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November 15, 2010

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According to the rules of the mortgage trusts, a lender like Bank of America, which controls all the Countrywide loans, is required by law to buy back from investors every faulty loan the crooks at Countrywide ever issued.

That may be the best news (OK, news to me, not to the rest of the world) that I've gotten in months. I've got money invested in funds that own loans like that. If the banks have to buy them back, I may actually not lose a bundle on them.

Thanks for doing the rapid-response on this, Jacob. I wasn't over the "feeling sick" part of my reaction.

I'd like to submit this again, for your linkpile, Jacob.

That this kind of nonsense is still being permitted (even encouraged) to occur is a sign of widespread breakage.

Question is: what is it going to take to put a stop to it? Who has the authority?

great story.

gotta say though... that's one big-ass excerpt.

Question is: what is it going to take to put a stop to it?

we aren't going to stop it.

it will eventually taper off, naturally. but any attempt to take control of the situation will be met with furious screeching and hideous cries of "SOCIALISM", "GOVERNMENT TAKEOVER", "TYRANNY" and "COST TO HOMEOWNERS" by the same people who brought us death panels, "porkulus" and "Obama raised your taxes".

Some choice excerpts from the story I (again) linked to, which was originally made available online about a month ago:

Some local governments were even accidentally informed directly that an institution was committing fraud, but no one noticed for years. The public record of Florida’s Nassau County shows that American Home Mortgage Acceptance, Inc. filed forms which claimed that a mortgage had been sold to, astonishingly, “BOGUS ASMTS.” The same company filed papers with Fulton County, in Georgia, which claimed that a mortgage had been sold to “BOGUS ASSIGNEE,” a company apparently based out of the address “XXXXXXXXXX.” Wells Fargo filed papers with that same county which supposedly showed that a mortgage had been bought by “BOGUS.” (No word on whether or not Wells proceeded to take itself to court for this infraction.) Some documents contain names with signatures that don’t even match.

and

Tammie Lou Kapusta, a former paralegal for one of those mills, testified on September 22nd that she was instructed by the attorneys at the firm to officially notarize hundreds of documents a day with a notary stamp that she wasn’t legally allowed to use. When complaints started rolling in about stamp dates that didn’t match other dates within the documents, she and all of the other paralegals doing the same thing at the firm were instructed to make the date of the stamp match the other dates, no matter what day it actually was. The documents would then be signed with the name “Cheryl Samons” by three different people, only one of whom was actually named Cheryl Samons. Kapusta said she drew the line when she was instructed to use random Social Security numbers assigned to people who might not even exist in order to falsify documents regarding each hypothetical person’s military status.

At least she drew it somewhere. She told the court that others didn’t.


And the always-popular:

Wells Fargo wanted to foreclose on a condo unit which had multiple mortgages attached to it. Wells Fargo also owned one of those second mortgages. So Wells Fargo spent money to hire a law firm and file suit against the irresponsible lenders at Wells Fargo. Then, Wells Fargo spent money to hire a different law firm in an understandable effort to defend Wells Fargo from the vicious legal attack coming from Wells Fargo. The second law firm even prepared a legal statement for Wells Fargo which called into question the dubious claims being made by Wells Fargo. Sadly, Wells Fargo won the case, crushing the hopes of Wells Fargo.

As business reporter Al Lewis wrote at the time, “You can’t expect a bank that is dumb enough to sue itself to know why it is suing itself.”

What does it take to get some executives in jail these days?

In ten years, I want to see the list of all the individuals and institutions that were investigated, indicted, prosecuted, convicted and/or administratively or civilly sanctioned.

I'd bet what's left of my 401k that it won't take more than one monitor screen.

I know there are lots of reasonable people on this blog who mostly want things to get better. But I feel a really visceral hatred of these clowns, the way many people do for Madoff. They can't put enough of them in the slammer and ruin their lives.

It is past time for torches and pitchforks. Way past time.

And, BTW, I personally have no problems. My mortgage is good, being paid off regularly, I have an excellent full time job. It was dicey for a while in '08, but we survived.

But I WANT THESE BLEEPHOLES TO GO DOWN!!!!

This explains alot:

If you pay less than the whole amount, JP Morgan is now obligated to pay the trust the remainder out of its own pocket. When you fall behind, your bank falls behind, too. The only way it gets off the hook is if the house is foreclosed on and sold.

Under normal circumstances, banks aren't willing to let lawyers go into court and file false and fraudulent documents willy-nilly on the banks' behalf. However, if the alternative is the complete decimation of the bank itself they may be willing to hold their nose and look the other way while the lawyers do so, and then act surprised when the news comes to light.

Also explains why Fannie and Freddie were using robo-signers, they made the same guarantee to their mortgage trusts.

Preach it, Elf.

IANAL, but doesn't some of this rise to the level of RICO offenses?

Seriously. The fact that there aren't already people behind bars based on what we already know about this crisis is a shande for the nation. There are people who need to burn for this.

This is not a few bad apples. This is systematic, organized fraud on a massive scale.

@ Catsy

A Super Double Whopper of a shande

And pot smokers are in jail...

Thanks, Ugh. I've been wondering where the incentives were, here (beyond the servicers' desire to process as many foreclosures as they can, as cheaply as they can).

I wonder what kind of disclosures these banks have in their financials about how much $$ they are potentially on the hook for with respect to their securitization trusts... A quick look at BofA's latest 10Q has info on "Mortgage-related Securitizations" that has a line item of "Maximum loss exposure," which it lists as $16billion. However, it footnotes this with "Maximum loss exposure excludes liability for representations and warranties, and corporate guarantees and also excludes servicing advances."

So, if there is a breach of the Bank's reps and warranties on these securitizations the liability could be more, and it notes that the oustanding principal balance of these securitizations is....$1.28 trillion.

Further down it states:

Representations and Warranties Obligations and Corporate Guarantees
The Corporation securitizes first-lien mortgage loans, generally in the form of MBS guaranteed by GSEs. In addition, in prior years, legacy companies and certain subsidiaries have sold pools of first-lien mortgage loans, home equity loans and other second-lien loans as private-label MBS or in the form of whole loans. In connection with these securitizations and whole loan sales, the Corporation or certain subsidiaries or legacy companies made various representations and warranties. These representations and warranties, as governed by the agreements, related to, among other things, the ownership of the loan, the validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, the process used to select the loan for inclusion in a transaction, the loan’s compliance with any applicable loan criteria, including underwriting standards, and the loan’s compliance with applicable federal, state and local laws. Violation of these representations and warranties may result in a requirement to repurchase mortgage loans, indemnify or provide other remedy to an investor or securitization trust. In such cases, the repurchaser would be exposed to any subsequent credit loss on the mortgage loans. The repurchaser’s credit loss would be reduced by any recourse to sellers of loans for representations and warranties previously provided.

So they're screwed, it seems, unless the entire nation adopts the Florida judicial "process" described by Taibbi.

@ Ugh
So they're screwed

Naah. A couple junior suits might go to jail. That's it.

I'd really like to see a great big tumbrel...

cleek: gotta say though... that's one big-ass excerpt.

Ahem, yeah, well, I find the experience of reading a story broken into 8 pages at RS infuriating and while I like Taibbi's color, he does tend to go on a bit. I took the juiciest bits, but there were quite a few of those.

What blows my mind is that after literally bankrupting the institutions they worked for, most of the senior management of the bailed-out banks survived without any personal liability or loss, in fact most of them kept their jobs.

If I was a major shareholder at BofA I'd want Kenneth Lewis in jail. The stock was worth $50 in 2007 and is worth $11 now. Taking an 80% loss isn't enough to stir any shareholds into anti-executive rage? W, as they say, TF?

I'd like to submit this again, for your linkpile, Jacob.

I'm an idiot. You posted on that link one month ago today.

Same crap happening; different month.

My mortgage is good, being paid off regularly, I have an excellent full time job. It was dicey for a while in '08, but we survived.

And yet tomorrow you could be foreclosed on anyway. And depending on where you live, you may have no opportunity, let alone effective ability, to fight it. That's a good reason to start feeling all pitchforky.

@RobW
That's a good reason to start feeling all pitchforky.

Ahh, but you see, I'm a liberal, and a Democrat, and an OBWI regular, so i feel pitchforky [nice adjective, BTW] on behalf of all those other poor bastards.

We don't even own a house and in theory we would be personally better off with more foreclosures going through that would drive house prices down further.

But actually the instability in the housing market makes it difficult to justify the risk of buying a house. What is the reasonable price level for a house in the Bay Area when so many foreclosures remain to be processed, when unemployment is so high, when measures to boost the economy seem dead in the water? How much of the current market value of houses is supported by hidden non-performing mortgages?

I think the really big question is, do we really know how many NPLs there are? If you're a bank and you sold mortgages into securities that had never made even one payment, or that had already defaulted, or sold them into more than one security, you could still book an enormous profit if you forwarded non-existent payments for a couple of years. You sell a $250,000 mortgage and pay out a few tens of thousands in forwarded payments over the next couple of years, but by the time anyone finds out that the original loan is dead and was based on fraud, you've already taken your bonus home.

That's the extreme scenario. Unfortunately, ruling it out has become difficult given the amount of proven fraud in the system and the incredibly - deliberately - sloppy record-keeping from the bubble years.

The last paragraph says it all:

When you meet people who are losing their homes in this foreclosure crisis, they almost all have the same look of deep shame and anguish. Nowhere else on the planet is it such a crime to be down on your luck, even if you were put there by some of the world's richest banks, which continue to rake in record profits purely because they got a big fat handout from the government.…Because in America, it's far more shameful to owe money than it is to steal it.

Is there an estimate of the amount of revenue in the form of recordation and transfer taxes that states have lost out on from the failure of these banks to record/perfect/whatever the mortgage loan each time it was transferred? Must be quite a sum I would think.

The fees evaded with MERS are at least in the billions of dollars. The bigger problem is that nobody knows who owns these houses except MERS, and their systems are clearly a disaster. The point of the localized, nitpicking real estate recording system is to ensure that it is absolutely crystal-clear - a matter of public record - who owns a given piece of land.

MERS does an end-run around the whole system by claiming to own the house while keeping its own records of who really owns it. Except that's illegal about 19 different ways and not a very good idea anyway.

What is needed? A countersuit to a fraudulent foreclosure, with about $100B in punitive damages.

Yes, it would take punitives at that level to get the banksters to change their tune. It wouldn't stand up on appeal (once the GOPtards on the USSC got their say), but it *would* have a affect.

Although pitchforks and torches does have a lot of appeal.

Obama could shut these fraudsters down in a hot minute with one RICO investigation.

Question is: what is it going to take to put a stop to it?

we aren't going to stop it.

What cleek said.

When it comes to dealing with the banks, you're on your own. Absolutely and totally on your own.

Cover your @ss.

Document everything. Get everything in writing, make notes of every phone conversation, make a note of the name of every person you speak to. Keep every email, and if you have any snail mail exchanges with the bank, send your stuff registered with return receipt.

They'll f*ck you if you give them an inch. Don't give them an inch.

You might still get screwed, but you don't have to hand it to them.

Obama could shut these fraudsters down in a hot minute with one RICO investigation.

It's the same problem as in late 2008; the fraudsters still have their necessary role in the functioning of the economy. We can punish them, wipe them out, but probably also do serious damage to the economy.

Im not saying that it wouldn't be satisfying, just, or downright pleasurable to see criminals get their due. Just that is has a potentially high price.

And, on the third hand, it's exactly knowing that this is the case that makes these &$^#$%s able to pull off their scam with impunity.

We did have one option that might have worked, I think- aggressively force the banks to set their books straight, and shut down or nationalize the insolvent ones. It's looking more and more like TARP merely got us through a rough moment rather than curing the disease.
Cut out the cancer.

Some (less civilized) monarchs of the past had a way to deal with such despicable excuses for human beings. It involved precious metals in liquid form. Solid gold life-savers/jackets had a certain appeal too.
I propose lost-mould casting of golden statues of the main culprits that are 100% from life.

That may be the best news (OK, news to me, not to the rest of the world) that I've gotten in months. I've got money invested in funds that own loans like that. If the banks have to buy them back, I may actually not lose a bundle on them.

Hmm. That's assuming that the banks will be able to meet their obligations on those products in full...

"What's robbing a bank compared to founding one?" Bertolt Brecht

The bigger problem is that nobody knows who owns these houses except MERS, and their systems are clearly a disaster. The point of the localized, nitpicking real estate recording system is to ensure that it is absolutely crystal-clear - a matter of public record - who owns a given piece of land.

Well, MERS was set up to track who owns the mortgage notes, not the homes; as it says on its website "MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans."

The person who owns the home is the borrower. Sure, the lender has an interest in the home in that the home secures the loan, but the "homeowner" is the person that lives there. The point of "preparing and recording assignments" when it comes to mortgages is to ensure exactly who is entitled to foreclose on the loan and take the home from its current owner should the borrower default. It's that process that's broken, apparently, and it makes me wonder whether MERS is openly advertising an illegal scheme to trade mortgages (I doubt it as you would have thought someone would have noticed by now).

It's the same problem as in late 2008; the fraudsters still have their necessary role in the functioning of the economy.

The role they play is a necessary one, but the particular people playing the role are not necessary.

I'm sure we can find lots of competent people who will be happy to make a few million dollars a year without defrauding other folks.

IMO it really is time to wade in with a great big bat and start cracking heads. This crap is so far beyond blatant that it boggles the mind.

Find responsible individuals, take their money away, send them to jail, and bar them from ever working with other people's money again.

Why is that hard? Other than the total and utter capture of government oversight part, I mean.

It's insane that nobody is held responsible for this crap.

Also relevant, the Congressional Oversight Panel for TARP released a report today (pdf) on exactly the same issue Taibbi covers in his article (minus the f-bombs, one presumes).

A taste:
In earlier years, under the traditional mortgage model, a homeowner borrowed money from a single bank and then paid back the same bank. In the rare instances when a bank transferred its rights, the sale was recorded by hand in the borrower's county property office. Thus, the ownership of any individual mortgage could be easily demonstrated.

Nowadays, a single mortgage loan may be sold dozens of times between various banks across the country. In the view of some market participants, the sheer speed of the modern mortgage market has rendered obsolete the traditional ink-and-paper recordation process, so the financial industry developed an electronic transfer process that bypasses county property offices. This electronic process has, however, faced legal challenges that could, in an extreme scenario, call into question the validity of 33 million mortgage loans.

I think Atrios linked to a report (maybe on CNBC) that there is language circulating on capitol hill to retroactively legalize the failure to record a transfer of a mortgage note on the county's property offices (among other things, I'm sure). Indeed, I bet this report is a prelude to do just that, e.g.:

If documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages, the consequences could be severe. Clear and uncontested property rights are the foundation of the housing market. If these rights fall into question, that foundation could collapse. Borrowers may be unable to
determine whether they are sending their monthly payments to the right people. Judges may block any effort to foreclose, even in cases where borrowers have failed to make regular payments. Multiple banks may attempt to foreclose upon the same property. Borrowers who have already suffered foreclosure may seek to regain title to their homes and force any new
owners to move out. Would-be buyers and sellers could find themselves in limbo, unable to know with any certainty whether they can safely buy or sell a home. If such problems were to arise on a large scale, the housing market could experience even greater disruptions than have already occurred, resulting in significant harm to major financial institutions. For example, if a Wall Street bank were to discover that, due to shoddily executed paperwork, it still owns millions of defaulted mortgages that it thought it sold off years ago, it could face billions of dollars in unexpected losses.

A potential countervailing force to such a retroactive legalization are investors in securitized mortgages (though they may be happy to go along so long as they get their $$):

Investors in mortgage-backed securities typically demanded certain assurances about the quality of the loans they purchased: for instance, that the borrowers had certain minimum credit ratings and income, or that their homes had appraised for at least a minimum value. Allegations have surfaced that banks may have misrepresented the quality of many loans sold for securitization. Banks found to have provided misrepresentations could be required to repurchase any affected mortgages. Because millions of these mortgages are in default or foreclosure, the result could be extensive capital
losses if such repurchase risk is not adequately reserved.

Who wins? My money is on the banks, especially given the tone of the report which seems very concerned with what may happen to them, one last excerpt (emphasis added):

To put in perspective the potential problem, one investor action alone could seek to force Bank of America to repurchase and absorb partial losses on up to $47 billion in troubled loans due to alleged misrepresentations of loan quality. Bank of America currently has $230 billion in shareholders' equity, so if several similar-sized actions – whether motivated by concerns about underwriting or loan ownership – were to succeed, the company could suffer disabling damage to its regulatory capital. It is possible that widespread challenges along these lines could pose risks to the very financial stability that the Troubled Asset Relief Program was designed to protect. Treasury has claimed that based on evidence to date, mortgage-related problems currently pose no danger to the financial system, but in light of the extensive uncertainties in the market today, Treasury's assertions appear premature. Treasury should explain why it sees no danger. Bank regulators should also conduct new stress tests on Wall Street banks to measure their ability to deal with a potential crisis.

Treasury sees no danger because if said it did see danger, it could cause a bank run-a-palooza. Read the whole thing, as they say.

I see a TARP 2 in our future, or at least an attempt at it.

I guess I found a partial answer to my question about how much in fees the states missed out on through the use of MERS in the Congressional report:

Since its inception in 1995,
66 million mortgages have been registered in the MERS system and 33 million MERS-registered loans remain outstanding.
[f/n]Members pay an annual membership fee and $6.95 for every loan registered, versus approximately $30 in fees for filing a mortgage assignment at a local county land office.

Hmmm...66 million x $30 = $1.98billion.

there is language circulating on capitol hill to retroactively legalize the failure to record a transfer of a mortgage note on the county's property offices

Wow. And here I thought that contracts were binding under contract law at the time of signing.

Contracts no longer mean very much, or at least that seems to be the instructions.

For example, if a Wall Street bank were to discover that, due to shoddily executed paperwork, it still owns millions of defaulted mortgages that it thought it sold off years ago, it could face billions of dollars in unexpected losses.

Ah, this would be the same generous usage of the word "discover" as in "Yes dear, we seem to have discovered that I've been sleeping with my secretary for the past three years" or "Officer, as a result of your investigation I have discovered that I've been passing bad checks to the tune of a million dollars."

They'll f*ck you if you give them an inch. Don't give them an inch.

I think Joe Pesci expresses russell's sentiments nearly as well as russell does.

Hartmut,

"What's robbing a bank compared to founding one?"
- Bertolt Brecht

"Some will rob you with a six-gun, some with a fountain pen"
- Woody Guthrie

Slarti: Here is the report I was thinking of.

So it looks like the stage may be set for Congress to pass a bill that would limit MERS exposure on the recording fee issue and perhaps retroactively legitimate mortgage transfers conducted through MERS private database.

Not sure how that would affect contract rights between the parties (such as the right of investors in MBS to force buy-backs for violations of reps and warranties).

I think Joe Pesci expresses russell's sentiments nearly as well as russell does.

Yeah, except I'm not talking about a tuna sandwich.

Question is: what is it going to take to put a stop to it?

Snarki pretty well nailed it. What it is going to take is making it counterproductive financially to keep doing it. And that is going to take a couple of class-action suits with big punitive damage awards. Now, where are all those trial lawyers (aka ambulance chasers) when we actually need them?

Contracts no longer mean very much, or at least that seems to be the instructions.

well, contracts are very useful to keep the proles in line. they're not very good at keeping the powerful in line.

too big to fail. too big for fraud. too big to be bound by law or contract.

Atrios' "bankster" label get more and more apropos every day.

Bloody hell.

Some thoughts from one of ObWi's barristers:

1. The Obama Admin. is desperate to avoid a second major run on the finance industry. There's clearly not enough votes to get TARP II through Congress. The admin has enough Wall Street insiders at high levels that it's clear that as an institution the Admin believes that the finance industry must be saved, pretty much at any cost.

2. The failure of the AG to launch major RICO investigations and the failure of the IRS to launch major tax evasion investigations against the trusts can be explained only by point 1.

3. Someone wrote just recently that this country already has a centrist party -- it's called the Money Party. There are a few Tea Partiers and unreconstructed liberals outside of that group, but everyone else is completely dependent on high-net-worth individuals and corporations for the money needed to run for reelection. Democrats find that pile of cash in New York. So the party as a whole can't even come up with tax policy that increases the burden on the richest Americans, much less launch a major attack on them.

4. Class actions will be very hard to put together. I know very little about this area of law except that a major case in this area is due to be decided by the Sup Ct this term. But what I've been told is that it's much more difficult to form class actions than it used to be. And since every mortgage is unique and every foreclosure unique, it may well be impossible to form a class.

5. It's also true that at the end of the day a lot of people simply can't pay their mortgages. I suspect that one reason the banksters feel OK about a few rough edges in the foreclosure process is that the debtor, in the vast majority of cases, just stopped paying.

6. On a public policy basis, foreclosure is the worst possible solution. But that was the deal negotiated between the lender and the homebuyer when the loan was first made. Because that was the core of the deal, the government is finding it very difficult to create the financial incentives to persuade the banks to take another path. And since the loans have been sliced and diced, the "true" owner of the loan is a bunch of retirement funds that have no interest in telling the trustee or the servicer to do a better job on a case-by-case basis. That level of oversight is simply way too expensive.

That's all cool Francis, except the takeaway is that the process of buying and selling real property is profoundly broken, as are all of the various financial industries that hinge on that.

That's a big deal.

At a minimum, we should be looking at closing down MERS, at least going forward.

A desire to save something like $25 per loan is not a strong enough reason to allow an end run around properly recording ownership of all of the real property in the nation.

Just as an example of something we should certainly be able to do without making whole house of cards immediately come crashing to the ground.

We surely need to do something, cause what we have is an unbelievable shambles.

Francis,

On a public policy basis, foreclosure is the worst possible solution.

Yes. It should really be a last resort, but it's not. Banks, for various reasons I don't fully understand, would rather take a hit on foreclosure than take one by modifying a loan, even in cases where the borrower could meet sensible standards on the renegotiated loan.

That seems like it would be better all around. For the bank there is no foreclosure expense, a known price for the house, none of the problems that arise when a house sits empty, etc. For the borrower the advantage is obvious. I guess part of the problem is the complexity of the MBS, with uncertainty as to who is allowed to modify terms and what their liability is. Part may be the bank's desire to stay out of the mortgage business, get what it can, and go on. That suggests a seriously broken system.

I would encourage everyone to read the first part of the report (which is 84 pages including footnotes), it does a very good job of explaining in plain english what the problems are, what was supposed to happen in mortgage transferring, what actually went on, and what might happen in the future. There are eyepopping statements about every other page (including in the footnotes).

I liked the part about how the trustees and/or servicers are refusing to act in the best interests of the investors in MBS's because they are affiliated with the corporation that sold the loans to the trust (i.e., they don't want to force the seller to buy back a defective loan because, well, they are owned by the seller). Also, the hurdles for investor lawsuits to force loan buy backs can be huge (25% of the voting rights in the securitization trust for certain things, 51% for others, this in trusts that are widely held and might as well be publicly traded (if they aren't already)).

Bottom line is that if there is endemic defective underlying documentation Congress will be pressured to "do something" to "clean up" the mess created by the mortgage industry, which means bailing them out and screwing homeowners.

The new motto of the US is: Making 95% of the population drive themselves into poverty in order to ensure the remain 5% stay rich.

Each and every day I understand just a little bit more why countries have civil wars....

This post at Rortybomb (and the linked PDF) explain why servicers are so keen to foreclose:

https://rortybomb.wordpress.com/2010/11/15/servicing-conflicts-and-empirics/

Or, shorter, this from Naked Capitalism:

Ah, but there is one party that wins, big time, from foreclosing, and it’s the servicers. Servicing a mortgage that is current is a breakeven, at best a thin profit business. Late fees and foreclosure-related fees pad a servicer’s bottom line. Moreover, if a borrower becomes delinquent, the servicer advances principal and interest to the investors. In normal times, when foreclosure volumes are low and homes can be sold readily, the servicer can recover these outlays fairly quickly. But now, with foreclosures and liquidations attenuated, the amount of these advances have become very large, and the only way for the servicer to recoup is to foreclose. Hence foreclosure isn’t an option, it’s an institutional imperative.

And we also have the fact that deep principal mods to viable borrowers would force the biggest banks to write down their second mortgage portfolios, which means again the banks are putting their interests before those of the investors.

Further thoughts:

7. I absolutely positively do not approve of committing fraud on the court. The attorneys should be disbarred and the robo-signers and their managers should go to prison (as should the lawyers if the evidence shows they conspired to commit the fraud). But the single worst state in this mess is Florida, and the State of Florida appears to be owned outright by banks. So if the DOJ won't act, there's little to do but be outraged.

8. The tiny little window of opportunity for justice to be done goes something like this: CalPers, under direction of Gov. Jerry Brown, sues the trustees (of the trusts which issued the lousy securities) for breach of contract and fraud and seeks as relief the replacement of the trustee with an alternative trustee who will put back to the originating banks the loans that should have never gone into the trust in the first place. BoA, as owner of Countrywide, goes running to Obama. And Obama, seeing that there are no votes for TARP II and that there's an opportunity to give the powers of the new financial reform bill a spin, tells Bair to seize the bank.

Odds of this happening? Couldn't possibly tell you. But low.

9. Unless and until more banks and their servicing subsidiaries are seized by the FDIC, I see no systemic alternative to foreclosure. There are too many parties, too many contracts, too much divided authority for the govt to come in and provide a change in incentives.

From Ugh's 9:02 AM:

In earlier years, under the traditional mortgage model, a homeowner borrowed money from a single bank and then paid back the same bank. In the rare instances when a bank transferred its rights, the sale was recorded by hand in the borrower's county property office. Thus, the ownership of any individual mortgage could be easily demonstrated.

Call me naive or old fashioned, but couldn't we go back to this? I'm not against mortgages being bought and sold, but can't there be some (more?) constraints on the conditions under which that can happen? If a lender had to hold onto a mortgage for, say, at least five years, barring such and such extraordinary circumstances, wouldn't that lend (no pun intended) some stability to the system and make it not-so-inconvenient to record the transfers in writing with the county?

That explains it for the servicers, Jacob Davies. But not so much for the Banks and the MBS investors.

Ugh's excerpt way above (@November 15, 2010 at 04:27 PM):

This explains alot:

If you pay less than the whole amount, JP Morgan is now obligated to pay the trust the remainder out of its own pocket. When you fall behind, your bank falls behind, too. The only way it gets off the hook is if the house is foreclosed on and sold.

Under normal circumstances, banks aren't willing to let lawyers go into court and file false and fraudulent documents willy-nilly on the banks' behalf. However, if the alternative is the complete decimation of the bank itself they may be willing to hold their nose and look the other way while the lawyers do so, and then act surprised when the news comes to light.

Also explains why Fannie and Freddie were using robo-signers, they made the same guarantee to their mortgage trusts.

reminds us that the foreclosure risk is borne by the investors (that was the whole point of the exercise -- move risk out of the banks and spread it around). So that would put Banks + Servicers on one side and Investors + Mortagees on the other.

Somehow Congress will find a way to bring the three entities that matter into agreement on an equitable solution.

The investors aren't getting their interests represented, because the servicers are the ones going whole-hog for foreclosure.

For the banks, the argument is that they want to avoid second mortgage writedowns that they'd have to take if they gave modifications instead of foreclosing. I don't know enough to know how to assess that.

For the banks, the argument is that they want to avoid second mortgage writedowns that they'd have to take if they gave modifications instead of foreclosing. I don't know enough to know how to assess that.

I don't know enough either, but don't they have to take writedown if they foreclose? So it's hard to see the advantage, other than preferring not to have the mortgage.

I don't know enough either, but don't they have to take writedown if they foreclose?

I don't know this for sure, but my guess would be that the default assumption is the home securing the mortgage is worth at least as much as the mortgage, so if they foreclose they've just replaced one asset valued at $X on their books with another valued at $X on their books - no writedown needed.

Now, if they sell the home for less than the outstanding principal amount on the loan then there must be a writedown I have to assume, but maybe foreclosing is a technique to delay the inevitable (or maybe they plan to hold onto the house forever and never take a writedown).

There is no way out of this that does not involve massive, systemic pain.

Right now the "way out" is for that pain to be borne almost exclusively by homeowners as banks continue to launder mortgages through the foreclosure process. Eventually the "bad" mortgages will be replaced by good paper, at which point they get to start the process all over again.

That's not acceptable. At all. But it is how things will play out, absent legal action to the contrary.

The alternative, as I see it, is to go nuclear on the banks. Enforce existing relevant laws to the letter--right up to and including the point where if they can't legitimately produce the necessary paperwork, the mortgage doesn't legally exist. Force them to eat the loss, even if that means some people who actually did owe money get their houses. Some judges are already doing that, but they're the noble exception. That needs to be the rule.

Then prosecute every single person who attempts to pass off fraudulent paperwork in order to avoid having to eat the loss.

It shouldn't even be a change in existing law--just hardball enforcement of the laws that already exist.

This might result in a lot of pain for a lot of people. But what's happening now is already inflicting that pain on thousands of people who don't deserve it. And I guarantee you that if we hammer home the message that no note means you take a total loss on the mortgage while the homeowner keeps the house, and fraudulent paperwork means you go to jail, we will see a dramatic change in behavior on Wall Street.

The default assumption may be that the mortgage is "above water", but I have to wonder whether the default assumption is true in most foreclosure cases.

What I want to know is this: when one investor owns the rights to principal repayments and another investor owns the rights to the interest payments, how is each of them affected by a foreclosure?

--TP

Ugh,

Yes. I see.

I was assuming the foreclosed property would sell for less than the loan amount.

But this seems to me to be a likely scenario. If the home will sell for enough to cover the loan then surely some percentage of owners will just sell to avoid a foreclosure.

In any event, it does look like the banks should be willing to reduce principal to the amount they would get in a foreclosure sale, but it doesn't look like they are. Probably this is due to some of the conflicts and problems discussed in the report you linked to.

It's a seriously depressing document, but I do second your suggestion that people read it.

Ken Lewis made the call as CEO to buy Countrywide as well as Merrill Lynch but don't underestimate the others in the regulatory scheme. There was pressure put on banks like BofA, Morgan and others to take on these burning blimps. I'd like to see the net cast as wide as possible (I'm looking at you Timmy and Hank).

they've just replaced one asset valued at $X on their books with another valued at $X on their books
The mortgage is a performing asset with reserves based (typically) on the asset class. See Basel I. So long as the bank carries it as a loan, any loss or writedown is run through the reserves. Once the bank forecloses, the asset is transferred to OREO and any further loss is a direct income hit. So, the bank will take the loss, usually a bank will recover about 60% of the loan in a foreclosure, (with markets like Las Vegas, Phoenix etc. historical experience will not be future performance) before transferring to OREO.


Need I remind you people that we will not be letting up on the millions of American deadbeats -- our neighbors and relatives -- who are suffering job loss, home foreclosures, and medical devastation.

They will be punished. Their children will be punished.

I started this and, by God, now that my Tea Party enforcers, financed by my fellow plutocrats, are in place to destroy any attempt by any level of government to soften life for those who deserve punishment, we will not desist in our goal of letting the markets decide all -- life and death.

You resist us at your peril.

Tom M.,

Not quite sure I follow all that, but that doesn't keep me from commenting.

It always seems strange to me when accounting treatments, rather than economic reality, dictate business policy. If I were a banker, I would innocently look at cash flows, NPV's, and the like, and make my decision about handling a delinquent loan on that basis.

Via Atrios, a liveblog of the Senate hearings on this today:

Part 1: http://news.firedoglake.com/2010/11/16/liveblog-senate-banking-committee-hearing-on-foreclosure-fraud/

Part 2: http://emptywheel.firedoglake.com/2010/11/16/liveblog-senate-banking-committee-on-foreclosure-fraud/

Levitin: 2 problems. Mortgage servicers. Simply put, foreclosure is either less costly or more profitable than mod.

Bennet: Not for investors.

Levitin: Servicers do not match investors. Loans on bank books. Strong disincentive to recognize losses quickly. 40% not securitized. We don’t know how many mortgages there are in US. Somewhere between 50-60 million. If loan defaults, bank can stretch out time. If bank writes down now, it’s taking immediate loss. Almost all 2nd liens on banks books. Held by 4 largest banks. BoA, Chase, Citi, Wells. Roughly equal to mkt cap of those four banks. If they started writing off these liens, they’d be insolvent.

IA AG Miller: You’ve made my speech [to Levitin] better than I did. Culture to get over, that servicers traditionally their job was to turn over $$ to investors. Now being asked to do something totally different. To underwrite loans. Our belief, State AGs, like yours, a lot more mods should be made. Working w/servicers what solution should be.

And on loss allocation:

Reed: You anticipated my question. How do we deal w/millions of indiv cases? SDNY BK judges are already doing this.

Levitin: You need to make sure quiet title in US. Ultimately, real problem is that there are losses. We have to figure out how to allocate them. Right now losses put on MBS holders and average homeowners. Losses have to go somewhere. Banks, homeowners, govt, investors. Not govt, had that already in 2008.

Dodd; very perceptive.

Levitin: It might get me tenure. No one wants to see losses on homeowners, but that’s where it’s falling. So investors or banks. Investors didn’t originate problems. In many cases, investors saying “we thought we were buying better paper.” We need to allocate the losses. We can avoid that for a time. As long as we don’t address loss allocation, making a choice, stick losses on homeowners and investors, and that’s not where they should be.

It's clear what's going on. We bailed out the banks once, but that was nowhere near enough (which was said by many at the time). The losses were much larger than acknowledged at that time. The banks have been trying to dump all the losses on homeowners and MBS investors, the former being (in many cases) people who were swindled or didn't understand what they were getting into or were ripped off by illegal fees, and the latter being people who relied on the ratings agencies actually doing their job and believed that AAA meant AAA.

Bank shareholders have taken some of the losses. The one group that hasn't taken any losses are the executives and managers of the banks who actually did all of this. They don't just need to take losses. They need to go to jail. For a long time. They committed a multi-trillion dollar control fraud and crashed the world economy. They are currently swanning around in yachts. If they don't go to jail, this is not going to end well.

Came home, read my email, and found a note from my county's Registrar of Deeds.

Apparently, he's been getting a lot of calls from folks who have paid off their loans and been informed by their lenders that the discharge of mortgage needs to be filed with the Registrar.

We can do that for you for $150, they say, or else you will have to do it yourself.

What they fail to mention is that "do it yourself" consists of mailing it in, and the Registrar's filing fee is $75.

100% markup, to mail a document.

Seriously, what a crew of total slimeballs. It's like they are going out of their way to be complete and utter dicks.

And yes, I do regularly get helpful emails from my county Registrar of Deeds.

Someone remind me again what value these parasites add to the global economy? Beyond coming up with creative new ways to manufacture wealth for themselves to the detriment of society?

Because it's looking more and more like you could put nine out of ten of these people in jail or on the street, spend whatever gets spent by the state to support them at that basic level--and still come out with a net win for the rest of the world.

"We can do that for you for $150, they say, or else you will have to do it yourself.

What they fail to mention is that "do it yourself" consists of mailing it in, and the Registrar's filing fee is $75.

100% markup, to mail a document."

This is actually a very old scam. Small companies often get 'notification' from a service about filing company minutes with the secretary of state. In states where it is required, which isn't all of them by any means, the fee at the SOS office is nominal. The fee charged by the service is often 10-15x as much.

Catsy--

This might result in a lot of pain for a lot of people. But what's happening now is already inflicting that pain on thousands of people who don't deserve it.

But what you're proposing would inflict pain on hundreds of millions of people, for years and years. It would cause the collapse of several of the systemically important banks (TBTF is alive and well), which in turn would put us right back in the liquidity trap we were in in late 2008. Only this time, it really would be a depression.

I hated TARP. It was bad enough that it insulated the banks from the consequences of their incredibly stupid behavior, but that it actually rewarded them was almost intolerable. Still, it was pretty obvious that leaving those boobs to twist in the wind was going to hurt the rest of us almost as much as it hurt them. So I supported it.

Now it seems as if the other shoe is about to drop. Unfortunately, the same logic applies. You want to hit individuals with fraud and/or perjury? Cool--do it. But we can't afford a collapse. We can't even afford to do something that might risk a collapse. Yup, we get to bend over, take it, and smile, yet again. But it's better than the alternative.

The more important task is to figure out how to actually regulate the system so that this can't ever, ever, ever happen again. (Of course, something else will happen, but you do what you can, right?) The problem here is that this is all so friggin' complex that the finreg legislation punted the whole issue to the various regulatory agencies, which is of course putting the fox in charge of the henhouse. I have no idea how this is all going to shake out, but I do know that it's going to end badly if this stuff doesn't stay well-publicized.

And on your recent comment:

Someone remind me again what value these parasites add to the global economy? Beyond coming up with creative new ways to manufacture wealth for themselves to the detriment of society?

More than you'd guess. Ultimately, they're just brokers for getting giant wads of money to slosh from point A to point B. But you don't have much growth in your economy without them. They're grossly overpaid, but that's because they don't have much competition; they work in a highly regulated environment. You get to pick your poison: you get to have a modicum of government protection and expensive services, or you get to have the wild west with cheap services. I'll take the former, but I'd prefer as little regulation as possible.

Bankers get real casual with other people's money, the same way that trash collectors are casual with other people's garbage and butchers are casual with other people's meat. That's about the right metaphor: Money butchers!

Ugh--

Does this whole thing ultimately boil down to everybody trusting MERS, only to discover that the database may be correct about the endpoints but that the notes are nowhere to be found?

Does this whole thing ultimately boil down to everybody trusting MERS, only to discover that the database may be correct about the endpoints but that the notes are nowhere to be found?

Maybe, but I don't know, the report didn't seem to go into much detail about the accuracy of MERS itself (or if it did it didn't register with me). MERS may well have the correct endpoints (and perhaps every stop in between), but given how screwed up everything else in this process seems to be, I doubt it.

Even assuming MERS has managed to track everything (or most things) correctly, is Congress really going to waive away all the malfeasance in the underlying documentation, alot of which squarely violated both state and federal law and has cost both billions in taxes and potential penalties? And how does Congress go about getting investors to waive their rights under their contracts with the securitization sponsors (assuming they can get together enough to exercise them)? I suppose Congress can retroactively waive the penalties for noncompliance with the REMIC requirements, so that the investors can retain pass-through tax treatment for federal purposes, in exchange for those same investors waiving their remedies under the securitization contracts, not sure how those mechanics would work, however (actually, if noncompliance with the REMIC rules is widespread enough to present a threat to "the system", look for the Treasury Department to waive the rules on its own, much like it did in 2008 to facilitate one of the big bank mergers (don't recall if it was BofA buying Merrill or WF buying Wachovia, or both) where it effectively nullified an act of Congress).

Good times.

I refinanced my house a month and a half ago (WF, even). This thread had me so paranoind that I called the county to make sure the title company registered it. They did. But I live in New Jersey, which many consider to be over-regulating. Right now, that feels like a good thing to me.

No HSH, regulations, like the government, are always bad.

Always.

TRM,

Ultimately, they're just brokers for getting giant wads of money to slosh from point A to point B. But you don't have much growth in your economy without them.

That's true of those who actually do get saved money put to work in the real economy. To some degree it's true of those who create vehicles for spreading and diversifying risks, since that too helps the real economy.

But whether it's true of players on the outer fringes of the mortgage derivative game is open to serious question, in my mind. You can make a theoretical case, I guess, but then reality creeps in. You get inadequate records, hurried and insufficiently verified transactions, frauds winked at, all sorts of agency conficts, etc., and those theoretical benefits go away pretty quickly.

We probably can't afford to let the banks go, as you say. But let's distinguish between them and the people in charge of them. A bank being too big to fail should not make its execs too big to jail. (Sorry, couldn't resist.)

I see no reason why these guys who drove things off a cliff need to be kept on and paid gigantic sums. If we need them because they know where the bodies are, here's an idea: They help clean up the mess for minimum wage as a condition of probation.

Ugh--

The reason I suspect that the endpoints in MERS are OK is that the underwriters will insist on it. After all, it's the endpoints that actually participate in the cash flow. Bankers are pretty good at understanding who's involved in the cash flow.

It seems that a mighty fine way to make the parties feel real pain without killing them outright might be for the IRS to disqualify any MBS with bad paperwork (apparently all of them) from REMIC status. Would that make all the dominoes fall, or would it merely cause a mighty sting in the upstream financial institutions?

Of course, the Republicans would beat Obama over the head with "executive overreach" in 2012, but this seems like something completely within his executive power.

I refinanced my house a month and a half ago (WF, even).

Same here. Mine was originated by a local guy we've worked with before, and then was immediately sold to WF. No problem, he let us know what was up before we did the deal, and it was a good deal for all concerned.

Within a couple of weeks, we got the first Big Scary Letter from Wells telling us the insurance had expired, and they needed to get the insurance docs RIGHT AWAY!!!!!

I called, they had gotten them already and everything was just fine. "They must have crossed in the mail".

I sent my mortgage payment certified mail, with return receipt.

I think we've gotten to the "we're holding your money hostage, and if you don't do what we say you'll never see it again" stage.

The reason I suspect that the endpoints in MERS are OK is that the underwriters will insist on it. After all, it's the endpoints that actually participate in the cash flow. Bankers are pretty good at understanding who's involved in the cash flow.

It could be that MERS has the endpoints where people think they are supposed to be, but that doesn't mean the endpoints are, in fact, there. And it may be that the best (or least bad) solution to this whole mess is just to have everyone go by MERS, but there are a lot of parties who don't have much of an incentive to go along:

(a) homeowners subject to foreclosure - they're entitled to due process before someone deprives them of their property, if the person trying to foreclose doesn't have standing to do so under state, homeowners are well within their rights to object (and in fact they should object); (b) investors who are holding MBSs that they bought from securitizers in violation of the latters reps and warranties, if you're holding an MBS that has lost 50% of its value and can force the securitizer to buy it back, why not?; and (c) state and local governments, who have been (apparently) backdoored out of billions in mortgage transfer fees and even more in penalties. There are probably others.

It seems that a mighty fine way to make the parties feel real pain without killing them outright might be for the IRS to disqualify any MBS with bad paperwork (apparently all of them) from REMIC status. Would that make all the dominoes fall, or would it merely cause a mighty sting in the upstream financial institutions?

I assume (but don't know) this would mean that the securitizers (the big banks) would be in violation of their reps and warranties and be obligated to repurchase the non-qualifying MBSs (not all of which are REMICs, I think) at face value. To the extent there is a significant enough difference between face and fair market value to deplete the banks' regulatory capital , then they're screwed.

TRM:

But what you're proposing would inflict pain on hundreds of millions of people, for years and years.

The truth of this is really not obvious to me. You've made a lot of doom-and-gloom assertions, none of which strike me as things which automatically follow from what I've proposed. They strike me as things which /could/ happen, depending on /how/ we go about this.

Yes, it is likely to push a lot of banks to the brink, if not over it. If we need to take action to keep the most essential institutions from vanishing entirely, so be it.

But the people who knowingly gambled on and profited from this systemic fraud need to lose their shirts, if not go to jail. No note = no mortgage. The consequences of ever doing this again need to be so financially and criminally devastating that no one will ever dare try it. The stakes are that high.

It's a question of moral hazard. If the people who perpetrated and profited from this crime get to laugh all the way to the bank, it WILL happen again.

We can't afford that. And we can afford that a lot less than we can afford the consequence of coming down hard on this fraud.

As for the final comment, I'm not saying everyone who has ever worked in finance adds no value. That's self-evidently silly. I think Bernard nicely captured my thinking on this.

I'm tempted to go to the no perfect note=free and clear house route, but that doesn't sit well with me either.

How about something like the insurance rule that you resolve all ambiguities in favor of the insured? Take houses with a teaser rate. If you don't have a perfect note, the teaser rate lasts forever. Something with a 5 year reset? Doesn't reset unless you have the perfect note. Definite financial punishment, but not the total disaster of the mortgage ceasing to exist?

[Just throwing stuff out there, not necessarily a serious suggestion]

Let's get summary: decimation.
Any company that cannot prove innocence in these schemes gets ten percent of its employees shot (person in questions selected randomly but weighted by income). A company, esp. in the non-productive sectors, should be able to survive with 90% of personnel until replacements can be hired/trained.
Mercy alternative: Execution can be postponed, if person in question volunteers for high-risk jobs in warzones for 5 years.

regulations, like the government, are always bad

That's not the way I see it, Eric. But I don't speak for all smaller-government types.

I'm starting to think "decentralized" more than "small", though, so that might make me apostate.

I think you missed an irony cue there, Slartibart.

I'm more in the "small" than "decentralized" camp for this one, if only because I can't see how you run a global market for mortgage-backed paper with a patchwork of regulations--that's kinda how we got ourselves into this mess in the first place.

Seems to me that there are two fundamental failures that need to be addressed via legislation or regulation:

1) The originator of the loan needs to have skin in the game for the life of the loan. This is all you need to do to make sure that borrowers are properly qualified and therefore the credit risk of the overall portfolio can be quantified.

2) We need some MERS reform. Seems like MERS requirements need to be written (or rewritten) into the REMIC regulations, with the most notable requirement being that a scanned copy of the note be dragged along through beneficiary and servicer changes.

The more I look at this, the more I'm convinced that the foreclosure problem started out as your garden-variety system screwup. People got comfy with the Big Database in the Sky, and the necessary legal paperwork didn't get tracked by the database and therefore got lost. (The paperwork backing a database always gets lost--that's the purpose of the database. The problem arises when the database architect doesn't get all the important stuff into the system in the first place.) At this point, all you had is stupidity with a soupcon of venality thrown in for good measure.

Where things went off the rails is when the system got stressed and everybody realized that the screwup could prevent clearing the foreclosure backlog. And, as usual, the coverup was worse than the crime. At the end of the day, I'm pretty sure that we'll discover that >99% of the foreclosures occurred because the borrower stopped making payments--and you'll get a few mid-level folks thrown in jail for fraud and/or perjury.

I think that's probably about right. These guys had an "oh shit" moment and, rather than 'fessing up and seeking regulatory relief for a bug in the system, they tried to paper things over and ram stuff through. Somebody needs to to be punished for that but there's no malice involved and very little if any theft. That makes any fraud pretty much incidental. Perjury, on the other hand, seems pretty cut and dried.

The real criminality was, and continues to be, fraudulent representation of the credit-worthiness of the borrowers. There's plenty of blame to spread around there, from the the securitizers, to the loan originators, all the way down to the borrowers themselves. As usual, when you've got money for nothin' and your kicks for free, the party's going to end badly. You fix that, and 95% of the problem goes away.

Somebody needs to to be punished for that but there's no malice involved and very little if any theft. That makes any fraud pretty much incidental.

This rosy, good-faith characterization does not comport with any of the evidence available to date. You don't set up an entire frakking organization in your company dedicated to systematically forging thousands of notarized documents with the best of intentions. An entire industry for fabricating counterfeit documents does not materialize because of an "oops" moment.

Many borrowers did not get any "money for nothing", it's important to note. (In some cases they did, like cash-out refis and HELOCs, but those are not all the cases.)

In a lot of cases what they got was a loan for say $300,000 for a house that was appraised at $300k in 2007 and is now worth $120k. The seller in this case is the one who wound up with a big pile of free money. (Except they probably used it to buy another house and took an equivalent equity loss on that.)

Unless the buyer was a straw buyer - plenty of that going on too - they weren't making out too well on most of these houses.

Now, there's a whole other class of buyers - people who bought around 2005, cash-out refi'd annually using the phantom bubble equity, and then used that cash to pay their mortgage. You can do that for a little while in the period where house prices are going up crazily, if banks are stupid enough to believe their own appraisals. But you can't do that indefinitely, which was one cause for the crash.

Point is, there's a lot of different stuff that happened. There was a lot of fraud on the part of home buyers, but it was encouraged and guided by those parties who were supposed to be experts in housing - realtors, bankers, appraisers, ratings agencies. When a doctor conspires with a patient to supply them with illegal prescriptions, we punish the doctor a lot more than the patient, because the doctor is granted far more trust and therefore is held to higher standards.

This rosy, good-faith characterization does not comport with any of the evidence available to date.

Extremely rare moment of complete agreement with Catsy. TRM, you need to go do some reading, I say.

Matt Taibbi is not for everyone (I am not any kind of a fan, FWIW), so check this out, and see if you still think it was all by accident.

I like Matt Taibbi because unlike most of the weaksauce journalists out there he can actually muster a frothing rage at things that really, really deserve to be frothed at.

But I recognize he's not for everyone.

Slartibart, Catsy--

I'm not trying to say that the origination of the loans wasn't reprehensible, fraudulent, and profoundly damaging. It obviously was. Lots of people need to go to jail.

But the attempts by Taibbi et al. to equate the criminality of the foreclosure issues with that of the origination issues just doesn't wash for me. They're separate. After the loans were originated, they were obviously transferred to various servicers, as was the cash flow from those loans. And, just as obviously, the borrowers in the vast majority of cases actually defaulted. (Even Taibbi notes that 90% of the foreclosures go through uncontested, although he studiously avoids drawing the obvious conclusion that it's because the borrowers admit that they're in default. Apparently that conclusion doesn't advance his narrative.) Somebody has the right to foreclose, despite whatever screwups occurred during the transfer of the note.

Are there people who were not in default who were turned out of their homes? Yes. But vast majority of those people are going to be able to prove that and any tort lawyer in the country will gleefully take their case on contingency because they're going to be awarded tens of millions of dollars in punitive damages when an incensed jury determines the facts.

Now: Is there a somewhat larger set of borrowers who've had their loan modifications repudiated because the servicer and the forecloser (in the cases where they're not the same) didn't communicate? Probably. Is there some conspiracy to lull borrowers into believing that their problems are solved so that they're technically in default long enough to foreclose? This strains credulity--there are easier, much lower risk ways to make money.

(By the way, does anybody actually have numbers on how many cases there have been of people not in default being evicted? Are we dealing with 1% of all foreclosures, or is the number--as I suspect--more like .001%? At 1%, I'll start to believe in a conspiracy. I'll also go out and buy a bunch of gold and MREs, because there won't be a financial system for much longer.)

NB: I'm also not trying to say that crimes weren't committed in the foreclosure mess. There are clearly lots of people who've committed perjury by submitting false affidavits to the courts. But intent ought to count for something here. There's a big difference between manufacturing evidence to support something that you believe you actually own vs. doing the same thing to steal something from somebody else. This is a difference of degree, not of kind, but it's a huge difference of degree.

But vast majority of those people are going to be able to prove that and any tort lawyer in the country will gleefully take their case on contingency because they're going to be awarded tens of millions of dollars in punitive damages when an incensed jury determines the facts.

It seems to me that this and other invocations of a vast majority doing this or that is kind of foregone-conclusion-y, that it will automatically occur without torches and pitchforks being waved.

We could all hold our collective breath to see if mortgage lenders will accidentally sue themselves into submission, too. Or: we can kvetch, which is cathartic and free.

Jacob--

Re. "money for nothing": I wasn't really thinking of the borrowers when I wrote that; it's the loan originators that made out like bandits. They are also eventually going to be the ones in jail. The fraud is so obvious and widespread at that level that I'll be surprised if the feds don't crush a lot of them pour encourager les autres. Next in line are the people making huge sums to certify the credit risk of the CDO tranches.

But let's take your example of the guy who gets a $300K loan on a house that's worth $120K. First of all, I assume that you're talking about an actually fraudulent appraisal here, rather than merely the temporary market insanity that prevailed until mid-2007, where the homeowner would have been justified in believing that his house was worth $300K.

Let's now figure out just exactly how badly wronged that guy is. There are several cases:

1) He attempted to refinance to monetize $100K out of his house and he was planning on getting a 30-year fixed rate jumbo, which he could afford, but the lender talked him into taking out $180K on a teaser ARM instead. Would you agree that apportioning blame at, say, 75% lender, 25% borrower sounds about right?

2) He wanted to suck as much money out of his house as possible, even though he knew he couldn't afford the post-teaser rates, and the lender told him that he could refi more conservatively in the future, after his house appreciated. How 'bout 50-50 in this case?

3) He sold his old house and used the proceeds to buy a house that he was utterly unqualified to buy, expecting the house to appreciate enough to refi before the teaser expired. 40/60 lender/borrower sound right?

4) He stopped renting and bought something ridiculous for nothing down. I don't know how you assess blame here. I'd like to say that both lender and borrower were 100% responsible.

I have absolutely no sympathy for the guy in case #4. He probably got to live somewhere really nice for less money, and the fact that it only lasted for a couple of years puts him just that much further ahead. His credit got dinged, but it's not like he's going to buy a house in the next 8 years, anyway. He wins, as far as I'm concerned.

I feel a little bit worse for the guy in case #3 but the fact is that he could have bought more new house based on the appreciation of his old one and still had a nice, safe fixed-rate loan. Maybe he got egged on by the lender, but he was previously a responsible homeowner. Why did he stop being responsible?

I feel pretty bad for the guy in case #2, but he intentionally bet on the market going up. The only guy that I think that had something fraudulent, or at least tortious, happen to him is the guy in case #1.

I've never seen a breakdown into which of these four categories the foreclosures of the last two years fall. If anybody has data, please let me know.

It seems to me that this and other invocations of a vast majority doing this or that is kind of foregone-conclusion-y, that it will automatically occur without torches and pitchforks being waved.

Well, yeah. Unless you're a complete idiot, and a passive idiot to boot, aren't you at least going to consult a lawyer if something like this happens to you? And aren't the lawyer's eyes going to light up with big dollar signs, like something out of Looney Tunes?

What I'd prefer to happen, TRM, is that once such activities as forging mortgage contracts become public knowledge, that law enforcement would put a stop to it.

That may very well be happening, for all I know.

Otherwise, you've got to hire/consult a lawyer everytime someone tries to screw over someone else. I think there's criminal fraud occurring; you shouldn't have to go all tort-y to keep that from happening.

Off the top of my head, here is the short list of people who contributed to the housing-related steaming pile o' crap by lying.

People who misrepresented their income, assets, etc.

People who knowingly sold mortgages based on those misrepresentations.

People who bundled those mortgages into financial instruments without properly disclosing the real level of risk they represented.

Ratings agencies who blessed those crappy financial instruments.

People who sold hedging financial products to the folks who had invested in those financial instruments, promising to pay them money they did not have and could not possibly get their hands on, against a risk that could easily be seen to be more likely than not.

And, of course, our friends the servicers who are now attempting to foreclose on people without having the necessary documents in hand.

There is a generous handful of other forms of entertainment in play, but they probably don't rise to the level of fraud. They're merely predatory, or perhaps they just suck.

Net/net, to my relatively unsophisticated eye what we are looking at is an industry that is rotten to the freaking core. More than one industry, in fact.

It's pretty freaking simple. They're crooks and chiselers. Some of them will have crossed the line into illegality, some not. The ones that have, should have the book thrown at them.

Doesn't the lender (the Bank) decide who goes into foreclosure in the first place? They start the ball rolling...

Isn't some responsibilty with the borrower? They took a loan they could not pay... now Tammie Lou Kapusta has put more people on the streets...how are the 100's of employees going to pay their mortgages. David Stern has millions..

So doesn't matter who signed a piece of paper people were allowed to take a loan that they had no way of paying back.

Makes me sick to my stomach how dare people blame others for their irresponsibility.

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