servicer to “give them the discharge” and “pay their lawyer’s fees”, the homeowner gets the title free and clear, even though the past documentation was totally screwed up?
If that’s the case, then perhaps the banks that promulgated this disaster just figured that in the end things would sort themselves out and they wouldn’t have to worry about their crappy paperwork standards.
Did they really not foresee how things would go fubar fast in the event of mounting foreclosures? Did they really not anticipate that outcome given the fast and loose way they were approving loan origination? It’s pretty stunning really that people who should have understood all of this either didn’t or didn’t care as long as they were collecting their bonuses.
I don’t see how anyone can portray banks as the victims of unscrupulous buyers here. And what’s worse, is they appear to have no compunction to take down the global economy, so long as they hit their own internal quarterly targets and keep those bonuses rolling in.
So much for Alan Greenspan’s self-correcting markets.
Thanks so much scribe, that’s really helpful, even though I’m still a bit fuzzy on the concepts of legal/equitable titles and common law courts versus equity courts. Some days I am thankful I am not a lawyer ; )
Just remember, as a part of law school we lawyers have to go back to 1066 to get to the present. I would really lose you if I were to try to explain “enfeoffment with livery of seisin” or “fee tail”. Suffice it to say that the demise (only in the last 50 years) of enfeoffment with livery of seisin means you no longer have to show up with a lump of dirt from the garden when you sell your house and fee tail is not a code word for prostitution.
I love reading history, that requirement would almost tempt me to sneak into a law school… Almost ; )
It’s not taught as history, unfortunately. It’s taught through the Socratic method.
Interesting for this Louisiana non-common law lawyer to hear about equitable and legal title. In Louisiana title is not split. The mortgagee just has a security right in the property which is owned in full by the purchaser. And we don’t go back to 1066, just back to the French revolution.
The title and foreclosure stories are a lot of flash and sizzle.
The underlying point is that this could be the end of capitalism as we know it. Our economic structures rely upon contracts; if the contracts (i.e., mortgages, securities) are forgeries, then we have no contracts. Which means we have no capitalism.
See scribe @30. Ominous, potentially.
Coasting along as we are, the MOTU are still in charge. The only way to change that, ISTM, is to make it an issue that Congress gets all riled up about– and since so many of their constituents are involved, Congressional hearings should be a no brainer.
However, our congresscritters seem too often to check their brains at the door when they enter Congress.
Bob in AZ
The Obama’s have a 2005 30 year fixed rate mortgage:
Obama Got Discount on Home Loan; WaPo, 7/2/08
I wonder how many pieces that’s in and where.
Foreclosure fraud has a bunch of scans from O’s mortgages showing that the signatures don’t match and therefore were probably robosigned.
People have looked at Obama’s loan – he was a victim of robo signers too:
http://www.zerohedge.com/article/4closurefraud-exclusive-%E2%80%93-president-obama-falls-victim-chase-robo-signer
not to force them into bankruptcy but to force foreclosure..which is how they make money.
Is it possible that to save a couple of bucks the paperwork was outsourced (shipped)to data entry firms in India and Pakistan ?
Then they used the docs for starting fires and toilet paper ?
Where’s the original docs ?
via Cynthia Kouril
in this deposition of Tammie Lou Kapusta she cops to outsourcing, believe it is Phillipines and Guam
she worked for a foreclosure mill retained by Citi in FL. Citi officially fired them Monday
The original docs are there, but they don’t have the paper trail marked on them for each stage of the process, which makes the trusts invalid.
You know how when you sell a used car you have to sign over the title to the new owner? Well, that’s just like this (and the trust required those papers to be signed over in a particular name).
One of the reasons people aren’t admitting that is bc if they do, someone will be held responsible for selling shitpile as something worthwhile.
Comes down to SEX doesn’t it.
Remember that AG Spitzer getting it on , in private, with another woman.
Without wiretapping who would have known?
Just what was he investigating when he got busted.
What they call a clue at the FBI….. New York , ie Wall Street, was committing huge fraud and he was on to it.
But he was screwing a woman for money.
After he was busted bush pulled out some 1863 law to prevent all of the states AG from investigating fraud,remember.
So Puritan America sure put it to the guy who was screwing around but in the end we screwed ourselves worrying about who he was screwing.
Yeah, a lot like Clinton – eh? Waste money on distracting the credulous dull voters with a lot of “look at how the Democrat effed up & screwed around on his wife… ohmigawd CAN you believe it??” And yes, then the ReTHUGS charge in and shut down the investigations the Spitzer was doing.
So the moral hazard was NOT permitting a Democrat to get away with screwing around on his wife & spending his own money on hookers ‘n blow. Yeah, it was super dumb of Spitzer to do that, but if Spitzer had been a Republican, the voters would have turned their heads, looked the other way, and voted him again in a heart beat.
It’s all so clear what’s going on, and it ain’t about hookers, blow or adultery, is it?
And now the ever-dumb US populace will continue to vote against their own interests and/or vote in every more whackaloon T-Partiers. But what does it matter? The Oligarchs and the corporations have us by the short & curlies anyway.
I sure don’t see this mortgage crisis ending at all well. I must say I’m glad I don’t own property bc it’s a dicey proposition these days, and that’s for darn sure.
But the corporations will get away with it, as will the banks, and alreay Wall St is trumpeting that they WILL get their giant bonuses this year, so eff you: they got theirs.
Kassandra added to this pattern the case of John Edwards’ presidential campaign. His platform was perhaps the most populist of the lot, so he’s the one who got skewered for sexual pecadillos. Not to defend Edwards in that regard– what he did was inexcusable. But press standards have changed since the days of JFK.
Bob in AZ
Many thanks to Scribe for the informative comments!
I was a Title Insurance Producer and know that these banks have formulas for how many people will lose jobs or be irresponsible with mortgages and they had to have known something very bad would happen.
Meanwhile Kelly ignored my concerns when a company was busy closing all they could, forging my name to a mortgage and sending it in for funding, which is wire fraud. This is DOCUMENTED.
http://christopher-king.blogspot.com/2007/08/kingcast-says-nh-ag-kelly-ayottes.html
http://i14.photobucket.com/albums/a335/christopher1/Fraud_1.jpg
http://i14.photobucket.com/albums/a335/christopher1/Fraud_2.jpg
Now she threatens me with arrest for raising this and other thorny issues when I see her on the U.S. Senate 2010 campaign trail.
http://www.youtube.com/watch?v=_BY5JJGezpQ
I was a Title Insurance Producer and know that these banks have formulas for how many people will lose jobs or be irresponsible with mortgages and they had to have known something very bad would happen.
Meanwhile Kelly ignored my concerns when a company was busy closing all they could, forging my name to a mortgage and sending it in for funding, which is wire fraud. This is DOCUMENTED.
Now she threatens me with arrest for raising this and other thorny issues when I see her on the U.S. Senate 2010 campaign trail.
David Dayen has a fresh cross-post ready: Nineteen Dem Senators: Don’t Appeal DADT Ruling
Just a hypothetical and question: Even if there is no moratorium on the Federal level, doesn’t a big chunk of his fall on the Title companies shoulders? Not so much the blame or probable past ills of being fooled themselves or being lax, but in going forward.
Title insurance insures that there will be no future problems with the title when someone buys. Title companies could be empowered, and use that power, to enforce that the records clearly reflect who holds the title. Meaning, if I were a Title Company, I would not be selling people a possibly defective product especially during this time.
So, again, even with no moratorium, if lenders want to sell, people can financially buy, and title companies make money, seems they have the power to keep the sells going, by not selling title insurance unless the lender produces valid paperwork. If I understand it, a buy or sell can’t happen without title insurance.
I think you have a good point. I also suspect the title companies could already be on the hook for all kinds of trouble. Next thing you know they will need a bail out as well. In fact, you have to believe that they would not want to give you title insurance today without some real proof the title is clear.
Yes. Though note above: BoA is backstopping its title companies. Which is all well and good in that it will be able to continue moving properties. But it also means BoA will carry the title on the properties that it is trying to move.
“Frahm would not publicly announce what assurances Bank of America Corp (NYSE: BAC) provided against Fidelity National to reach the agreement.”
From the article you linked to: The “assurances” BOA probably “provided” was massive threats of lawsuits against title companies for selling a bad products to pass the blame off to them. Or threats to reveal the probable kickbacks and tax evasion.
I have no trust for Fidelity. In the hay day here, I watched Fidelity pay a “moving company” over and over again. They would rent new “offices”, move to the new offices, sell offices, buy new offices, move the furniture to “storage” facilities, buy and rent again and move again.
I can only imagine how much they payed in moving cost and storage “expenses” they could write off.
Denninger’s article is a good start but it glosses over the biggest problem of all – that for millions of these loans, nether the banks nor the trusts are ever going to be able to prove they actually own the paper.
As an attorney, my first reaction is to say screw ’em: if the banks and trusts can’t bother to follow the standard recording and mortgage transfer procedures as mandated by law, they have no one to blame but themselves if they later find out they can’t enforce their debt instruments – just like anyone else who gets sloppy with their legal paperwork.
But if we tell the banks and trusts they’re SOL, the real problem then becomes what to do about all of those former mortgage holders who now get a free house. After all, the economically distorting affects of moral hazard exist any time anyone gets a free lunch, and I would not underestimate the corrosive societal reaction to a lot of seemingly profligate homebuyers suddenly finding themselves on the receiving end of a property windfall.
The answer, I think, involves the original FHA loan insurance. Even though no one can prove who actually owns the loan, the FHA can always still prove it insured the loan, and therefore can prove a vested interest in assuring its payment. In this scenario, the FHA becomes the mortgagor of last resort for homeowners to make payments to and to quiet title once the mortgage is paid off.
To me this seems like a fairly simple solution that wouldn’t actually involve any new legislation. Is there something I’m missing?
All those loans NOT insured by FHA?
But that’s why I think Fannie and Freddie are more likely places to work this out, since they at least in theory own these properties.
Maybe. But the problem there is that while the ownership interest (title?) may be in the hands of the Fannie and Freddie, as I understand it these entities don’t hold any paper with an actual existing dollar amount that can be enforced for collection.
Basically, Fannie and Freddie would have to simply make up a number that the homeowner owes and then force them to pay it. I’m sure you can appreciate the problems that would cause.
FHA, on the other hand, does actually hold an existing financial interest in the property with a specified dollar amount. So there’s no need to guess what the homeowner owes.
One problem at a time.
Actually, the more I think about this, the more it seems that Freddie and Fannie’s may not actually own anything at all.
After all, they bought these mortgages from the same bankster originators who sold all that sloppy paper to the trusts. Why should one assume the mortgages the F&F bought are any more valid?
emptywheel, please give some more thought to this FHA idea. Basically, it says to the homeowner, “OK, we’ll take the sloppy bankster liens off the title in return for repayment of the loan insurance.”
Simple, elegant, and grounded in existing law. What more could a Progressive want?
I have been saying this here, but I will just say again that when I refinanced my home a couple of years ago, the mortgage ended up with GMAC. I have done my share of RE transactions over the years and have always had closing documents. My “closing documents” from GMAC all say “ESTIMATED” where the costs should be. When I asked for final documents for tax purposes, they sent me the same docs with the “estimated” costs on them. I have never known what the final documents say, if they exist.
I did not get cash out and am in not likely to default, but this situation has always made me crazy. I don’t think anything about this was proper.
Late to the show.
For those with some time here is a deposition ( warning 170 page scribed document) taken in April 2010 of William Hultman (Secretary and Treasurer of MERSCORP) a 12 year employee of various firms named MERS and similar. Sometimes the exact same name being used for different corporate entities claimed to be different from each other.
Hultman describes his position as secretary and treasurer of Mortgage Electronic Registration Systems Inc. Hultman describes his employer as Merscorp Inc. where “I’m senior vice president and corporate division manager and I also have— I’m also the secretary and treasurer of that corporation.”
Hultman claims he was authorized by the board to appoint assistant secretaries- to have signing powers for MERS.
Many interesting and disturbing revelations.
In the last 4 pages it becomes clear that there may well be no actual “real” corporate records concerning minutes of the board (of MERS and others related), adopted resolutions of the board(of MERS and others related) and so forth. There is discussion of how corporate resolutions are dated and signed years after their purported adoption by Hultman (one such being provided by MERS in discovery) – as what he describes as a true record. Copies of these records are printed and then signed as needed for distribution (when subpoenaed one wonders).
Lost the cite where changes in the banks names are retroactively applied to the mortgage records in the MERS system, thus it is possible for the corporate bank entity to be listed in the mortgage records prior to the existence of the bank entity. The implications of that are obvious.
A previous situation came to mind.
“Bernie Madoff’s Dummy Data Center“
On that ntote, JPMorgan just dropped out of MERS.
Saw that just after my comment.
I know this is a little OT but don’t you think there are just too many folks who don’t give a nut about anything? Just thoughtless, careless or “they told me to do it.”
the President and the govt will protect the banks, peolpe be damned.
You read reports, and the AGs talk about rampant, unlawful, adn foreclosures on some who should not be foreclosed on. This is all ready a catastrophe for people. Oh, but we better protect the banks. It might get bad for them, and we might need to give them another trillion dollars or so.
Pathetic administration is pathetic!
Reading through the comments above and in several prior posts by Dave and Marcie, I haven’t seen this aspect of the foreclosure process addressed. I’m only familiar with the foreclosure processes in Minnesota and Wisconsin but I’d be surprised if they differed too much elsewhere.
What’s I’m talking about is the fact that foreclosures are often carried out by “advertisement” and go through no judicial proceeding. All that’s required is that there have been a default in the mortgage and that all of the mortgage and any assignments have been filed and recorded. Then there is a sheriff’s sale and the forecloser gets a certificate, subject to a redemption period. The occupant of the foreclosed property is entitled to notice of foreclosure, but there’s nowhere that a mortgagor can require the forecloser to produce original paperwork. In many cases it might not be possible to determine if the documents have been forged, if that’s the problem. A moratorium which required mortgagees or assignees to prove that they were bona fide might be in order.
Yeah, that’s largely what at issue here. You gotta do something to at least give those being foreclosed in non judicial states notice of teh fraud and some easy way to challenge the foreclosure. Or, a moratorium until the banks can honestly claim to have cleaned this up.
Here’s an answer: FANNIE and FREDIE buy up all of the CDO’s, thus freeing up the banks to make more loans. While the CDO’s are being unzipped, the tax payer is on the hook for all of the fees to unzip the CDO’s. Once all of the CDO’s are unzipped, the tax payer is on the hook to resolve disputes for the same loan being sold to multiple investors. Since criminal prosecution would result in an additional cost to the tax payers, Obama decides to not spend any more money to solve the problem. Problem Solved, FUCK the TAX PAYER!!!
I predict at the end of the day lawyers will be made rich by all this (as well as a few state AGs) and we’ll have more and more paperwork to sign when we close on a house.
Whatever the terms arrived at in this mess, the train of bailouts of banks, mortgage firms, and especially GSEs is bound to push inflation into hyperdrive at some point, I’ll be bound.
I don’t know what the solution to the problem is. What I do know is who caused it: greedy, sloppy lenders. It pisses me off to no end that borrowers are required to jump through infinite hoops, provide documentation up the Whazoo, make sure every scrap of paper is accurate and up-to-date, and exercise extreme caution that every ‘T’ is crossed and every ‘I’ is dotted. But these Mother-Effers and those who service the mortgages get to sling the paper-work back and forth like the Keystone Cops having a pie fight. Then when the proverbial shit hits the fan. guess who gets to pay for the clean-up? None other than John Q. Public, the party who had nothing to do with creating this gigantic Cluster-Fuck.
It was a get-rich-quick scheme, aided and abetted by little or no regulation. “They seen their opportunity, and they took it.”
Bob in AZ
Geez this thing is getting bigger all the time. HP is now reporting 50 states have some sort of moratorium. It has yet to hit the equity markets but if this is as bad as some suspect it might. Another TBTF crisis could be looming. Or maybe it’s just pitchforks and torches.
Draft paper by a U. of Utah law professor:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1684729
Author’s web page, with links to more papers:
http://www.law.utah.edu/faculty/faculty-profile/?id=christopher-peterson
The first link is from a comment on this WSJ story:
http://online.wsj.com/article/SB10001424052748704164004575548521288988444.html
More interesting commentary:
http://bucks.blogs.nytimes.com/2010/10/08/title-insurance-share-your-experiences/
The professional organization for title insurance, with various story links:
http://www.alta.org/
As noted above, the banks are starting to dump MERS. Remember how MERS was set up to get out of paying filing fees?
Well, I hope those counties (which can use the money) stick it to MERS or the banks when they show up to try and fix this mess:
http://www.nakedcapitalism.com/2010/10/the-wheels-are-coming-off-in-mbs-land-all-50-state-ags-join-probe-banks-abandoning-mers.html
It sounds like “Housing Bubble part II” to me.
Wherein the shit finally floats all the way to the top.
Deja vue all over gain.
Banks’ Foreclosure ‘Robo-Signers’ Were Hair Stylists, Teens, Walmart Workers: Lawsuit
What this is, is a Gordian Knot. The only way to untie it will be through legislation that is as powerful and simplistic as a sword. I give chances that this sword is working for the middle class about 10%, because I’m in a good mood. Bookmark this, fellow peasants.
I’ve read this post a couple of times and I’m having a hard time seeing where it doesn’t argue essentially this way: “This crisis may well end up being catastrophic, because it might well get resolved in a way that doesn’t fit with my agenda for how it be resolved, even though that may be the way that causes the least overall disruption to the system (which yes, may also be the way that is best for, or at least unduly easy on,the banks).” If that’s the basic argument, I am unmoved on first (and second) blush. Avoiding systemic harm post-crisi-onset essentially is letting banks off easy. IN this case, that will involve screwing delinquent homeowners (yes, including some who will be denied sufficient opportunity to modify their loans). But that IS what will be balance against systemic danger if it comes to that – that’s exactly the point. The Admin, at that point, is legitimately between a systemic rock and a political hard place. Besides reading too much into Axelrod’s statement, I think it’s unfair to pile on at this point – there’s no good option for them if this goes systemic, and saying things to try to keep anxiety tamped is at this point pretty well-advised, I’d say.
Reply to MikeD @ 111
This thing is already systemic, and the bulk of the problem is in the securities held by investors.
The problems that homeowners face in foreclosure are terrible that’s true but what’s going to drive the crisis is a dawning awareness on the part of investors that the securities that they understood to be based on mortgages held in trust, may in fact hold nothing in trust.
The foreclosure crisis is the only reason that investors have found out about this issue and that’s where the real pain begins, and no amount of soft-peddling the situation is going to be of much effect when the investor class’s lawyers begin asking questions.
I agree, which is why we might as well stop struggling and thinking about how much the resolution is going to hurt our sensibilities and try to enjoy it, because it’ sure coming and it ain’t gonna be pretty.
You see what I see.