Richard Shelby’s Selective Investigation

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Let me make a rare statement: I agree with just about everything Richard Shelby said in his call for an investigation of mortgage servicers.

The Federal Banking Regulators should immediately review the mortgage servicing and foreclosure activities of Ally Financial, JP Morgan Chase and Bank of America. The regulators should determine exactly what occurred at these institutions and make those findings available to the Banking Committee without delay.

Furthermore, because it appears that the regulators have failed yet again to properly supervise the entities under their jurisdiction, the Committee should immediately commence a separate, independent investigation into these allegations. It is the Committee’s fundamental responsibility to conduct oversight of the banking regulatory agencies and the firms under their jurisdiction.

With the recent passage of the Dodd-Frank Act wherein the financial regulators were granted even broader powers, I am highly troubled that once again our federal regulators appear to be asleep at the switch.

But I am rather curious about one thing. Just days after Goldman Sachs announced that its servicing arm, Litton Loan Servicing, was suspending foreclosures in some states, why aren’t they–or the other big servicers, Citi and Wells Fargo, on Shelby’s list?

Mind you, given HUD Secretary Shaun Donovan’s announcement that the government has been investigating FHA servicers since May and had already identified problems from some servicers (but had apparently done nothing about those problems), maybe Shelby has reason to pick on just three of the servicers.

But Shelby’s choice of targets sure does bear watching.

Torture? Check. Covering Up Torture? Check. Rule of Law? Nope.

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I think it was the timing of the end of the torture investigation that hurts most of all. Just days ago, Harold Koh was boasting of the Durham investigation to the UN. Then Bush started his dog and pony show, including his proud admission to have ordered up torture. All of which made today’s announcement, that no one will be charged for covering up evidence of torture, almost anti-climactic.

Of course no one will be charged for destroying the evidence of torture! Our country has spun so far beyond holding the criminals who run our country accountable that even the notion of accountability for torture was becoming quaint and musty while we waited and screamed for some kind of acknowledgment that Durham had let the statute of limitations on the torture tape destruction expire. I doubt they would have even marked the moment–yet another criminal investigation of the Bush Administration ending in nothing–it if weren’t for the big stink bmaz has been making. Well, maybe that’s not right–after all, Bob Bennett was bound to do a very public victory lap, because that’s what he’s paid for.

The investigation continues, DOJ tells us, into obstruction of the Durham investigation itself. Maybe they think they’ve caught someone like Porter Goss in a lie. But at this point, that almost seems like a nice story the prosecutors are telling themselves so they can believe they’re still prosecutors, so they can believe we still have rule of law in this country.

This inquiry started long before Obama started looking forward, not backward. It started before the White House allowed the Chief of Staff to override the Attorney General on Gitmo and torture. It started before we found out that someone had destroyed many of the torture documents at DOJ–only to find no one at DOJ cared. It started before the Obama DOJ made up silly reasons why Americans couldn’t see what the Vice President had to say about ordering the leak of a CIA officer’s identity. It started before the Obama White House kept invoking State Secrets to cover up Bush’s crimes, from illegal wiretapping, to kidnapping, to torture. It started at a time when we naively believed that Change might include putting the legal abuses of the past behind us.

This inquiry started before the Obama Administration assumed the right to kill American citizens with no due process–all the while invoking State Secrets to hide that, too.

This inquiry started before Bush and then Obama let BP get away with serial violations of the laws that protect our workers and environment, and then acted surprised when BP ruined our Gulf.

This inquiry started before Obama helped to cover up the massive fraud committed by our banks, even while it continued to find ways to print money for those same banks. It started, too, before the Obama Administration ignored mounting evidence that banks–the banks employed by taxpayer owned Fannie and Freddie–were foreclosing on homes they didn’t have the legal right to foreclose on, going so far as to counterfeit documents to justify it. This inquiry started when we still believed in the old-fashioned principle of property rights.

This inquiry started before banksters got excused when they mowed down cyclists and left the scene of the crime, because a felony would mean the bankster would lose his job.

The ACLU’s Anthony Romero reacted to this news saying, in part, “We cannot say that we live under the rule of law unless we are clear that no one is above the law.”

I think it’s clear. We cannot say we live under the rule of law.

Tax the Deadbeats, Tax the Banksters

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The narrative the banksters and their enablers have used to fight a foreclosure moratorium focuses on property values. If we put off foreclosures, they argue, it’ll have detrimental effects on the local community, not least by (continuing to) drive down local property values.

Now, the entire premise ignores the fact that the banksters have been sitting on a bunch of shadow inventory for years; the banks have been in no rush to foreclose on these properties and write down the losses, and Treasury has been happy to string out foreclosures to avoid a hit on the housing market.

But there’s another problem with that narrative.

If property values are falling because the properties are falling into disrepair, that’s partly the fault of the banks.

If property values are going down because no one is mowing lawns and preventing squatters, then that’s partly because banks are deadbeat neighbors who are not paying for the upkeep on the houses they own.

And, as this post from Mike Konczal (subbing for Ezra) notes, those deadbeat banks are costing local communities a fortune.

At $20,000 a pop, three vacant, unsecured and abandoned properties is the same as a teacher’s salary.

As Konczal explains, LA recently figured out a way to do something about the deadbeat banksters ruining our communities:

Given the high economic and social costs, the Los Angeles City Council, led by community activists including Alliance of Californians for Community Empowerment and others, as well as city workers who are members of SEIU Local 721 and L.A. Council member Richard Alarcon, did the sensible economic thing: They proposed a tax on abandoned and unkempt properties.

The details: “L.A.’s City Council recently passed a ‘foreclosure registry’ ordinance, requiring lenders to maintain foreclosed properties or be fined $1,000 per day, up to $100,000 a year. Lenders will have 30 days to fix problems before fines set in.”

What a sensible and elegant policy solution. This encourages banks to find suitable negotiations with homeowners to keep people in their homes. It has a serious stick to require banks to actually obey the law when it comes to the destruction of blight in neighborhood.

It works because everyone is well-incentivized to do their jobs; the city will collect money, which it loves to do, if the banks don’t comply. Citizens have a means to report blight, which they want to do to keep their neighborhoods well functioning and safe. In fact, cool online innovations like SEIU’s “Hoodwinked LA” Web page, which allows citizens to track foreclosed properties to report to city officials, have been created to empower people. And banks will avoid destroying neighborhoods out of neglect lest they pay a tax, which they had no incentive to do previously. The thing practically runs itself.

Not only does this policy have important benefits for local communities, not only does it incent everyone to modify loans and prevent foreclosures.

But it highlights the fact that banks are the deadbeats destroying your local community, not individual homeowners.

I hope as other communities follow LA’s example, they call this the “Deadbeat Bank Tax.”

Update: Via Atrios, here’s a heart-breaking story of a young boy who died in a foreclosed home’s pool. When his parents tried to sue for wrongful death, they couldn’t sort out who actually owned the house.

It took months for the family’s attorney, Janet Spence of Pembroke Pines, to sort through the property’s muddied chain of title possessions and transfers. At one point, Spence said, the home had two separate foreclosure actions pending simultaneously.

Spence also has faced some of the same paperwork irregularities that have put the nation’s foreclosure cases on indeterminate hold.

Several documents transferring the mortgage appear to be flawed or possibly fraudulent, with conflicting dates. Two documents show that the mortgage was transferred from one mortgage company to an affiliated company in November 2007 and again in February 2008.

One of the questionable documents was generated by the Florida Default Law Group in Tampa, one of four law firms that are under state investigation for allegedly “fabricating and/or presenting false and misleading documents in foreclosure cases,” according to the Florida Attorney General’s Office.

COMPLEX TRAIL

Because of the confusing paper trail, Spence has named 20 defendants in the case. They include banks that once owned the mortgage, companies that serviced the loan, property maintenance companies and even a company that was holding the mortgage for the banks.

Neo-Feudalism and the Housing Crisis

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A number of people have linked to the part of this Joseph Stiglitz interview where he says we won’t fix the economy without some good old fashioned prosecutions. But I wanted to highlight where he describes the way our system of debt imposes a kind of indentured servitude on the debtors.

Can we draw a direct line from the outsize influence of the executives and the bankers — because these skewed incentives and penalties out of whack didn’t just arise out of a vacuum. How did we get to where we are?

It’s clearly the influence of campaign contributions and lobbyists. Let me give you another example of where the legal system has gotten very much out of whack, and which contributed to the financial crisis.

In 2005, we passed a bankruptcy reform. It was a reform pushed by the banks. It was designed to allow them to make bad loans to people to who didn’t understand what was going on, and then basically choke them. Squeeze them dry. And we should have called it, “the new indentured servitude law.” Because that’s what it did.

Let me just tell you how bad it is. I don’t think Americans understand how bad it is. It becomes really very difficult for individuals to discharge their debt. The basic principle in the past in America was people should have the right for a fresh start. People make mistakes. Especially when they’re preyed upon. And so you should be able to start afresh again. Get a clean slate. Pay what you can and start again. Now if you do it over and over again that’s a different thing. But at least when there are these lenders preying on you should be able to get a fresh start.

But they [the banks] said, “No, no, you can’t discharge your debt,” or you can’t discharge it very easily. They have a right, now, to take 25% of your before-tax income. Now imagine what that means. Let’s assume that you wound up, as it’s not that hard to do, with a debt equal to 100% of your income. You’re making $40,000, and your debt is $40,000. You have to turn over to the credit card company, to the bank, $10,000 of your before-tax income every year. But, the banks can now charge you 30% interest.

So what does that mean? At the end of the year, you’ve paid the bank $10,000, a quarter of your income. But what you owe the bank has gone from $40,000 to an even larger number because they’re charging you 30%. So you’re debt is larger. So the next year you have to give a quarter of your income again to the bank. And the year after. Until you die.

This is indentured servitude. And we criticize other countries for having indentured servitude of this kind, bonded labor. But in America we instituted this in 2005 with almost no discussion of the consequences. But what it did was encourage the banks to engage in even worse lending practices.

We’ve made it so difficult for individuals to discharge their debt and have this fresh start, and yet it is just taken for granted that a corporation or a company can blow up and then they can file for bankruptcy and then they can start over.

We give rights to corporations that we don’t give to ordinary Americans. One of my proposals in my book Freefall — one of the ways to deal with this foreclosure problem, the fact that one out of four Americans who have a mortgage are underwater: They owe more money on their home than the value of their home. Their home used to be what they used as the reserve for paying their kids college education, for their retirement. Now it’s a liability, not an asset.

So what I’ve argued is, we have these laws called Chapter 11 to give a fresh start to corporations. We say it’s very important to be able to do this quickly, we want to keep jobs, we want to keep the corporation going as an ongoing enterprise.

Families are as important as corporations. Keeping kids in school, not forcing them out of their home, keeping the community together, is certainly as important as keeping a corporation alive.

He calls this indentured servitude, but I call it (because I’m also factoring things in like the privatization of security and decline of the nation-state) neo-feudalism. In either case it’s an observation that people who used to be citizens have been turned into profit centers for the very powerful. Through a variety of means, these very powerful entities have secured the ability to oblige those profit center people to turn over large chunks of their  worldly gain for the foreseeable future, and even though those powerful entities offer little in return, the people bound to them have little hope of escape. Hell, in many states, mortgages serve as a similar kind of legal bind to a piece of territory, one ultimately owned (if they can prove they have the note) by these powerful entities.

And as Stiglitz notes, a key to pulling this shift off is to write the law to favor the powerful entities and disempower the weak. And (as he points out elsewhere in this interview) to make sure that only those powerful entities have access to justice.

Yet, as a recent study made clear, the access to justice for the poor in this country rivals that of Mexico and Croatia.

In January 2008, well before the financial crisis became an emergency, I asked Chuck Schumer why Democrats didn’t repeal the 2005 Bankruptcy Bill Stiglitz addresses above. I pointed out that repealing it might mitigate the problem of foreclosures and with it, stave off a larger crisis.

Schumer responded by saying we did not yet have the votes to make the kind of substantive overhaul that was necessary. We had to wait, he said in January 2008, eight months before foreclosures contributed to the the collapse of financial system, until 2009, when we had a larger majority.

We just lost the majority that Schumer claimed we would use to repeal the bankruptcy bill. During the entire time the Democrats had the majority, families were losing their homes in ever increasing numbers.

And yet Democrats never used their vaunted majority to stem the advance of neo-feudalism in this country.

Want to Sue the Banksters? Ask WhereIsTheNote

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Remember WhereIsTheNote?

In the face of mounting evidence that the banks foreclosing on homes did not comply with legal requirements during securitization of mortgages and therefore don’t have legal standing to foreclose, the SEIU and some community organizations teamed together last month to create an online tool that anyone can use to ask their mortgage servicer where their note is. By helping homeowners proactively check whether their bank has the right paperwork, it gives them more power in the event of a foreclosure.

The site launched just over three weeks ago. 200,000 people have visited the website; around 15,000 have used the tool to ask their bank for their note (I’ll have a more exact number shortly).

What has happened since gets very interesting. In the first few days, some banks responded quickly and in apparent good faith, some admitting there was a problem, and others sending what they claimed was the note, but was either something else entirely, or clearly did not meet the requirements for transfer.

But as banks realized those first requests were not isolated requests, two things happened. Either banks have sent back a response saying the homeowner had no right to see their note. Or, banks have not responded at all.

Here’s where things get interesting. The WhereIsTheNote-generated letters invoke the Real Estate Settlement Procedures Act (RESPA). Section 6 of RESPA dictates how loan servicers must reply to consumer complaints about their loan.

Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer’s required payment.

A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, within three years, against a servicer who fails to comply with Section 6’s provisions. Borrowers may obtain actual damages, as well as additional damages if there is a pattern of noncompliance. [my emphasis]

In other words, RESPA says that if homeowners write their servicer and say, “I have a problem with the way you’re servicing my loan,” the law requires that the bank acknowledge that the homeowner has written that letter within in 20 days. And it requires that it resolve that complaint within 60 days. If banks don’t do so, homeowners can sue.

So, as I said, just over three weeks after people started using this site, banks have been writing back and either telling homeowners that the complaint basically saying “I have doubts about whether you actually have legal standing to collect my mortgage payments” doesn’t qualify as a “problem” under RESPA. Here’s how IndyMac made such a claim in one response letter.

Although your fax references the response as RESPA Qualified Written Response eligible, your request actually does not qualify. The statute and case law require that the correspondence disputes the servicing of the loan and requires the sender to provide the servicer specific facts that would enable the servicer to investigate and respond. For instance, a dispute may involve a misapplication of a payment or a miscalculation of a monthly escrow amount. The statement that you are concerned about what you may have heard on the news does not qualify as a dispute with the servicing of your loan. Consequently, we are not subject to the response requirements set forth in the Real Estate Settlement Procedures Act.

In other cases–such as Citibank in my case–the bank appears to have simply let the 20-day deadline pass without a response.

Now, the genius of the WhereIsTheNote campaign is twofold. First, for the first time, someone is collecting an independent set of data about whether banks have a right to collect payment on the loan or not (there is privately available data, but it’s very expensive). WhereIsTheNote has already recognized, for example, that Bank of America and its subsidiaries have adopted a uniform claim that RESPA doesn’t apply in this case (of course, Bank of America is one of the most suspect banks for note problems). And WhereIsTheNote is collecting information that will show that not just those houses in foreclosure, but performing loans have note problems, proving that this is not an issue of “deadbeat” homeowners, but rather banks that are playing fast and loose with private property rights.

But more interesting is enforcement. As the section I cited above makes clear, borrowers whose banks refuse to respond to a RESPA request can sue for damages.

And as it happens, the Attorneys General in all 50 states are already investigating whether the banks are engaging in foreclosure fraud to cover up securitization problems. Which means there are already lawyers out there ready to take on the banks that do things–like refusing to respond to homeowner RESPA requests. WhereIsTheNote will be referring these RESPA non-responses to the AGs to respond accordingly.

If you haven’t already done so, I encourage you to ask your servicer WhereIsTheNote. Because–on a day when all else seems hopeless–it may well be a means of holding the banks accountable for the shitpile they made of our nation.

Freddie Repossesses Its Files

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Fannie Mae and Freddie Mac had already suspended all their work with David Stern. But now they’ve officially severed all relations with him and Freddie has taken their files away.

Freddie Mac took the rare step of removing loan files after an internal review raised “concerns about some of the practices at the Stern firm,” a Freddie spokeswoman said.

“We have begun taking possessions of all files on Freddie Mac mortgages simply to protect our interest in those loans as well as those of the borrowers,” the Freddie spokeswoman said. A Fannie spokeswoman declined to elaborate.

Fannie and Freddie said they will move those files to other law firms in the state but that they hadn’t yet identified where they would be redistributed. The firms said they had notified Florida’s attorney general about the decision to remove the files and that the Stern firm had cooperated with the action.

Let’s see. It’s November 2. On October 4, 29 days ago, the former assistant of the woman who oversaw Stern’s robosigner division testified that 1) Stern’s firm would routinely reclassify Freddie Mac loans as some some other firm’s loans when Freddie came onsite for an audit to hide those files from the firm, and 2) sometime in August, Stern reportedly packed up an eighteen wheeler full of documents and took them to an unspecified office in Orlando.

I can’t imagine why Freddie would want to take possession of its files, can you?

Problem is, it may well be far too late to prevent Stern from tampering with Freddie’s documents. Though it’s nice of them to start worrying about protecting the interests of their homeowners.

Citi’s Fear

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I wanted to return to a detail I mentioned in yesterday’s book salon. As I noted, in his book on the auto bailout, Steven Rattner described Citi as being worried during the Chrysler negotiations that retail customers would retaliate if Citi played hard ball.

Bankers for Goldman and Citi had advised [JP Morgan Chase VP and the Chrysler bondholder’s lead negotiator] Jimmy Lee to make the best of a bad situation. Privately they felt his brinksmanship was embarrassing and potentially costly. Citi especially wanted to avoid a liquidation. Its analysis showed it would recover no more than 20 cents on the dollar in that instance. Citi also feared losing business in its branches in states like Michigan and Ohio where consumers might blame it for Chrysler’s demise. (173)

That didn’t make sense to me given that Citi doesn’t have branches in MI and OH; the closest actual branches are in Chicago. Compare that to Chase, which just took over from Comerica as the biggest bank in MI by deposits and was presumably second at the time of the bailout negotiations. Citi should only fear retaliation from consumers elsewhere, in those urban areas that actually have Citi branches, or they should fear retaliation some other way, presumably through their credit card business. I asked Rattner why Citi was worried, but JP Morgan Chase was not, given its much greater involvement in the auto states. He responded, “Yes, they were definitely worried.”

Frankly, I don’t know what to make of this. Given the context of the claim–in which Goldman and Citi are portrayed as talking Jimmy Lee down from a hardass negotiating position–JPMC appears not to have been sufficiently worried to change its behavior. And the Citi claim doesn’t make sense on its face. Perhaps Citi was worried about something else. Perhaps they were just more worried because they were insolvent? There are a few details he pretty clearly got wrong in his book (such as his claim that Nissan’s consideration of a deal with Chrysler was secret), but this seems instead like one of the abundant examples of where Rattner is an unreliable narrator. Rattner chose to portray Citi as worried (and quickly agree the hard-bargaining JPMC was, too), but it’s unclear whether that was really true or just nice spin on the banks.

What Rattner probably didn’t know was that FDL was trying to increase this worry at the time by encouraging people to take their money out of Chase. That was a mostly unsuccessful effort (let me tell you, Chrysler is  no more popular in this country than the big banks) to target the banksters for actions that hurt the communities they’re in.

As unsuccessful as our effort was in terms of numbers, if Rattner-the-unreliable-narrator’s claim has any basis in fact, then our effort to pressure JPMC to behave better worked. Sort of.

Since then, Arianna’s Move Your Money campaign has more successfully advocated for people and institutions to move their money out of the big banks. By April, they claimed $5 billion had been moved. And it does seem like some of the banks are losing market share to smaller banks.

The largest banks in Michigan are losing market share and Chase Bank now has the most deposits in the state, according to new data released Thursday by the Federal Deposit Insurance Corp.

As of June 30, the five biggest banks in Michigan — Chase Bank, Comerica Bank, PNC Bank, Bank of America and Fifth Third Bank — accounted for 55% of all deposits in the state. That’s down from 57.3% on June 30, 2009.

I raise all this because of another interesting discussion about whether consumer action might more effectively target the banks. Via Yves Smith, I found this Playboy article on Edmundo Braverman’s WallStreetOasis.com’s proposal on How to Destroy a Bank (Yup, it appears you have to have a pierced navel and no pubic hair to be a Playboy model these days).

This article set forth a plan for how consumers could destroy one of America’s four largest banks. Customers would deliver a series of escalating threats against Wells Fargo, Bank of America, JPMorgan Chase and Citibank, demanding policy changes. The threats would culminate in a series of flash-mob bank runs that targeted one of the banks.

In a comment in Yves thread, Braverman acknowledged his idea was a thought exercise to take Move Your Money the next step.

The whole thing was inspired by Arianna Huffington’s “Move Your Money” idea. I thought it was a good idea, but not one that would be dramatic enough to produce any changes in the way the banks did business. So I asked myself, “What would have an impact on the banks?” and that’s when I came up with the Tank-A-Bank plan.

It was always just a thought exercise, and never something I advocated.

Yves seems to be thinking more about this; what can consumers do that won’t get them jailed as terrorists but will get us to a point where the finance industry isn’t dragging our country down even while stealing our money in the process?

Read more →

Some Questions on Principal Reductions

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Both Felix Salmon and DDay are arguing that if the banks lower principal on some unspecified set of loans, it’ll fix the “mortgage mess.” Now, I agree that loan modifications are one of the things we ought to strive for to solve a number of our problems. But I’ve got questions about what they’re proposing.

First, which mortgages do you intend to modify? Just those in foreclosure? If you do that, you’re stuck with the same problem modification programs already have: the point is to modify a loan early enough to make a difference for both the homeowner and the mortgage holder.

Would you extend the principal reductions to non-performing loans? Those amount for 9-10% of all mortgages. That would prevent some homes from going into foreclosure, but probably not those of people who have lost their jobs. Moreover, this only helps a fraction (maybe a third to a half?) of people underwater on their mortgage.

Both Felix and DDay suggest this plan would do something about the underwater home issue, though, suggesting they’re contemplating principal reductions on the underwater homes more generally? Those amount to 23.3% of all mortgages. This would have the tremendous value of effectively making the banks pay for the inflated prices they encouraged during the boom. But that’s already a whole lot of mortgages you’d have to modify.

But even then, you haven’t solved the shitpile problem. Because these percentages still leave out the majority of mortgages. And many of those were securitized during the bubble, either because relatively new mortgages (those written in the last decade) were securitized or because people refinanced and the new loan got securitized. If the problem lies in securitization–and I’m certain Felix and DDay agree that that’s the problem–then to clear up the title problem you’re going to have to do it for all those homes that were not securitized properly.

And we don’t know how many mortgages that includes. Indeed, how would we identify those mortgages?

Just as an example, take my home. I bought it in 2002. At some point, ABN Amro either took over the loan itself or the servicing of it. After that, Citi did. Freddie Mac claims to own the loan right now. The original mortgage was written before the securitization problems got really bad, but within the window that it might be a problem. I asked Citi where my note is using the WhereIsTheNote site. And thus far, at least, they haven’t responded by saying, “Oh, Freddie’s got your note.” Now, I’m trying to sell my house, which is just barely not underwater (I put 20% down when I bought it eight years ago, but it has lost a third of its value, largely due to the number of foreclosures in my neighborhood). Now if things go well, I’ll be able to get out of my house without any principal reduction (and trust me, I am grateful that I am better off than a lot of people trying to sell now). But what happens if it becomes clear there is no clear note holder? To whom do I pay off my mortgage when I sell it? How much value would I lose on the house in the process and would that put me underwater (answer: yes)? And if so, would I then qualify for a principal reduction? But if you don’t modify my mortgage and in the process give my house a clean title, then my house would for very good reasons be worth less than my neighbor’s house that did get a modification.

I’m all in favor of principal reductions. But I doubt you’d ever be able to reach even those underwater homeowners who would benefit from it. But it seems to me it still doesn’t fix the more general problem of shitpile.

Fidelity National Drops Nationwide Indemnity Requirement

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This whole title insurance thing is getting confusing.

Fidelity National Financial Inc., the largest U.S. title insurer, canceled a requirement for lenders to guarantee proper foreclosure procedures amid “heightened review” processes by banks.

The company won’t require an indemnity agreement before insuring individual foreclosed properties, according to a memorandum to employees yesterday. It will continue the arrangement with Bank of America Corp., the largest U.S. lender.

Fidelity National reversed course from a requirement put in place a week ago after institutions took steps to police foreclosure paperwork, according to the memo. Failure of other insurers to follow its lead also put the Jacksonville, Florida- based company at a competitive disadvantage, said Peter Sadowski, executive vice president and chief legal officer.

“Although competition was a factor, we wouldn’t take undue risk for competitive reasons,” Sadowski said in an interview. “We feel comfortable with the new process.”

But what I take it to mean is that, at least partly because other title insurers weren’t requiring Fannie and Freddie to indemnify their foreclosure sales, Fidelity National dropped the requirement that they (and other lenders) do so, too. But it’s not clear if, in lieu of this indemnity, Fidelity is going to require the lenders to actually prove they have standing to foreclosure.

Whatever the case, Fidelity National seems to be saying that a risk that was there just week ago, no longer exists.

NOW Fidelity National Is Heading in the Right Direction

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According to MarketTicker via 4closureFraud, Fidelity National has done the thing (at least in Florida) that makes it demand that mortgage servicers warrant against mistakes-otherwise-known-as-fraud meaningful.

Eh, I have an update from Fidelity Title – this is for Florida foreclosures.

Here’s the salient “trouble spot” – this is what must be in the foreclosure docket for them to grant a policy:

The plaintiff in the action is: (1) the record holder of the mortgage being foreclosed; or (2) has filed the original promissory note in the foreclosure file; or (3) has obtained a final order reinstating the lost promissory note.

In other words, before Fidelity will insure the title of a foreclosure sale, it wants to see real proof that the party foreclosing on the home has the legal right to do so. Imagine that?!?! Property rights!

This may well increase the likelihood of clearing out the shitpile the finance industry created.