Foreclosure Fraud: Tough Issues With Which to Grapple
This past week, pretty much every conversation I find myself in has something to do with the MASSIVE FRAUD that has emerged related to our nationâ€™s housing, mortgage, credit, foreclosure and economic crisesâ€¦ see, itâ€™s grown so immense in scope that I donâ€™t even know how to refer to it anymore.
Just in case youâ€™re one of those not yet at risk of foreclosure, and therefore donâ€™t think that what youâ€™re hearing about today impacts you, I can assure you that youâ€™ll change your mind about that soon enough, because as it stands the fraud perpetrated here is going to impact everyone in this country forâ€¦ oh, I donâ€™t knowâ€¦ letâ€™s be optimists about this and call it the next 50 years.Â I assure you that no one is getting out of this one unscathed.
My God, letâ€™s just take a moment and look at what our bankers have done here.Â And, as to our nationâ€™s regulatory agencies?Â Well, we plainly donâ€™t have any, and Iâ€™m not at all sure that I mean that figuratively.Â I canâ€™t help but sincerely wonder, if we literally didnâ€™t have any regulatory agencies, how much worse could it possibly have become?Â I meanâ€¦ I want to be fair about thisâ€¦ specifically which â€śexcessesâ€ť did our regulatory agencies curb?
On numerous occasions over the last few months, all of my reading on this subject has, on several occasions, flat out left me staring at the blank wall behind my desk, unable to moveâ€¦ unwilling to think.Â The whole picture is just too much to fathom.Â Wall Streetâ€™s bankers have not only been allowed to destroy the worldâ€™s economy and credit markets, but theyâ€™ve been rewarded for doing so, and the bill is being sent to the working class citizens of this country, among others.
The same bankers that caused the crises have profited to a degree never before seen or even contemplated, at least not by me.Â In fact, had anyone, lets say a decade ago, tried to tell me that such an outcome were possible, I would not have believed it.Â Now, for meâ€¦ anything is possible, Iâ€™m sorry to say.
At issue, of course, is the record-shattering number of mortgages on which servicers are attempting to foreclose withoutâ€¦ well, without doing much of anything theyâ€™re supposed to doâ€¦ or legally required to do, like attempting to meaningfully modify loans, or producing the proper paperworkâ€¦ you know, the stuff that proves that the REMIC trusts that are attempting to foreclose actually hold the notes to the indebtedness in question.
Obviously something is more than just slightly askew in this regard, as essentially all of the major banks have attempted to skirt the issue by producing fraudulent documents, and hiring â€śrobo-signers,â€ť to sign their name something like 10,000 times a month on affidavits claiming that the assignment of a given mortgage to its respective trust has been lost or, for reasons I canâ€™t comprehend, intentionally destroyed.
These banks have been â€ścaughtâ€ť doing thisâ€¦ caught in the act, as it were.Â Banks forging documents and robo-signing affidavits to be presented to the court in order to seize someoneâ€™s propertyâ€¦ banks doing thisâ€¦ not used car dealersâ€¦ not sales-crazed mortgage companiesâ€¦ banksâ€¦ large, to-big-to-fail-type banks.Â The kind of institutions that require multiple signatures, state identification cards and even fingerprints before cashing someoneâ€™s check for $5.Â One might consider, the type of institutions that should be the least likely to condone forgery and fraud where documents are concerned.
So, apparently they ALL lost or intentionally destroyed the documents showing that the loans were assigned to the trustsâ€¦ and they all lost or destroyed them at about the same timeâ€¦ and then they all independently came up with the idea to hire robo-signers to â€śproveâ€ť to the courts and the country that they should be allowed to foreclose on property regardless of what the paperwork says or doesnâ€™t say.Â All of themâ€¦ during the same period of timeâ€¦ unrelated financial institutionsâ€¦ allâ€¦ lostâ€¦ theâ€¦ sameâ€¦ assignmentâ€¦ recordsâ€¦ atâ€¦ theâ€¦ sameâ€¦ time, and then all decided that the obvious solution was to have someone sign affidavits 10,000 times a month without reading them and present those to the courts.
Was that last paragraph too redundant for your tastes?Â Yeah, well tough.Â I should print the last two paragraphs yet again.
Is it just me?Â Isnâ€™t anyone else fighting the urge to open the window and scream: STOP IT!Â YOUâ€™RE HURTING ME!?
Professor L. Randall Wray, an economics professor at one of my alma maters, UMKC, the University of Missouri at Kansas City, refers to the situation as â€śthe biggest scandal in human historyâ€ť.Â According to Professor Wray:
â€śIndeed, all previous scandals from around the globe combined cannot even touch this one in terms of scale, scope and stench. This is the mother of all frauds and it will be etched into the history books for all time.â€ť
Gee, I wonder what he means by that?
Finally, someone who can write a sentence that doesnâ€™t audaciously equivocate, claim journalistic purity, or otherwise kiss someoneâ€™s politically correct ass.Â You go, Professorâ€¦ good for you.
On the other side of the table, the banks and the Obama Administration continue to describe the problems banks are having with foreclosures as being trivial-little-nothing-type issues that theyâ€™ll have fixed up in a jiffy.Â Like as if whatâ€™s happened is that they forgot to say â€śSimon says,â€ť before foreclosingâ€¦ big deal.
So, to sum up the positions of the two sides to this issue, it appears that it is either â€śthe mother of all fraudsâ€ť on its way to being etched into the history books for all eternity, or itâ€™s an unpaid parking ticket in Hungry Horse, Montana, population 934.
There are several things that bother me about the bankersâ€™ stated position here.Â For one thing, both their explanations and their apparent attempted solutions to whatever the problems are, ring as hollow as any number of the heads found in Congress these days.Â That much should be clear to everyone.Â Just in case any children are reading this, and one never knows about such things, forgery and perjury are never found on the right path to follow when attempting to cover up, flagrant and immeasurable fraud and massive malfeasance, boys and girlsâ€¦ neverâ€¦ never ever.
But, beyond that dramatic overstatement of the painfully obvious, I hate the fact that the banks and the administrationâ€™s officials, including Shaun Donavan from HUD, seem to think itâ€™s perfectly okay to collectively act as if they are Obi-Wan Kenobi and weâ€™re the mindless-droid-soldiers of the Empire in that scene from the very first Star Wars movieâ€¦ “There is nothing to see here.Â Move along.”
Ummm, okayâ€¦ if you say soâ€¦ thereâ€™s nothing to see here folks, so letâ€™s all get back to watching the celebrity meteorologist edition of, â€śSo You Think You Can’t Samba,â€ť in 3-D.
The problem is, there are 50 state attorneys general that I would think are running for reelection and they donâ€™t feel like pretending that the laws governing the transfer of property or foreclosure in this country have somehow been reduced to irrelevant technicalities.Â They obviously think that there are very serious problems here and theyâ€™ve banded together to investigate the handling of all of the foreclosures to-date in order to ensure that those that have lost their homes through foreclosure, have in fact lost them to those that own them, and that they havenâ€™t been swindled by unscrupulous financial institutions looking to take advantage of homeowners in distress.Â Iâ€™d also imagine that the AGs, as a result of this investigation, would like to be able to assure their stateâ€™s residents that their stateâ€™s laws related to foreclosure are being followed going forward.
And yet, with only a week or three having passed since the banks announced that they would stop foreclosing pending the results of their individual investigations into each of their respective robo-signing departmentsâ€¦ as if they too were surprised to hear of their very existenceâ€¦ last week Bank of America announced the completion of its comprehensive review of 102,000 loans and wouldnâ€™t you know it, theyâ€™ve determined that they are all foreclosure-fine-and-dandy.Â Tip-top shape, one might say.Â Therefore, BofA says itâ€™s ready to recommence making a mockery of the US legal system and will return to stealing homes without delay.
Perhaps to commemorate their abundant preparedness, BofA will foreclose on yet another free and clear home on which they never held the mortgage.
And, isnâ€™t it amazing that Bank of America, a servicer that is supposedly so overwhelmed and understaffed that it canâ€™t seem to approve a loan modification in under six months and then, only after being sent the same documents four or five times, has had no trouble at all ascertaining that its recordkeeping related to millions of mortgages is A-OK?Â Damn, theyâ€™re good, arenâ€™t they?
Wells Fargo didnâ€™t even bother pretending this time around.Â They never stopped foreclosing in the first place, saying that they were confident that their ducks were lined up just perfectly.Â Did they have robo-signers?Â Why, yesâ€¦ they did.Â But, no matterâ€¦ everythingâ€™s fine at Wells, regardless.Â They were only robo-signing for the fun of it, not because they needed to.
So, why did they all go the robo-signer route in the first place, I wonder?Â If it only took a couple of weeks to determine that they were in fine shape, why go to the trouble of signing 10,000 fraudulent documents a day?Â Somewhere, there must be bank employees righteously pissed off because they got carpal tunnel syndrome for nothing.
Once againâ€¦ “There is nothing to see here.Â Move along.”
Now, not being an attorney, I canâ€™t be 100% certain of what Iâ€™m about to say, but I always thought that foreclosures were governed by state laws, not federal statutes, hence the terms recently emblazoned into our lexicon: â€śjudicial foreclosure state,â€ť and â€śnon-judicial foreclosure stateâ€ť.Â So, why the federal government, including President Obama himself, felt the need to say anything about the bank-imposed moratoriums on foreclosures is beyond me.
I mean, the last time President Obama said â€śbooâ€ť about the foreclosure crisis was on February 19th of 2009, when he gave that inspiring speech that introduced his fabulous Making Home Affordable program.Â The one that was going to help four million homeowners, offer principal reductions, three percent fixed rates for thirty years, and judges capable of cramming down the loan balances of first mortgages in bankruptcy court.
Instead we got HAMP, the one that deceived homeowners into making a yearâ€™s worth of trial payments before being unceremoniously evicted as a result of failing some secret NPV test.
Yeahâ€¦ that HAMP.
I guess what happened was that some Members of the House of Representatives, realizing that theyâ€™re up for re-election in a matter of days, thought it would make a good sound bite to say something about a national ban on foreclosures.Â Itâ€™s a state issue, not a federal one, but what the heck, it sounds good.
So, HUD Secretary Shaun Donovan actually went out on the media circuit to echo Obamaâ€™s message that a national ban on foreclosures was a bad idea because it would harm the housing market by delaying foreclosures, which is funny for two reasons: 1. Because just a few weeks ago, Secretary Geithner and his finance drones said that HAMP was a â€śsuccessâ€ť because it had delayed foreclosures.Â And, 2. Because no one was seriously proposing a national ban on foreclosures, as the banks had voluntarily stopped foreclosing for a time, anyway.
Shaun was interviewed on PBSâ€™s News Hour.Â That link has the video and the written transcript of Jim Lehrerâ€™s interview, by the way, and is worth watching, both because you get to see Shaunâ€™s clumsy attempts to deflect the questions being asked, and because you get to see what a weenie he really is.
Throughout the interview, he kept trying to change the subject from being â€śthe lack of assignment paperwork and the blatant fraud being committed by the servicers,â€ť to â€śthe servicers not modifying loans they should be modifying,â€ť which is also funny because the servicersâ€™ behaviors havenâ€™t seemed to bother the administration all that much over this past year.
I seeâ€¦ now, when the servicers are foreclosing illegally, they all of a sudden care that the servicers arenâ€™t modifying loans that they should be modifying.Â I suppose when it comes out in the next few weeks that the banks committed securities fraud and defrauded investors around the world, theyâ€™ll be concerned about them foreclosing illegally.Â (Iâ€™m starting to understand how this whole thing works, which frankly, is scaring me.)
Overall, hereâ€™s how the interview went:
JIM LEHRER: How serious is the paperwork irregularities problem?
SHAUN DONOVAN: Well, first of all, any time somebody loses their home as a result of a paperwork error, that’s a serious problem. It’s one we take very seriously in the administration. And we are working together, and, in fact, convened today 10 different agencies from across the federal government to look at not just the paperwork issues, but the broader range of issues that have been raised about — about servicing.Â And we do have concerns that we are seeing not just mistakes on paperwork, but issues around servicers not doing what they should be doing to help keep people in their homes. And — and, just to be clear…
OH, FOR GODâ€™S SAKE YES, SHAUNâ€¦ BE CLEARâ€¦ PLEASE BE CLEAR ABOUT SOMETHINGâ€¦ ANYTHING AT ALLâ€¦
JIM LEHRER: Sure.
SHAUN DONOVAN: … it’s one thing to say that, at the very end of the process, there’s a paperwork error. It is unlikely at — many times, at that point, the home may be vacant or a person may be so deep in arrears, that it’s going to be very difficult at that point in the process to keep them in their home.
We want to make sure we’re working with servicers earlier in the process, and that they’re fixing any problems in the process further upstream, where you actually have a more significant chance of keeping somebody in their home. So, we’re focused not just on the paperwork issues, but a broader set of issues around the servicing process.
JIM LEHRER: But the paperwork problem specifically, how — what’s the extent of it. How widespread is it?
SHAUN DONOVAN: Well, that’s exactly why we have convened this task force and we’re looking extensively at this issue in FHA, in other forms of lending.
And we’re going to move as quickly as possible to try to resolve these concerns and get a sense of the scale of them. That’s why we’re doing these reviews. And, to be clear, we’re going to hold people accountable. We’re going to hold the institutions accountable for any mistakes that we find.
It’s also why we’re coordinating closely with the state attorneys general. Many of these processes around foreclosure are under state law. The processes vary from state to state. And, so, we’re coordinating closely with them to make sure that we have the authorities to enforce where we find those problems.
JIM LEHRER: But, as we speak now, you do not know how widespread the problem is, correct? Is that correct to say?
SHAUN DONOVAN: What I would say is that we are investigating as quickly and as comprehensively as possible how pervasive these issues are. Obviously, there are problems here, because servicers have acknowledged it and have put moratoria in place to be able to correct those problems.
And we support the fact that they have stopped those processes to review them and fix them. And any other servicer that finds these issues should be doing that.
What I would also say, though, is, we have found, based on the reviews so far, concerns with the processes, not just on paperwork, but on earlier in the process, where servicers should be working under FHA requirements to keep people in their home.
What I would also say, though, is, we have not found those issues across the board. And so this is really an issue with particular institutions. From the evidence we have so far, this is not a systemic problem that cuts across all mortgages or all servicers. And that, I think, is important.
(Memo to Shaun and my readers: There are eight banks that control 97% of all mortgages, so letâ€™s seeâ€¦ Bank of America is number oneâ€¦ JPMorgan Chase, number twoâ€¦ GMAC is number fourâ€¦ of course, everything is hunky dory at Wells, which is number three, so Iâ€™d say that the top four servicers would actually be considered â€śacross the boardâ€ť and/or at least somewhat â€śsystemic,â€ť in this instance.Â No big dealâ€¦ Iâ€™m just sayingâ€¦)
JIM LEHRER: So, you — so, you have no idea yet how many mortgages have been poorly serviced or improperly executed?
SHAUN DONOVAN: That’s exactly why we have undertaken this review, to try and get a comprehensive picture.
We have specific examples of it. We don’t yet have a comprehensive picture of it. That’s why the president asked us to convene this comprehensive review, to work together closely with other agencies. And that was what the meeting we had today was about with these 10 agencies.
It’s part of an ongoing process to coordinate, get to the bottom of this as quickly as possible. And our expectation is, based on the importance of this and the attention we’re focused on it, that we should have results from those reviews by the end of November or early December.
Okay, Iâ€™d like to call for a time-out for just a minute in order to recap what President Obama and Shaun have said thus far.
At the time of this interview, President Obama has said that he would not support a national ban on foreclosures, that no one was really proposing, because it would be bad for the economy and the housing market.Â Besides, the banks were voluntarily stopping foreclosures or at least foreclosure sales while they investigated the situation, as if they themselves werenâ€™t even sure what all this robo-signing was about anyway.Â And Iâ€™m confident that if there was massive fraud within the banks, the CEOs of those banks are going to be diligent in ferreting it out so they can be punished for it.
Then, Shaun started out saying that anyone losing their home due to some paperwork error is something that is being taken seriously by the administrationâ€¦ okay, so goodâ€¦ Iâ€™m happy about that.Â He also said that the president had just that day convened 10 federal agencies to investigate and get to the bottom of whatâ€™s happening here.Â Okay, also good.
In other words, Shaun doesnâ€™t know how serious the problem is, or how pervasive it is.Â The investigation has only just begun and wonâ€™t be completed until the end of November or early in Decemberâ€¦ whateverâ€¦ after the midterms, thatâ€™s the one thing we do know for sure.Â Whatever we will or wonâ€™t know, we wonâ€™t be able to know it or not know it until after the midterms.Â Bank of America took less than two weeks to vindicate itself of all wrongdoing, but 10 federal agencies wonâ€™t know anything until after the midterm elections are over, that much is certain.Â Okay, I think Iâ€™ve got it.
So, okay… back to the interviewâ€¦
JIM LEHRER: What are some of the most grievous mistakes that you all have come across thus far?
SHAUN DONOVAN: Well, look, I think the most important thing that we can do here, not just for homeowners, but also for the taxpayers, because, after all, FHA is a public agency that ensures these mortgages, we can ensure that we’re getting to homeowners as soon as possible in the process.
It’s not acceptable, for example, that, even though we require them to, a servicer might never pick up the phone and reach out to a borrower to find out what problems there are, why they’re late on their payment, or might not provide them with a modification, even if they’re required to do that.
So, those are the kind of things that we’re particularly concerned about and focused on in the review that we’re doing with FHA around these mortgages.
SHAUNâ€¦ THAT WAS NON-RESPONSIVE, DAMN IT.Â ANSWER THE QUESTIONS, PLEASE.
JIM LEHRER: Is it possible that this is going to end up with people going to jail?
SHAUN DONOVAN: We are coordinating with law enforcement agencies. Department of Justice is engaged with the Financial Fraud Task Force. And we will be and — and they are looking at specifically whether there are criminal issues here.
But I want to be clear. That is a narrow set of the issues, if there is willful or fraudulent misconduct. We are looking, more broadly, HUD and most of the agencies involved, more broadly, at a set of issues around the servicing process itself, which are not criminal issues.
OH, I DONâ€™T KNOW ABOUT THAT, SHAUNâ€¦ Iâ€™D SAY THERE ARE LOTS OF CRIMINAL ISSUES RELATED TO THE SERVICERS AND THE SERVICING PROCESS ITSELFâ€¦ BUT NEVERMIND, THATâ€™S JUST MEâ€¦
JIM LEHRER: So, thus far, you have not — or I will ask you just directly. Thus far, have you come across, you personally, as the housing secretary of the United States, read about or heard about internally from your own people examples of things that just made you angry, that somebody really, really was hurt because somebody did a very poor job and was careless, or whether it was intentional or otherwise, it’s really something that needs to be fixed, and fixed fast?
SHAUN DONOVAN: Look, we have servicers that have acknowledged that they foreclosed on people’s homes without the clear authority and legal ability to do that. That is a serious problem.
JIM LEHRER: Sure.
â€śSURE,â€ť JIM?Â SURE?Â SERVICERS HAVE ACKNOWLEDGED THAT THEY HAVE â€śFORECLOSED ON PEOPLEâ€™S HOMES WITHOUT THE CLEAR AUTHORITY AND LEGAL ABILITY TO DO THATâ€ť AND THATâ€™S ALL YOUâ€™VE GOT FOR A FOLLOW-UP?Â â€śSURE?â€ťÂ EVEN SHAUN CONSIDERS THAT A SERIOUS PROBLEM, JIM.
WHY IN GODâ€™S NAME DID YOU BOTHER TRYING TO PIN SHAUN DOWN IF ALL YOU WERE GOING TO SAY WAS â€śSURE?â€ťÂ IS SOMEONE PAYING LEHRER TO THROW THIS FIGHT?
HOW ABOUTâ€¦ â€śMY GODâ€¦ THATâ€™S HORRIFIC, SHAUN!â€ťÂ YOU MEAN TO SAY THAT PEOPLE HAVE BEEN THROWN OUT OF THEIR HOMES ILLEGALLY?Â AND BY THOSE WHO LACKED THE CLEAR AUTHORITY TO THROW THEM OUT?Â GOOD LORD, SHAUN, IN THESE UNITED STATES?Â HOW CAN THIS BE ALLOWED TO CONTINUE EVEN ONE MORE DAY?â€ť
SOMETHING LIKE THAT WOULD HAVE BEEN NICE, JIM.Â LOOK, YOUâ€™RE THE PROFESSIONAL JOURNALISTâ€¦ Iâ€™M JUST THINKING OUTLOUD OVER HEREâ€¦ PERHAPS NEXT TIMEâ€¦
SHAUN DONOVAN: It is the reason why, I think, the American people are deeply disturbed about this. And I think the behavior — that behavior is shameful.
What we have also begun to find through our reviews — those reviews are not completed yet, and so I’m not prepared to talk in detail about the specifics of what we have found. But we have found that there are servicers who have not been, we believe, doing what they are required to do, what they should be doing to keep people in their homes, and reaching out to them early in the process to see if they can keep somebody in a home who can stay in that home and can afford to stay in that home.
That, to me, is a serious problem as well.
SHAUN, I THINK I CAN SPEAK FOR JUST ABOUT EVERY HOMEOWNER IN THE COUNTRY AND SAY THAT WEâ€™D LIKE TO STIPULATE THAT ANY REASON FOR THROWING SOMEONE OUT OF THEIR HOME THAT ISNâ€™T ROCK SOLID LEGAL AND CORRECT, AND/OR WASNâ€™T OTHERWISE AVOIDABLE CAN BE CONSIDERED â€śA SERIOUS PROBLEMâ€ť.Â OKAY, SHAUN?
YOU SEEâ€¦ I DONâ€™T THINK YOU FULLY UNDERSTAND THE SITUATION, SHAUN.Â OR, AT THE VERY LEAST, YOU DONâ€™T APPEAR TO APPRECIATE THE GRAVITY OF THE SITUATION.Â MY WIFE AND I OWN SOME REAL ESTATE AND WEâ€™VE LOST WELL OVER A MILLION BUCKS WHILE YOU CLOWNS HAVE MISHANDLED THE ECONOMIC SITUATION AT EVERY SINGLE TURN.
AND, WELL YOU SEEâ€¦ WE HAVE A DAUGHTERâ€¦ AND SHE WILL BE GOING TO COLLEGE SOON, AND WELLâ€¦ SINCE MY 401(K) IS NOW A 201(K) AND I DONâ€™T THINK THE 1.9% MY BANK IS OFFERING IS GOING TO ACCOMPLISH MUCHâ€¦ WELLâ€¦
WEâ€™D VERY MUCH LIKE YOU TO DO A BETTER JOB, NOT TO PUT TOO FINE A POINT ON IT, SHAUN.Â A MUCH BETTER JOB, ACTUALLY.Â LIKE PERHAPS SOMETHING IN THE REALM OF â€śREMOTELY COMPETENT,â€ť WOULD BE NICE, BUT AT THIS POINT Iâ€™LL TAKE â€śNOT EMBARRASSINGLY STUPID AND FURTHERING THE DESTRUCTION.â€ť
JIM LEHRER: Now, when you say — when you say servicers, of course, you mean banks, right, primarily?
GOOD, JIMâ€¦ BANKSâ€¦ YES, WE ARE TALKING ABOUT THE BANKS.
SHAUN DONOVAN: Absolutely.
JIM LEHRER: Are agents of the federal government going in and looking at the records of these banks to see what did happen and didn’t happen? These are full-fledged, full-bore investigations that are going to be done?
SHAUN DONOVAN: There is a coordinated set of investigations and reviews that is happening today that includes going loan by loan and file by file in the banks to find what has been done and to get to the bottom of this as quickly as possible.
Let’s — let’s be clear. The sooner we understand these issues, the sooner that we can resolve what’s happened here, that we can take appropriate enforcement actions to hold these institutions accountable, to fix the problems, and to make sure that we do right by the homeowners, the sooner not only those homeowners can be confident.Â It also means that other homeowners can be confident. It also means that our markets more broadly can be confident that the housing recovery we have begun to see is a stable one that will continue.
So, everyone’s interest here is in getting to the bottom of this as quickly as possible and resolving it.
JIM LEHRER: All right. Mr. Secretary, thank you very much.
SHAUN DONOVAN: Thank you.
SHAUNâ€¦ ONE THING YOU MIGHT CONSIDER IS NOT CONTINUING TO CLAIM THAT WEâ€™RE SEEING SOME SORT OF RECOVERY IN THE HOUSING MARKET.Â NO ONE, EXCEPT FOR MAYBE THE MEMBERS OF THE NATIONAL ASSOCIATION OF REALTORS AND MORTGAGE BROKERS BELIEVES IT AND FRANKLY IT SOUNDS STUPID, SHAUN.Â LIKE YOUâ€™RE SO FAR OUT OF TOUCH ITâ€™S RIDICULOUS, AND THATâ€™S SCARY SINCE YOUâ€™RE THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT.
ONE THING THE AMERICAN PUBLIC HAS REALIZED, SHAUN IS THAT YOUR ADMINISTRATION HAS NO IDEA WHAT ITâ€™S DOING WHEN IT COMES TO STOPPING THE FREE FALL IN THE REAL ESTATE MARKETS.Â WE SEE WHAT YOU SAY AND DO, AND WE SEE THE RESULTS, AND THE JURY IS IN ON THIS ONE, SHAUNâ€¦ THEREâ€™S NO POINT PRETENDING ANYMOREâ€¦
YOU GUYS DONâ€™T HAVE THE FOGGIEST NOTION OF WHAT TO DO ABOUT THE HOUSING MARKET.Â IF YOU DID, WE WOULDNâ€™T BE HAVING THIS LITTLE CHAT, NOW WOULD WE?
Now, back to the reason for this articleâ€¦ (you thought Iâ€™d forgotten, didnâ€™t you?)
Professor Wray, among many others, in describing the totality of the situation, points out the that the extent of the fraud goes back to the predatory origination of loans, artificially inflated appraisals, the fraud made possible by ratings agencies that handed out triple A ratings like they were nothing short of de rigueur, the fraudulent securities themselves, the worst of which, in countless cases, were packaged into Collateralized Debt Obligations (â€śCDOsâ€ť) because hedge funds wanted to bet on their failure by owning the corresponding credit default swapsâ€¦ it truly is breathtaking when you stand back and view the situation in its entirety.
But, regardlessâ€¦ and all of that having been saidâ€¦ itâ€™s still a tough issue for many people to grapple with because the core questions still remain:
1. When a homeowner is late on his or her mortgage payments, and unable to pay those payments, doesnâ€™t someone have to foreclose on that house and resell it?
2. What happens to the homeowner and the mortgage even if the mortgage was a total sham in numerous ways, and the bank didnâ€™t handle important paperwork properly?
And more specifically, if the note was not assigned to the trust, can that trust foreclose on the property?Â It would seem the answer to be clearly no.Â But, then who should be allowed to foreclose, if not the trust?Â The bank?Â No, the bank has already been paid.Â The originator has been long-since paid, as well.Â So, if the note hasnâ€™t been assigned the trust, and if the trust doesnâ€™t allow late transfers, what happens next?
Someone said to me recently: â€śBut, they havenâ€™t made their mortgage payments?â€ť
And I said: â€śYes, thatâ€™s true.Â But that doesnâ€™t give everyone in America the right to kick them out of their house, right?â€ť
And, of course, thatâ€™s right.
Itâ€™s a funny thingâ€¦ if someone was ripped off by Merrill Lynch, sayâ€¦ they were defrauded by a Merrill Lynch broker of some kind, and they sued Merrill Lynch and won a million dollarsâ€¦ no one would care, right?Â But, if the same sort of thing happened and the same person didnâ€™t have to pay their mortgage as a result, wellâ€¦ not fair, not fairâ€¦ right?
I donâ€™t know the answer.Â Itâ€™s seems a tough issue with which to grapple, no matter how you slice it.Â On one hand, it seems simpleâ€¦ why should anyone, except perhaps a lottery winner, get a free house?Â On the other hand, we have laws that protect property rights in this country, and their not mere â€śtechnicalities,â€ť regardless of how the banks would like us to think of them.
In point of fact, at least one of the country’s major title insurance companies has withdrawn from issuing title insurance on the sales of foreclosed homes, specifically because of the chain of title… or lack thereof… issues resulting from the lack of assignments to the trusts, and the use of MERS, et al.
I asked Max Gardner, who is probably the country’s top consumer attorney, both in terms of track record and notoriety, for his response to the issue, and as expected he had a lot to say.
Max referred to what we’re facing as a “massive, massive problem,” and he likened it to the Ford Pinto scandal of the 1970s, when it came out that the Pinto had the propensity to explode when hit from behind, and that Ford had known of the problem, but sort of had hoped to shove it under the rug… until the lump in the rug was the size of a Ford Pinto. Â Max says this one is not going away… it’s just too big to stuff back in any size bottle.
Kind of like the Ford Pinto thingâ€¦ maybe no one will find out.Â Just denial.Â Now the genies out of the bottle and its not going back in.Â And this is one thatâ€™s not going back in.
Max ran down the list of criminal acts committed by our bankers without any struggle whatsoever… tax evasion, forgery, securities fraud, all committed on a national level. Â Half jokingly, he suggested that we should get our money back from the banks who have committed these acts, kind of a reverse-TARP approach to getting our economy back on track. Â I really liked the idea until I realized that our banks don’t actually have any money that didn’t come from us anyway.
But Max wasn’t joking when I asked him about buying a foreclosed property today, sans title insurance, specifically from Wells Fargo. Â Wells, you might remember from my last article or maybe the one before that, is having buyers sign a hold harmless addendum in the 11th hour that frees Wells from any future responsibility in the event that it’s later determined that Wells did not have the right to sell the property. Â Max’s response?
“I wouldnâ€™t buy a house from Wells Fargo, Iâ€™ll put it that way.”
And that’s why I love Max. Â He may be smart as the day is long and then some, but he always has a way of explaining things so I can understand them.
(By the way, it’s worth mentioning that I just returned from North Carolina where I spent five intense, but highly enjoyable days at Max’s farm, which is located on 160 acres in the hills of the Western part of that beautiful state. Â I attended one of his famous Boot Camps, during which classes begin at 8:30 am and go until 8:30 pm, with half an hour for lunch and a couple of ten minute breaks during the day. Â Rest assured I will be writing volumes based on my experience there, and overall, I think it’s safe to say that it’s an experience unlike any in the world.)
As issues go, this is the 800 Gorilla in the room, as it were.Â Those that are following it closely, live it and breath it every day.Â The rest of the country has the tendency to just keep repeating whatever they heard on cable news, or some facsimile, preferring not to give the matter any serious consideration beyond the standard-bearer line aboutâ€¦ â€śirresponsible homeowners borrowed too much, blah, blah, blahâ€¦â€ťÂ And thatâ€™s become almost comical to hear, if it wasnâ€™t so damn sad.
Something is going to have to be â€śfixed,â€ť although many point out that itâ€™s un-fixable.Â Some say congress will have to act, but what will they do?Â What can they do?Â The bankers really broke it this time, and Iâ€™m not sure even all the kingâ€™s horses and all the kingâ€™s men are up to a challenge of this magnitude.
Besides, the genie is out of the bottleâ€¦ there are hundreds or maybe even thousands of consumer attorneys that are studying this and related issues, and the judges have been learning a thing or two, as well.Â Whatâ€™s the Obama administration going to do about that?Â Stop the lawyers?Â Influence the judges?Â Pass a law that says that all the other laws donâ€™t apply to mortgages dated between 2003 and 2007?Â Thatâ€™s just not possible in this country, I donâ€™t think.
(Hang on a minute… what if the banks sustainably modified loans and by doing so stopped the foreclosures, or at least the lionâ€™s share of them? Â Nah, how could that possibly work?)
And then there are the investorsâ€¦ the pension plans, insurance companies, sovereign wealth funds from all over the globe that invested in Wall Streetâ€™s CDOs and CDO2â€¦ most of which turned out to be little more than steaming piles of freshness wrapped in AAA wrapping paper.Â Donâ€™t you think theyâ€™re going to catch wind of these issuesâ€¦ thatâ€™s a joke, they already have… and that litigation pits deep pockets against even deeper pockets.
Which side is Obama going to take then?Â Deep or Deeper?
Stay tunedâ€¦ because this one isnâ€™t going away.