It does not appear that ...any senior official in the Obama administration, has focused on the fact that it has been standard operating procedure, for several years, for lenders, CDO holders, and courts to “jump to any conclusion” necessary to foreclose on homes regardless of whether the loan was fraudulently induced by the lender and regardless of whether the entity foreclosing on the mortgage engaged in foreclosure fraud.
[They]...also frame the problem euphemistically as limited to – “process” – instead of the known facts, which constitute fraud by the entities that are foreclosing.
...The problem is that the “neighbor down the street” is the problem. Liar's loans became the norm (Credit Suisse reported that they represented 49% of mortgage originations in 2006). Liar's loans were typically fraudulent. A borrower typically used the proceeds of a liar's loans to buy “a house he could never hope to afford.” The lenders and their agents typically made or directed the false statements about income and occupation. (The lenders and the loan brokers knew the term sheets and the ratios to hit.) While the lenders and the agents typically took the lead in providing the lies that made liar's loans worthy of that name, this does not mean that the borrowers were blameless. Many borrowers knew that the loan application contained false information and that they could not afford to purchase the home. We are talking about millions of homeowners, most with families.
But how are we to know that the borrowers knew the loans applications were false and that they could not afford to buy the home? We can infer a lender's fraudulent intent because it is financially sophisticated and has expertise in lending. An honest mortgage lender would not make liar's loans because not underwriting loans inherently produces intense “adverse selection” and means that the loans have a “negative expected value.” In plain English, that means that mortgage lenders that make liar's loans will go broke.
...We cannot make the same inferences about the borrowers' intent and knowledge. The policy issue is whether to foreclose on over 10 million people (counting family members) where we do not know what the borrower knew but we can infer that the lenders engaged in “fraud in the inducement.” The economic and societal consequences of such mass foreclosures, and the moral issues posed by the lenders' “fraud in the inducement” are massive.
The Obama and Bush administration have refused to deal with the pervasive role of lender fraud and the ambiguous role of borrower complicity in such frauds. This is contrary to Obama's critique of the policy failures that led to the financial crisis: “critical debates and difficult decisions were put off for some other time on some other day.” True; and those failures continue.
President Obama was unwilling to use the “f” word (fraud) when describing the financial crisis, but he did promise:
“It is time to put in place tough, new commonsense rules of the road so that our financial market rewards drive and innovation and punishes shortcuts and abuse.”
The administration, however, has not punished the elite financial frauds that made the hundreds of billions of dollars of liar's loans that drove the crisis. Obama was willing to use the “f” word in one context: “[We] will root out the waste and fraud and abuse in our Medicare program….” President Obama could “root out the waste and fraud and abuse” in banking (which is vastly greater than Medicare fraud losses) without new rules or laws. He could appoint regulators and prosecutors that would find the facts and act against the elite frauds that drove the fraudulent nonprime mortgage crisis and the foreclosure fraud crisis...
Bill Black...spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement...
Showing posts with label Foreclosure Ethics. Show all posts
Showing posts with label Foreclosure Ethics. Show all posts
10/19/10
Joseph Tauke on Foreclosure Fraud
“One nation, under fraud
In 2007, Deutsche Bank sued [Patrick] Jeffs for his home, which is a necessary step in the process of foreclosing on a homeowner in the state of Florida. Curiously, despite the fact that he immediately hired a law firm to defend his property when he found out about the foreclosure, neither Jeffs nor his attorneys were at the trial. That’s because it had already happened. Deutsche won by default because Jeffs wasn’t able to travel backwards in time to attend, even though the trial featured a signed affidavit indicating that he had been served his court summons.
The only problem with the summons Jeffs supposedly received was that it had been conjured out of thin air.
In June of this year, a Florida court ruled that the document was fraudulent, as the person who was supposed to make sure Jeffs was served had mysteriously received a copy of the summons before the lawsuit had even been filed, and Jeffs never even saw the copy. The text of that ruling was posted on various financial news websites in September. The lawyers that Jeffs hired to defend his case say that fraud such as this is not uncommon. It’s a widespread problem, and it has cost countless families their homes.
“I think it’s safe to say that 95% of the foreclosure cases in Florida involve some form of fraud on the part of the bank,” David Goldman of Apple Law Firm, PLLC told The Daily Caller in a phone interview. “It’s probably closer to 99%. And the court system is helping them get away with it.”
...The Sunshine State has something called the “Sunshine Law,” which states that unless very specific conditions, such as the need to protect a witness, are met by a trial, it must be open to the public. But over the past several months, Goldman says that attempts to observe foreclosure proceedings have been met with bailiffs and locked doors. Then, banks successfully argue that because they own the paperwork behind mortgages and don’t want anyone who doesn’t have to see those titles to see them, the public doesn’t have the right to ask for them as part of an examination of court records.
...Chase had tried to work out a loan modification with Jeffs, and he was current on his payments when Chase abruptly informed him that his modification was denied without explanation. Several days later, Jeffs found out that he supposedly no longer owned his home. He stopped making payments, and he hasn’t made them since. But no bank has been able to successfully repossess and sell the property. To the banking system, the asset backed by the house—the mortgage—has simply vanished into thin air.
Does that mean that Jeffs is finally in the clear? Not exactly. “Quite often, what happens in these cases is the bank creates new documents to fix the old documents,” said Goldman. “One of the most common things we see is a paper with a notary stamp that gives the bank the legal authority to foreclose. Well, anyone can buy those stamps. I can buy those stamps. A lot of what’s going on is law firms desperate to win a case are hired by banks who don’t know what those law firms are up to. Then the bank thinks it can foreclose, even though other banks also think they have that right, and those banks might not figure out what happened for a long time because the system is absolutely overloaded with foreclosures...”
...Unfortunately, the problem isn’t limited to Florida. California’s attorney general recently filed his own class-action lawsuit on behalf of all of his state’s homeowners regarding the use of fraudulent documents to foreclose. Ohio’s attorney general has announced that he will be prosecuting every single case of foreclosure fraud committed by Ally Bank, formerly known as GMAC, with an individual lawsuit. Each suit would carry with it a fine of up to $25,000 on top of the cost of repairing the damages caused by the erroneous foreclosure. Arizona’s attorney general has sent letters to more than 60 banks informing them that foreclosing on any homeowners with erroneous documents will be considered criminal fraud.
Things are particularly bad in states like Arizona because of a peculiarity of their respective state foreclosure laws. Banks don’t have to go to court to foreclose on a property in those states. Instead, they can simply show “proof” of rightful foreclosure to local officials, who then evict the homeowners. To fight back against fraud, the homeowners have to hire a lawyer—which many can’t afford to do—and win a lawsuit before the property is sold.
...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.” So goes the unprecedented wave of foreclosures that has swept across the country since the housing bubble popped. Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so.
A man named Jeffrey Stephans testified on September 14th that he had signed off on affidavits which he didn’t actually examine.
...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.
...there are now countless fraudulent papers containing military-related claims which are making their way through the system, and the actual people attached to the Social Security numbers used have absolutely no idea they’re tied to legal documents that they’ve never laid their eyes upon.
...The first thing that’s insidious about the banking reaction to all of this is the timing. A Bank of America executive told a Massachusetts court in February that the practice of not examining mortgages intended for foreclosure is common.
...What’s most insidious is where the foreclosure freezes are taking place. Many banks have only ordered foreclosures to cease in 23 states. Why 23? Because there are 23 states that require courts to review foreclosures. And every single one of those states is on the list.
The banks in question have been trying to claim that they only chose to stop most foreclosure activity in the 23 judicial review states because they think the problem is almost entirely contained within the robo-signing of the court documents needed to foreclose.
...North Carolina isn’t a judicial review state.
To be more specific, a mortgage has two basic components. One is the deed of trust attached to the property itself, and the other, called a note, is the homeowner’s IOU. ...The notes were the things getting robo-signed during the housing bubble, not by foreclosure mills but by mortgage mills. And the signing was even more robotic because it could be done electronically through a system called Mortgage Electronic Registration Systems (MERS). When a note was sold into the system, “ownership” of the note could be traded via computer. Unfortunately for MERS, the law requires the physical note to prove ownership, so none of these trades were exactly what one might call legal, or even what one might call real. Hence the need for operations...to fill in the missing paperwork.
...the company that runs the system, MERSCORP, does not actually have any employees, and that it licenses employees of other companies to use the title “Vice President of MERSCORP” in foreclosure lawsuits. It also sells its own corporate seals, used on paperwork to back up foreclosures, for $25 online.
...recently-released court depositions state that financial institutions hired hair stylists and Walmart floor workers to fill positions that would qualify for the term “foreclosure experts,” even though the so-called “experts” received barely any training at all. These were the robo-signers, and many of them couldn’t even answer questions as to what a mortgage is, or what an affidavit is. Some of those people have now testified that they knew they were lying when they signed foreclosure affidavits (the ones they couldn’t define), and that they agreed with the accusations of document fraud. As they signed, they both used information from and created new information for MERS.
A class-action lawsuit was just filed in California which asserts that MERS has no legal standing whatsoever in nearly any state to actually hold a mortgage. Many mortgage-backed security experts are not even aware that MERS has made the shaky legal argument that it’s both the actual owner of any given mortgage and also merely the entity holding onto any given mortgage for someone else. The same lawsuit states that Countrywide, which took over a larger and larger part of all mortgage lending in the state during the housing bubble, not only committed fraud by selling faulty mortgages to investors from 2004 onward, but knew that it was doing so. That means a lot of the original paperwork behind those mortgages will have to be changed, which poses a problem not just for Countrywide, but for nearly every lender in the United States.
For financial institutions, the problem isn’t the “missing” documents. It’s the missing documents—the real ones, which say much different things than the “missing” ones, and which the banks can’t seem to get their hands on. ...There’s good reason for that—the industry destroyed the papers a long time ago. On purpose.
Banking officials happily told the Florida court system in 2009 that the documents had been shredded. At the time, lenders were trying to prevent some foreclosure rule changes, so they sent a letter to the Florida Supreme Court. Among other things, the letter stated that it was standard practice to destroy mortgage papers once the mortgages were sold into MERS in order to avoid confusion...
...there are companies which provide banks with the convenient ability to purchase “recovered documents” to replace papers that are “missing.” Until 2009, a company called DOCX was one of these providers...
The fact that so many contracts were torn up explains why DOCX didn’t deal in affidavits of foreclosure, at least not according to a DOCX price sheet posted on attorney Matthew Weidner’s website. The sheet lists the going rates for tasks such as, “cure defective mortgage.” Nowhere on the document does DOCX say that its services were limited to 23 states. Quite the opposite, in fact—DOCX proudly boasts of its “nationwide” presence at the very top of the sheet. Any mortgage that became “defective,” something that tends to occur when banks can’t find anything signed by homeowners with “mortgage” written in nice big letters somewhere, could be “cured” by DOCX, no matter what state contained the relevant property.
DOCX also offered to “create missing intervening assignment,” which refers to something called an “assignment of mortgage,” the document used to sell a mortgage from one financial institution to another. The company would completely make up the document showing who owned any given mortgage, and would do so for the low, low price of $35. DOCX saved its best for last: “Recreate entire collateral file.” A collateral file is made up of several documents, including the note, deed, title commitment, and assignment. ...And anyone willing to buy a whole lot of fresh papers even received a “volume discount” for their bulk orders.
...The attorneys general of every single state just opened a joint investigation into foreclosure fraud. As long as 50 is still a bigger number than 23, the problems aren’t contained.
...The Association of Financial Guaranty Insurers recently told Bank of America to prepare to be hit by lawsuits which will force it to buy back between $10 and $20 billion worth of mortgages. Similar numbers would apply to other nationwide banks. Bank of America’s entire federal bailout, before it purchased Merrill Lynch and needed additional funding, was worth $25 billion.
MERS, incidentally, also developed a commercial real estate program. ...Right now, the fraud investigations are mostly contained within residential real estate. Just like the problems in subprime lending were “contained” within subprime housing, according to Ben Bernanke in 2007. The owners of stores and offices around the country will soon be investigating the documents used to foreclose on commercial property much more closely.
The federal government recently tried to “fix” the mortgage mess with HR3808, a bill which would have required every state to recognize electronic records—the ones being robo-signed. Word of this legislation spread around the Internet quickly enough that an enormous amount of pressure was put on President Obama to veto it, which he ultimately did. The problem was that he had to. HR3808 was only on his desk because it had passed through the House with a simple voice vote and through the Senate by unanimous consent. Every single Democrat and every single Republican present in the Senate at the time approved of the bill. Which experts in blind rubber-stamping could possibly have been advising senators and representatives to let this legislation sail through Congress?
...when confronted with this information, the CEO of a major subprime lender replied, “If you’re right, we’re [screwed]. We never transferred the paper. No one in the industry transferred the paper.”...
...what they’re doing is illegal. Fraudulent. Wrong. A forgery wrapped in a deception wrapped in a lie.
...When questioned as to why [Deutsche’] foreclosure proceedings are continuing despite the fact that its lawyers had been proven to be committing fraud, and why those proceedings are continuing despite the fact that the loan servicers which are a part of every major bank’s legal stature have been called into question, Deutsche offered no answer whatsoever. Its official response...was that it “declined to comment.”...
Deutsche’s refusal to explain its actions is even more important than most would think because mortgages themselves aren’t the end of the story. When banks bought bunches of mortgages to create now-infamous mortgage-backed securities, they did so by forming trust companies to hold the mortgages themselves and forward money to the investors who bought the securities. One of those companies is technically who sued Patrick Jeffs—not Deutsche Bank, but the Deutsche Bank National Trust Company. When the companies were created, they had to abide by what’s called a pooling and servicing agreement, which defined the steps they had to take to acquire mortgages and send mortgage payments to the correct investors.
The agreements allow the companies to enjoy tax-free status with the IRS, because the payments they receive aren’t considered income due to the fact that the role of the trusts is to send virtually all of the money to someone else.
The IRS has strict rules regarding these companies, and when the rules are broken, there’s a slight penalty. From 0%, the tax rate on payments received by a trust company that broke the rules jumps to 100%. One of the rules states that a trustee is supposed to acquire any mortgages it will hold within three months of the formation of the trust.
...the notes and assignments involved have either been destroyed or are so erroneously marked that they’re fraudulent."
Joseph Tauke
The Daily Caller
In 2007, Deutsche Bank sued [Patrick] Jeffs for his home, which is a necessary step in the process of foreclosing on a homeowner in the state of Florida. Curiously, despite the fact that he immediately hired a law firm to defend his property when he found out about the foreclosure, neither Jeffs nor his attorneys were at the trial. That’s because it had already happened. Deutsche won by default because Jeffs wasn’t able to travel backwards in time to attend, even though the trial featured a signed affidavit indicating that he had been served his court summons.
The only problem with the summons Jeffs supposedly received was that it had been conjured out of thin air.
In June of this year, a Florida court ruled that the document was fraudulent, as the person who was supposed to make sure Jeffs was served had mysteriously received a copy of the summons before the lawsuit had even been filed, and Jeffs never even saw the copy. The text of that ruling was posted on various financial news websites in September. The lawyers that Jeffs hired to defend his case say that fraud such as this is not uncommon. It’s a widespread problem, and it has cost countless families their homes.
“I think it’s safe to say that 95% of the foreclosure cases in Florida involve some form of fraud on the part of the bank,” David Goldman of Apple Law Firm, PLLC told The Daily Caller in a phone interview. “It’s probably closer to 99%. And the court system is helping them get away with it.”
...The Sunshine State has something called the “Sunshine Law,” which states that unless very specific conditions, such as the need to protect a witness, are met by a trial, it must be open to the public. But over the past several months, Goldman says that attempts to observe foreclosure proceedings have been met with bailiffs and locked doors. Then, banks successfully argue that because they own the paperwork behind mortgages and don’t want anyone who doesn’t have to see those titles to see them, the public doesn’t have the right to ask for them as part of an examination of court records.
...Chase had tried to work out a loan modification with Jeffs, and he was current on his payments when Chase abruptly informed him that his modification was denied without explanation. Several days later, Jeffs found out that he supposedly no longer owned his home. He stopped making payments, and he hasn’t made them since. But no bank has been able to successfully repossess and sell the property. To the banking system, the asset backed by the house—the mortgage—has simply vanished into thin air.
Does that mean that Jeffs is finally in the clear? Not exactly. “Quite often, what happens in these cases is the bank creates new documents to fix the old documents,” said Goldman. “One of the most common things we see is a paper with a notary stamp that gives the bank the legal authority to foreclose. Well, anyone can buy those stamps. I can buy those stamps. A lot of what’s going on is law firms desperate to win a case are hired by banks who don’t know what those law firms are up to. Then the bank thinks it can foreclose, even though other banks also think they have that right, and those banks might not figure out what happened for a long time because the system is absolutely overloaded with foreclosures...”
...Unfortunately, the problem isn’t limited to Florida. California’s attorney general recently filed his own class-action lawsuit on behalf of all of his state’s homeowners regarding the use of fraudulent documents to foreclose. Ohio’s attorney general has announced that he will be prosecuting every single case of foreclosure fraud committed by Ally Bank, formerly known as GMAC, with an individual lawsuit. Each suit would carry with it a fine of up to $25,000 on top of the cost of repairing the damages caused by the erroneous foreclosure. Arizona’s attorney general has sent letters to more than 60 banks informing them that foreclosing on any homeowners with erroneous documents will be considered criminal fraud.
Things are particularly bad in states like Arizona because of a peculiarity of their respective state foreclosure laws. Banks don’t have to go to court to foreclose on a property in those states. Instead, they can simply show “proof” of rightful foreclosure to local officials, who then evict the homeowners. To fight back against fraud, the homeowners have to hire a lawyer—which many can’t afford to do—and win a lawsuit before the property is sold.
...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.” So goes the unprecedented wave of foreclosures that has swept across the country since the housing bubble popped. Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so.
A man named Jeffrey Stephans testified on September 14th that he had signed off on affidavits which he didn’t actually examine.
...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.
...there are now countless fraudulent papers containing military-related claims which are making their way through the system, and the actual people attached to the Social Security numbers used have absolutely no idea they’re tied to legal documents that they’ve never laid their eyes upon.
...The first thing that’s insidious about the banking reaction to all of this is the timing. A Bank of America executive told a Massachusetts court in February that the practice of not examining mortgages intended for foreclosure is common.
...What’s most insidious is where the foreclosure freezes are taking place. Many banks have only ordered foreclosures to cease in 23 states. Why 23? Because there are 23 states that require courts to review foreclosures. And every single one of those states is on the list.
The banks in question have been trying to claim that they only chose to stop most foreclosure activity in the 23 judicial review states because they think the problem is almost entirely contained within the robo-signing of the court documents needed to foreclose.
...North Carolina isn’t a judicial review state.
To be more specific, a mortgage has two basic components. One is the deed of trust attached to the property itself, and the other, called a note, is the homeowner’s IOU. ...The notes were the things getting robo-signed during the housing bubble, not by foreclosure mills but by mortgage mills. And the signing was even more robotic because it could be done electronically through a system called Mortgage Electronic Registration Systems (MERS). When a note was sold into the system, “ownership” of the note could be traded via computer. Unfortunately for MERS, the law requires the physical note to prove ownership, so none of these trades were exactly what one might call legal, or even what one might call real. Hence the need for operations...to fill in the missing paperwork.
...the company that runs the system, MERSCORP, does not actually have any employees, and that it licenses employees of other companies to use the title “Vice President of MERSCORP” in foreclosure lawsuits. It also sells its own corporate seals, used on paperwork to back up foreclosures, for $25 online.
...recently-released court depositions state that financial institutions hired hair stylists and Walmart floor workers to fill positions that would qualify for the term “foreclosure experts,” even though the so-called “experts” received barely any training at all. These were the robo-signers, and many of them couldn’t even answer questions as to what a mortgage is, or what an affidavit is. Some of those people have now testified that they knew they were lying when they signed foreclosure affidavits (the ones they couldn’t define), and that they agreed with the accusations of document fraud. As they signed, they both used information from and created new information for MERS.
A class-action lawsuit was just filed in California which asserts that MERS has no legal standing whatsoever in nearly any state to actually hold a mortgage. Many mortgage-backed security experts are not even aware that MERS has made the shaky legal argument that it’s both the actual owner of any given mortgage and also merely the entity holding onto any given mortgage for someone else. The same lawsuit states that Countrywide, which took over a larger and larger part of all mortgage lending in the state during the housing bubble, not only committed fraud by selling faulty mortgages to investors from 2004 onward, but knew that it was doing so. That means a lot of the original paperwork behind those mortgages will have to be changed, which poses a problem not just for Countrywide, but for nearly every lender in the United States.
For financial institutions, the problem isn’t the “missing” documents. It’s the missing documents—the real ones, which say much different things than the “missing” ones, and which the banks can’t seem to get their hands on. ...There’s good reason for that—the industry destroyed the papers a long time ago. On purpose.
Banking officials happily told the Florida court system in 2009 that the documents had been shredded. At the time, lenders were trying to prevent some foreclosure rule changes, so they sent a letter to the Florida Supreme Court. Among other things, the letter stated that it was standard practice to destroy mortgage papers once the mortgages were sold into MERS in order to avoid confusion...
...there are companies which provide banks with the convenient ability to purchase “recovered documents” to replace papers that are “missing.” Until 2009, a company called DOCX was one of these providers...
The fact that so many contracts were torn up explains why DOCX didn’t deal in affidavits of foreclosure, at least not according to a DOCX price sheet posted on attorney Matthew Weidner’s website. The sheet lists the going rates for tasks such as, “cure defective mortgage.” Nowhere on the document does DOCX say that its services were limited to 23 states. Quite the opposite, in fact—DOCX proudly boasts of its “nationwide” presence at the very top of the sheet. Any mortgage that became “defective,” something that tends to occur when banks can’t find anything signed by homeowners with “mortgage” written in nice big letters somewhere, could be “cured” by DOCX, no matter what state contained the relevant property.
DOCX also offered to “create missing intervening assignment,” which refers to something called an “assignment of mortgage,” the document used to sell a mortgage from one financial institution to another. The company would completely make up the document showing who owned any given mortgage, and would do so for the low, low price of $35. DOCX saved its best for last: “Recreate entire collateral file.” A collateral file is made up of several documents, including the note, deed, title commitment, and assignment. ...And anyone willing to buy a whole lot of fresh papers even received a “volume discount” for their bulk orders.
...The attorneys general of every single state just opened a joint investigation into foreclosure fraud. As long as 50 is still a bigger number than 23, the problems aren’t contained.
...The Association of Financial Guaranty Insurers recently told Bank of America to prepare to be hit by lawsuits which will force it to buy back between $10 and $20 billion worth of mortgages. Similar numbers would apply to other nationwide banks. Bank of America’s entire federal bailout, before it purchased Merrill Lynch and needed additional funding, was worth $25 billion.
MERS, incidentally, also developed a commercial real estate program. ...Right now, the fraud investigations are mostly contained within residential real estate. Just like the problems in subprime lending were “contained” within subprime housing, according to Ben Bernanke in 2007. The owners of stores and offices around the country will soon be investigating the documents used to foreclose on commercial property much more closely.
The federal government recently tried to “fix” the mortgage mess with HR3808, a bill which would have required every state to recognize electronic records—the ones being robo-signed. Word of this legislation spread around the Internet quickly enough that an enormous amount of pressure was put on President Obama to veto it, which he ultimately did. The problem was that he had to. HR3808 was only on his desk because it had passed through the House with a simple voice vote and through the Senate by unanimous consent. Every single Democrat and every single Republican present in the Senate at the time approved of the bill. Which experts in blind rubber-stamping could possibly have been advising senators and representatives to let this legislation sail through Congress?
...when confronted with this information, the CEO of a major subprime lender replied, “If you’re right, we’re [screwed]. We never transferred the paper. No one in the industry transferred the paper.”...
...what they’re doing is illegal. Fraudulent. Wrong. A forgery wrapped in a deception wrapped in a lie.
...When questioned as to why [Deutsche’] foreclosure proceedings are continuing despite the fact that its lawyers had been proven to be committing fraud, and why those proceedings are continuing despite the fact that the loan servicers which are a part of every major bank’s legal stature have been called into question, Deutsche offered no answer whatsoever. Its official response...was that it “declined to comment.”...
Deutsche’s refusal to explain its actions is even more important than most would think because mortgages themselves aren’t the end of the story. When banks bought bunches of mortgages to create now-infamous mortgage-backed securities, they did so by forming trust companies to hold the mortgages themselves and forward money to the investors who bought the securities. One of those companies is technically who sued Patrick Jeffs—not Deutsche Bank, but the Deutsche Bank National Trust Company. When the companies were created, they had to abide by what’s called a pooling and servicing agreement, which defined the steps they had to take to acquire mortgages and send mortgage payments to the correct investors.
The agreements allow the companies to enjoy tax-free status with the IRS, because the payments they receive aren’t considered income due to the fact that the role of the trusts is to send virtually all of the money to someone else.
The IRS has strict rules regarding these companies, and when the rules are broken, there’s a slight penalty. From 0%, the tax rate on payments received by a trust company that broke the rules jumps to 100%. One of the rules states that a trustee is supposed to acquire any mortgages it will hold within three months of the formation of the trust.
...the notes and assignments involved have either been destroyed or are so erroneously marked that they’re fraudulent."
Joseph Tauke
The Daily Caller
Jonathan Weil on foreclosure and regulators
"Foreclosure Fiasco’s Trail Leads to Washington
What were banking regulators doing while some of the biggest U.S. lenders routinely filed false foreclosure documents in local courthouses around the country? In the case of IndyMac Federal Bank, it turns out the Federal Deposit Insurance Corp. was running the joint.
This may help explain why the mortgage-servicing industry got away with such misbehavior for so long. The government, in one form or another, was doing it, too.
...So- called robo-signers penned their names to untold numbers of affidavits and other foreclosure documents that proved to be false, prompting judges in some states to throw out the banks’ claims.
...Ally Financial Inc.’s GMAC Mortgage last month halted evictions tied to foreclosures in 23 states. Ally is majority-owned by the Treasury Department.
...Where were the banking regulators while all this mischief was going down?
For years the leaders of the Federal Reserve and the Office of the Comptroller of the Currency, among others, have been assuring the public they have onsite examiners and supervisors at all of the country’s largest banks. Before IndyMac was seized, its primary regulator had been the Office of Thrift Supervision.
Yet there’s no sign these agencies did anything to stop any of these institutions from treating the country’s courts so contemptuously. Perhaps the regulators were clueless. Or maybe they knew there was a problem and decided to let the banks run wild in the interest of keeping their foreclosure mills humming.
Whatever the case, they let the banking industry deal another huge, self-inflicted blow to its reputation. That’s the sort of damage regulators are charged with preventing, as part of their mission to preserve public confidence in the financial system. And to think Congress just gave the banking regulators, including the FDIC, even more authority under the Dodd-Frank Act. The more they fail, the more power they get.
...Meanwhile, it’s an open question why the mortgage servicers and their lawyers resorted to tactics such as filing bogus court affidavits. Was it just about cutting corners? Or was it because they often don’t know who owns the mortgages on which they’re foreclosing, and decided to cheat?
...The regulators keep blowing it. At IndyMac, though, the FDIC wasn’t just overseeing the bank. It was operating the bank. The industry’s minders have hit a new low."
Jonathan Weil
Bloomberg News
What were banking regulators doing while some of the biggest U.S. lenders routinely filed false foreclosure documents in local courthouses around the country? In the case of IndyMac Federal Bank, it turns out the Federal Deposit Insurance Corp. was running the joint.
This may help explain why the mortgage-servicing industry got away with such misbehavior for so long. The government, in one form or another, was doing it, too.
...So- called robo-signers penned their names to untold numbers of affidavits and other foreclosure documents that proved to be false, prompting judges in some states to throw out the banks’ claims.
...Ally Financial Inc.’s GMAC Mortgage last month halted evictions tied to foreclosures in 23 states. Ally is majority-owned by the Treasury Department.
...Where were the banking regulators while all this mischief was going down?
For years the leaders of the Federal Reserve and the Office of the Comptroller of the Currency, among others, have been assuring the public they have onsite examiners and supervisors at all of the country’s largest banks. Before IndyMac was seized, its primary regulator had been the Office of Thrift Supervision.
Yet there’s no sign these agencies did anything to stop any of these institutions from treating the country’s courts so contemptuously. Perhaps the regulators were clueless. Or maybe they knew there was a problem and decided to let the banks run wild in the interest of keeping their foreclosure mills humming.
Whatever the case, they let the banking industry deal another huge, self-inflicted blow to its reputation. That’s the sort of damage regulators are charged with preventing, as part of their mission to preserve public confidence in the financial system. And to think Congress just gave the banking regulators, including the FDIC, even more authority under the Dodd-Frank Act. The more they fail, the more power they get.
...Meanwhile, it’s an open question why the mortgage servicers and their lawyers resorted to tactics such as filing bogus court affidavits. Was it just about cutting corners? Or was it because they often don’t know who owns the mortgages on which they’re foreclosing, and decided to cheat?
...The regulators keep blowing it. At IndyMac, though, the FDIC wasn’t just overseeing the bank. It was operating the bank. The industry’s minders have hit a new low."
Jonathan Weil
Bloomberg News
10/18/10
Peter Coy on foreclosure documentation
"Mortgages Lost in the Cloud
The foreclosure documentation mess isn't just a clerical problem.
It erodes certainty about property rights—the key to capitalism
…Americans took their title-recording system for granted, abused it during the housing boom, and let it deteriorate. "Somehow in the last 10 or 15 years, everything that was good record-keeping isn't telling the truth anymore," says ..Hernando de Soto, a Peruvian economist…"My feeling is this: Your recession is going to last. And it's going to last, and it's going to last, because essentially the trust has broken down."
De Soto …has correctly identified why the foreclosure mess is not a simple clerical problem. It's part of a broader breakdown in the financial world—the one that nearly caused a depression in 2008 when banks and other financial players couldn't tell whose balance sheets were stuffed with toxic subprime mortgage debt and whose weren't. Unable to trust one another, the big institutions pulled back from every asset except Treasury debt.
…That crisis is past, but its causes aren't. …Lenders can't say for sure who holds a mortgage—which means that sales can't go through. Buyers won't put down good money for a property if they aren't sure they'll get clear title to it, nor will lenders extend loans. Buyers of hundreds of billions of dollars' worth of mortgage-backed securities may have grounds to sue.
…Titles and mortgages on real property are officially recorded in county clerks' offices, a slow-moving, old-fashioned, deliberate world of ink, paper, and filing cabinets. The process has been perfected over a millennium, going back to the Domesday Book, the survey of English property completed in 1086 for William the Conqueror. This paper-based system, though admirably accurate and permanent, wasn't equipped for the era of rapid-fire refinancing and securitization. When over 8 million new and used homes are sold per year, as at the height of the boom, and most loans are packaged into securities, you need a lot of clerks.
The mortgage industry responded to the scale and speed of the modern housing market by creating an electronic overlay called Mortgage Electronic Registration Systems (MERS) in 1997. MERS, however, lacks the thoroughness and—more important—the legal standing of the old system. Some judges have rejected foreclosures based on MERS when the party claiming to hold the mortgage couldn't produce the note to prove to the court's satisfaction that it was in fact the creditor. The courts want to see paper.
…The private sector couldn't afford to wait for government to catch up. Hence the MERS database, a unit of MERSCorp in Reston, Va., which was founded by Fannie Mae (FNM), Freddie Mac (FRE), and the mortgage industry. The concept was to avoid the cost and delay of recording the passing of loans from one party to another by naming Mortgage Electronic Registration Systems as the mortgagee for the lifetime of the loan, regardless of how many times it changed hands and to whom.
Some judges accepted MERS' right to foreclose on a delinquent homeowner. Others didn't. Instead of untangling the confusion early on, MERS forged ahead. It's now the mortgagee for more than 60 percent of new mortgage loans.
A promissory note—i.e., a paper I.O.U.—is the only legal proof of creditorship that courts ordinarily accept. Incredibly, though, the Florida Bankers Assn. told the state Supreme Court that when its members converted to electronic records, "the physical document was deliberately eliminated to avoid confusion." Further angering judges, MERS deputized bank executives to handle foreclosures, making it unclear who the people appearing in court really worked for. In Brooklyn, state Supreme Court Justice Arthur Schack in 2009 rejected a foreclosure in which a Bank of New York executive identified herself as a MERS vice-president. He called her "a milliner's delight, by virtue of the number of hats she wears." Ally Financial said in September that it found a "technical" deficiency at its GMAC Mortgage unit that let employees sign foreclosure documents without a notary present or with information they didn't know was true.
If the transition from paper to terabytes were unprecedented, it would be easier to give lenders a pass. But the banks behaved more straightforwardly in 2003 when they sought permission to digitize paper checks—a similar legal leap, since electronic copies had long been considered unacceptable in court. The banks lobbied Congress, which in 2003 passed the Check Clearing for the 21st Century Act. Now your monthly bank statement contains images of your checks instead of the paper, saving time and money. Because the reform was done with the blessing of Congress, there have been few problems.
…The problem is that the data in the MERS system isn't verifiable or legally binding. That recalls de Soto's insight into what made the U.S. work so well in the first place. "What characterized the rise of capitalism was that you actually created facts—statements that can be tested for truth. Now you've got plenty of information, but you don't have facts that can be tested for truth. Can you have a prosperous market economy without knowledge of who owns what and how they're related?"…
Peter Coy with John Gittelsohn
Business Week
The foreclosure documentation mess isn't just a clerical problem.
It erodes certainty about property rights—the key to capitalism
…Americans took their title-recording system for granted, abused it during the housing boom, and let it deteriorate. "Somehow in the last 10 or 15 years, everything that was good record-keeping isn't telling the truth anymore," says ..Hernando de Soto, a Peruvian economist…"My feeling is this: Your recession is going to last. And it's going to last, and it's going to last, because essentially the trust has broken down."
De Soto …has correctly identified why the foreclosure mess is not a simple clerical problem. It's part of a broader breakdown in the financial world—the one that nearly caused a depression in 2008 when banks and other financial players couldn't tell whose balance sheets were stuffed with toxic subprime mortgage debt and whose weren't. Unable to trust one another, the big institutions pulled back from every asset except Treasury debt.
…That crisis is past, but its causes aren't. …Lenders can't say for sure who holds a mortgage—which means that sales can't go through. Buyers won't put down good money for a property if they aren't sure they'll get clear title to it, nor will lenders extend loans. Buyers of hundreds of billions of dollars' worth of mortgage-backed securities may have grounds to sue.
…Titles and mortgages on real property are officially recorded in county clerks' offices, a slow-moving, old-fashioned, deliberate world of ink, paper, and filing cabinets. The process has been perfected over a millennium, going back to the Domesday Book, the survey of English property completed in 1086 for William the Conqueror. This paper-based system, though admirably accurate and permanent, wasn't equipped for the era of rapid-fire refinancing and securitization. When over 8 million new and used homes are sold per year, as at the height of the boom, and most loans are packaged into securities, you need a lot of clerks.
The mortgage industry responded to the scale and speed of the modern housing market by creating an electronic overlay called Mortgage Electronic Registration Systems (MERS) in 1997. MERS, however, lacks the thoroughness and—more important—the legal standing of the old system. Some judges have rejected foreclosures based on MERS when the party claiming to hold the mortgage couldn't produce the note to prove to the court's satisfaction that it was in fact the creditor. The courts want to see paper.
…The private sector couldn't afford to wait for government to catch up. Hence the MERS database, a unit of MERSCorp in Reston, Va., which was founded by Fannie Mae (FNM), Freddie Mac (FRE), and the mortgage industry. The concept was to avoid the cost and delay of recording the passing of loans from one party to another by naming Mortgage Electronic Registration Systems as the mortgagee for the lifetime of the loan, regardless of how many times it changed hands and to whom.
Some judges accepted MERS' right to foreclose on a delinquent homeowner. Others didn't. Instead of untangling the confusion early on, MERS forged ahead. It's now the mortgagee for more than 60 percent of new mortgage loans.
A promissory note—i.e., a paper I.O.U.—is the only legal proof of creditorship that courts ordinarily accept. Incredibly, though, the Florida Bankers Assn. told the state Supreme Court that when its members converted to electronic records, "the physical document was deliberately eliminated to avoid confusion." Further angering judges, MERS deputized bank executives to handle foreclosures, making it unclear who the people appearing in court really worked for. In Brooklyn, state Supreme Court Justice Arthur Schack in 2009 rejected a foreclosure in which a Bank of New York executive identified herself as a MERS vice-president. He called her "a milliner's delight, by virtue of the number of hats she wears." Ally Financial said in September that it found a "technical" deficiency at its GMAC Mortgage unit that let employees sign foreclosure documents without a notary present or with information they didn't know was true.
If the transition from paper to terabytes were unprecedented, it would be easier to give lenders a pass. But the banks behaved more straightforwardly in 2003 when they sought permission to digitize paper checks—a similar legal leap, since electronic copies had long been considered unacceptable in court. The banks lobbied Congress, which in 2003 passed the Check Clearing for the 21st Century Act. Now your monthly bank statement contains images of your checks instead of the paper, saving time and money. Because the reform was done with the blessing of Congress, there have been few problems.
…The problem is that the data in the MERS system isn't verifiable or legally binding. That recalls de Soto's insight into what made the U.S. work so well in the first place. "What characterized the rise of capitalism was that you actually created facts—statements that can be tested for truth. Now you've got plenty of information, but you don't have facts that can be tested for truth. Can you have a prosperous market economy without knowledge of who owns what and how they're related?"…
Peter Coy with John Gittelsohn
Business Week
Bruce Krasting on Mortgage Modifications
"There has been…a flood of approved loan mods in just the last few weeks. People who were on the edge and not paying a mortgage get a letter in the mail that says their application has been approved, After weeks and months of hanging on a phone and waiting…
…The foreclosure story is exploding around the banks. It is not possible to see where this will end but it is a certainty that it will cost the banks big time.
What might a banker do if he was sitting on a pile of defaulted mortgages and now the traditional route of foreclosure was blocked? Adding to the problems of the bankers is that there is no assurance that they even have a valid claim to foreclose given that so much of the paperwork is tainted.
One possible response would be to get all troubled borrowers to reaffirm their debt, the second is to get the trouble borrowers back to paying something on the mortgage, even if it were a fraction of what was formerly owed on a monthly basis. A loan modification would achieve both results.
When a borrower signs up for a loan mod they sign new papers. A portion of this process will re-establish any loan balance that is due. The language in the mod could have new foreclosure terms that eliminate the banker’s problem with past tainted documentation. Once a borrower makes a few months of new lowered payments they are, in effect, confirming their acceptance of the new terms.
…what if the lenders motivation for doing a Mod was not to get a borrower to a loan balance and monthly nut that they could pay, but rather the motivation was to circumvent the foreclosure trap the lenders are in? A Mod could legally resolve the problems.
The story I have been hearing is that tens of thousands of Mod letters have been sent by servicers in the past few weeks. Anyone who had an application pending is all of sudden getting the happy news in the mail.
…If this were to be true is would be a very big slap in the face of the banks. For years they have been fighting off Mods. But when the tables turn on them due the unforeseen explosion and chaos in foreclosure, the banks turn on a dime and go into mass Mod mode. Should that be the case, it would prove (once again) that the banks will do anything to screw their customers. The mod is just a vehicle to perfect the mortgage lien."
Bruce Krasting
…The foreclosure story is exploding around the banks. It is not possible to see where this will end but it is a certainty that it will cost the banks big time.
What might a banker do if he was sitting on a pile of defaulted mortgages and now the traditional route of foreclosure was blocked? Adding to the problems of the bankers is that there is no assurance that they even have a valid claim to foreclose given that so much of the paperwork is tainted.
One possible response would be to get all troubled borrowers to reaffirm their debt, the second is to get the trouble borrowers back to paying something on the mortgage, even if it were a fraction of what was formerly owed on a monthly basis. A loan modification would achieve both results.
When a borrower signs up for a loan mod they sign new papers. A portion of this process will re-establish any loan balance that is due. The language in the mod could have new foreclosure terms that eliminate the banker’s problem with past tainted documentation. Once a borrower makes a few months of new lowered payments they are, in effect, confirming their acceptance of the new terms.
…what if the lenders motivation for doing a Mod was not to get a borrower to a loan balance and monthly nut that they could pay, but rather the motivation was to circumvent the foreclosure trap the lenders are in? A Mod could legally resolve the problems.
The story I have been hearing is that tens of thousands of Mod letters have been sent by servicers in the past few weeks. Anyone who had an application pending is all of sudden getting the happy news in the mail.
…If this were to be true is would be a very big slap in the face of the banks. For years they have been fighting off Mods. But when the tables turn on them due the unforeseen explosion and chaos in foreclosure, the banks turn on a dime and go into mass Mod mode. Should that be the case, it would prove (once again) that the banks will do anything to screw their customers. The mod is just a vehicle to perfect the mortgage lien."
Bruce Krasting
Anonymous on Foreclosure Ethics
"...MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially where the digitized mortgage notes were sliced and diced and rearranged so as to create the mortgage-backed securities.
..."However, legally...and this is the important part...MERS didn't hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.
"But the REMICs didn't own the notes either, because of a fluke of the ratings agencies: the REMICs had to be "bankruptcy remote," in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors. ...(REMIC - Real-Estate Mortgage Investment Conduit, a special vehicle designed to hold the loans for tax purposes)...
"So somewhere between the REMICs and MERS, the chain of title was broken.
"Now, what does 'broken chain of title' mean? Simple: when a homebuyer signs a mortgage, the key document is the note. As I said before, it's the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the 'chain of title.'
"You can endorse the note as many times as you please...but you have to have a clear chain of title right on the actual note...
"If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
"To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
..."The broken chain of title might not have been an issue if there hadn't been an unusual number of foreclosures.
..."the banks had hired 'foreclosure mills'...law firms that specialized in foreclosures...in order to handle the massive volume of foreclosures and evictions that occurred because of the housing crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
"...it turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby 'proving' that the banks had judicial standing to foreclose on delinquent mortgages. These foreclosure mills might have even forged the loan note itself...
...alarm bells started going off when the title insurance companies started to refuse to insure the titles.
"In every sale, a title insurance company insures that the title is free -and clear ...that the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because...they didn't want to expose themselves to the risk that the chain of title had been broken, and that the bank had illegally foreclosed on the previous owner.
"That's when things started getting interesting: that's when the attorneys general of various states started snooping around and making noises...
..."The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills' forged and fraudulent documents would not be scrutinized by out-of-state judges. (...the Senate carried out their master's will by a voice vote...so that there would be no registry of who had voted for it, and therefore no accountability.)
..."As soon as the White House announced the pocket veto...the very next day!...Bank of America halted all foreclosures, nationwide.
"Why do you think that happened? Because the banks are in trouble...again. Over the same thing as last time...the damned mortgage-backed securities!
"The reason the banks are in the tank again is, if they've been foreclosing on people they didn't have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
...The fraud committed by the foreclosure mills casts enough doubt that, now, all foreclosures come into question. Not only that, all mortgages come into question.
..."This is a major, major crisis. The Lehman bankruptcy could be a spring rain compared to this hurricane. And if this isn't handled right...and handled right quick, in the next couple of weeks at the outside...
...What do you think happens in a country when the citizens realize they don't need to pay their debts?""
Anonymous
Via John Mauldin
..."However, legally...and this is the important part...MERS didn't hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.
"But the REMICs didn't own the notes either, because of a fluke of the ratings agencies: the REMICs had to be "bankruptcy remote," in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors. ...(REMIC - Real-Estate Mortgage Investment Conduit, a special vehicle designed to hold the loans for tax purposes)...
"So somewhere between the REMICs and MERS, the chain of title was broken.
"Now, what does 'broken chain of title' mean? Simple: when a homebuyer signs a mortgage, the key document is the note. As I said before, it's the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the 'chain of title.'
"You can endorse the note as many times as you please...but you have to have a clear chain of title right on the actual note...
"If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
"To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
..."The broken chain of title might not have been an issue if there hadn't been an unusual number of foreclosures.
..."the banks had hired 'foreclosure mills'...law firms that specialized in foreclosures...in order to handle the massive volume of foreclosures and evictions that occurred because of the housing crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
"...it turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby 'proving' that the banks had judicial standing to foreclose on delinquent mortgages. These foreclosure mills might have even forged the loan note itself...
...alarm bells started going off when the title insurance companies started to refuse to insure the titles.
"In every sale, a title insurance company insures that the title is free -and clear ...that the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because...they didn't want to expose themselves to the risk that the chain of title had been broken, and that the bank had illegally foreclosed on the previous owner.
"That's when things started getting interesting: that's when the attorneys general of various states started snooping around and making noises...
..."The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills' forged and fraudulent documents would not be scrutinized by out-of-state judges. (...the Senate carried out their master's will by a voice vote...so that there would be no registry of who had voted for it, and therefore no accountability.)
..."As soon as the White House announced the pocket veto...the very next day!...Bank of America halted all foreclosures, nationwide.
"Why do you think that happened? Because the banks are in trouble...again. Over the same thing as last time...the damned mortgage-backed securities!
"The reason the banks are in the tank again is, if they've been foreclosing on people they didn't have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
...The fraud committed by the foreclosure mills casts enough doubt that, now, all foreclosures come into question. Not only that, all mortgages come into question.
..."This is a major, major crisis. The Lehman bankruptcy could be a spring rain compared to this hurricane. And if this isn't handled right...and handled right quick, in the next couple of weeks at the outside...
...What do you think happens in a country when the citizens realize they don't need to pay their debts?""
Anonymous
Via John Mauldin
Deep Forclosure Thoughts by John Mauldin
"Who will want to buy a mortgage that is in a securitized package with no clear title?
Who will get title insurance?
Some judge somewhere is going to make a ruling that is going to petrify every title company, and the whole thing grinds to a halt.
…If we cannot securitize mortgages, there is no mortgage market. We cannot go back to where lenders warehoused the notes. It would take a decade to build that infrastructure. In the meantime, housing prices are devastated. Whatever wealth effect remains from housing gets worse, and the economy rolls over.
…If I did something in my business like the stuff described above, someone would come in and justifiably shut me down, fine me, and ban me from the securities business.
…the FDIC is now running several of the banks (think IndyMac) that are part of this foreclosure crisis. These are the guys who are supposed to be preventing something like this.
The Subprime Debacle: Act 2
…All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.
And all this coming as European banks are going to have to sort out their own sovereign debt problems. Shades of 2008. I hope I am wrong, but it's all connected."
John Mauldin
Who will get title insurance?
Some judge somewhere is going to make a ruling that is going to petrify every title company, and the whole thing grinds to a halt.
…If we cannot securitize mortgages, there is no mortgage market. We cannot go back to where lenders warehoused the notes. It would take a decade to build that infrastructure. In the meantime, housing prices are devastated. Whatever wealth effect remains from housing gets worse, and the economy rolls over.
…If I did something in my business like the stuff described above, someone would come in and justifiably shut me down, fine me, and ban me from the securities business.
…the FDIC is now running several of the banks (think IndyMac) that are part of this foreclosure crisis. These are the guys who are supposed to be preventing something like this.
The Subprime Debacle: Act 2
…All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.
And all this coming as European banks are going to have to sort out their own sovereign debt problems. Shades of 2008. I hope I am wrong, but it's all connected."
John Mauldin
Deep Forclosure Thoughts by Spitzer and Rosner
"Partial Transcript of "Inside Job"
SPITZER: What I would be doing right now would be to drop a subpoena on every investment bank saying, I want to track this information, these documents came from Clayton, the due diligence firm, see where in the company they went, who saw them, who knew about them, who had a conversation about them, and what did they do? And somebody who saw these documents, and as Josh said, saw that there was 29 percent noncompliance and still pushed these mortgages into the security, boom, charge them right there -- failure to apply the rigorous standards. Charge them, recover all the money. And this time, I would hope the ax comes done, no bailout, we claim every...
ROSNER: Eliot raised an interesting question: What if the trading desk saw the due diligence documents, knew that 29 percent didn't meet the underwriting standards, knew that those were sold as securities to investors and then with that knowledge traded against that by going short these securities.
SPITZER: Let me explain what you're saying, because this is such a huge point. At the hearings and in this movie, there is an outtake of Lloyd Blankfein saying, we traded against the very documents and very mortgages that we sold to the entire investment community, meaning we shorted them, we were betting on them going down, not up. If they did that when they had knowledge from these documents that they we're now talking about, that in fact they were going to blow up because 29 percent or more were not compliant, that is trading on inside information, could create critical liability. So again, the critical issue is who saw these documents, when, what did they do with that information? This is a swamp, a cesspool and somebody should be dropping 1,000 subpoenas right now on this.
ROSNER: And by the way, this information has been sort of floating around in the ether, in the public ether, in the law enforcement ether, for the past three years and there's been...
SPITZER: Why is the SEC not jumped all over this to see if these mortgages were safe and secure...
ROSNER: True. Very good question.
SPITZER: You know, I'm just flabbergasted when, you know, you called me a while back and you had seen about these things and we began to talk. This is, it seemed to me, the Holy Grail that explains and is the blueprint for unmasking how absolutely venal the behavior was inside these investment banks."
Mish
SPITZER: What I would be doing right now would be to drop a subpoena on every investment bank saying, I want to track this information, these documents came from Clayton, the due diligence firm, see where in the company they went, who saw them, who knew about them, who had a conversation about them, and what did they do? And somebody who saw these documents, and as Josh said, saw that there was 29 percent noncompliance and still pushed these mortgages into the security, boom, charge them right there -- failure to apply the rigorous standards. Charge them, recover all the money. And this time, I would hope the ax comes done, no bailout, we claim every...
ROSNER: Eliot raised an interesting question: What if the trading desk saw the due diligence documents, knew that 29 percent didn't meet the underwriting standards, knew that those were sold as securities to investors and then with that knowledge traded against that by going short these securities.
SPITZER: Let me explain what you're saying, because this is such a huge point. At the hearings and in this movie, there is an outtake of Lloyd Blankfein saying, we traded against the very documents and very mortgages that we sold to the entire investment community, meaning we shorted them, we were betting on them going down, not up. If they did that when they had knowledge from these documents that they we're now talking about, that in fact they were going to blow up because 29 percent or more were not compliant, that is trading on inside information, could create critical liability. So again, the critical issue is who saw these documents, when, what did they do with that information? This is a swamp, a cesspool and somebody should be dropping 1,000 subpoenas right now on this.
ROSNER: And by the way, this information has been sort of floating around in the ether, in the public ether, in the law enforcement ether, for the past three years and there's been...
SPITZER: Why is the SEC not jumped all over this to see if these mortgages were safe and secure...
ROSNER: True. Very good question.
SPITZER: You know, I'm just flabbergasted when, you know, you called me a while back and you had seen about these things and we began to talk. This is, it seemed to me, the Holy Grail that explains and is the blueprint for unmasking how absolutely venal the behavior was inside these investment banks."
Mish
Deep Foreclosure Thoughts, by MBSGuy
"It is patently incorrect to say that the “foreclosure gate” issue is about “robo-signers”. A dozen top banks or servicers voluntarily halted foreclosure across much of the country because title insurers were no longer comfortable working on their foreclosure sales, borrowers were having increasing success challenging the foreclosures, their sub-contractors (such as Lender Processing Services and various foreclosure mill law firms) were being investigated for fraud and perjury, and news was starting to get out that the problems were much more widespread than had been previously reported.
The entire legal structure of foreclosure was coming undone. Robo-signers were just a manifestation of a much larger issue that was already becoming a problem.
...I believe that a reasonable examination of the facts shows that the documents were not prepared incorrectly due to mistake, but rather due to a strategic choice.
How can you look at this issue in detail and not wonder why the servicers chose the routes they took?
If it was really just a bunch of technical mistakes, how come they never did anything to fix the problem, even though they have been facing legal challenge from a growing number of borrowers?
Surely, someone at the servicer knew that submitting unverified affidavits could create legal problems.
The deposition of GMAC’s robo-signor Jeffrey Stephan, which seemed to break the case open in September, was actually from 2009. GMAC was on notice of the problem with unverified affidavits for over a year and did nothing about it – in fact they submitted thousands more with the same problems, even after Mr. Stephan admitted in court that he repeatedly submitted false affidavits to court. It was their business to submit them on an unverified basis, it was not a technical mistake.
Having witnessed a servicer and its counsel lie repeatedly in a court where I was testifying, I can say with confidence that the incorrect statements they made were not mistakes. I wondered why they spent so much money to dispute our claim that the form of the note and mortgage were not in the proper form.
If the servicer had just made a technical error, why didn’t they just go correct it and re-submit the foreclosure in the name of the party actually holding title (rather than the people they wanted to be holding the title)?
They submitted the documents to cover earlier mistakes in the origination process. If it is true that the servicing “mistakes” are correlated to the number of loans with conveyance problems, then it appears that the conveyance problem could be quite large.
...Doesn’t preemptively and voluntarily halting foreclosure in 23 or 50 states seem like a bit of an overreaction if this really were just a few technical mistakes in preparing some otherwise uncontested servicing documents?
Refusing to ask “WHY did the servicers prepare so many incorrect documents?” is evidence of a very advanced stage of denial.”"
MBSGuy
Securitization Expert Witness
Naked Capitalism
The entire legal structure of foreclosure was coming undone. Robo-signers were just a manifestation of a much larger issue that was already becoming a problem.
...I believe that a reasonable examination of the facts shows that the documents were not prepared incorrectly due to mistake, but rather due to a strategic choice.
How can you look at this issue in detail and not wonder why the servicers chose the routes they took?
If it was really just a bunch of technical mistakes, how come they never did anything to fix the problem, even though they have been facing legal challenge from a growing number of borrowers?
Surely, someone at the servicer knew that submitting unverified affidavits could create legal problems.
The deposition of GMAC’s robo-signor Jeffrey Stephan, which seemed to break the case open in September, was actually from 2009. GMAC was on notice of the problem with unverified affidavits for over a year and did nothing about it – in fact they submitted thousands more with the same problems, even after Mr. Stephan admitted in court that he repeatedly submitted false affidavits to court. It was their business to submit them on an unverified basis, it was not a technical mistake.
Having witnessed a servicer and its counsel lie repeatedly in a court where I was testifying, I can say with confidence that the incorrect statements they made were not mistakes. I wondered why they spent so much money to dispute our claim that the form of the note and mortgage were not in the proper form.
If the servicer had just made a technical error, why didn’t they just go correct it and re-submit the foreclosure in the name of the party actually holding title (rather than the people they wanted to be holding the title)?
They submitted the documents to cover earlier mistakes in the origination process. If it is true that the servicing “mistakes” are correlated to the number of loans with conveyance problems, then it appears that the conveyance problem could be quite large.
...Doesn’t preemptively and voluntarily halting foreclosure in 23 or 50 states seem like a bit of an overreaction if this really were just a few technical mistakes in preparing some otherwise uncontested servicing documents?
Refusing to ask “WHY did the servicers prepare so many incorrect documents?” is evidence of a very advanced stage of denial.”"
MBSGuy
Securitization Expert Witness
Naked Capitalism
10/17/10
Megan McArdle on Foreclosures
"...the implications seem much more disturbing for people who aren't in foreclosure.
Take the investors in these mortgage bonds. Most of these securities have clauses that allow investors to force the banks to take back loans in the case of fraud.
When did the fraud start?
...I doubt that many of the originators have the capital to withstand a mass wave of such loan repatriations, especially since you can expect that they'll only be forced to take the bad ones. This is going to be an expensive mess for the courts to sort out, could lead to another wave of bank failures, and doesn't have any obvious legislative fix.
Or how about people who are in trouble, but not in foreclosure?
...If a loan servicer doesn't have sufficiently clear authority to foreclose, then presumably they also don't have any authority to modify the loan.
...shouldn't banks be stopping their modifications, too, until clear lines of ownership are established?
Already, it's apparently impossible to sell a foreclosure--and people who have bought foreclosed homes are starting to sweat, wondering if they're going to get embroiled in a lawsuit.
But what about short sales? ...if a company doesn't have the authority to foreclose, it doesn't have the authority to authorize you to sell it for less than the value of the mortgage.
Things seem cleaner with ordinary sales, but what if some other company comes out of the woodwork to claim that the note wasn't properly registered, and you paid the wrong guy?
Does the lien go back on the house?
Who owes the money?
This is why people are worried that the title-insurance system will break down.
...if I were a title insurer, that would make me kind of reluctant to write new policies.
...All this uncertainty is ultimately going to be terrible for both the housing market, and the broader economy."
Megan McArdle
The Atlantic via Business Insider
Take the investors in these mortgage bonds. Most of these securities have clauses that allow investors to force the banks to take back loans in the case of fraud.
When did the fraud start?
...I doubt that many of the originators have the capital to withstand a mass wave of such loan repatriations, especially since you can expect that they'll only be forced to take the bad ones. This is going to be an expensive mess for the courts to sort out, could lead to another wave of bank failures, and doesn't have any obvious legislative fix.
Or how about people who are in trouble, but not in foreclosure?
...If a loan servicer doesn't have sufficiently clear authority to foreclose, then presumably they also don't have any authority to modify the loan.
...shouldn't banks be stopping their modifications, too, until clear lines of ownership are established?
Already, it's apparently impossible to sell a foreclosure--and people who have bought foreclosed homes are starting to sweat, wondering if they're going to get embroiled in a lawsuit.
But what about short sales? ...if a company doesn't have the authority to foreclose, it doesn't have the authority to authorize you to sell it for less than the value of the mortgage.
Things seem cleaner with ordinary sales, but what if some other company comes out of the woodwork to claim that the note wasn't properly registered, and you paid the wrong guy?
Does the lien go back on the house?
Who owes the money?
This is why people are worried that the title-insurance system will break down.
...if I were a title insurer, that would make me kind of reluctant to write new policies.
...All this uncertainty is ultimately going to be terrible for both the housing market, and the broader economy."
Megan McArdle
The Atlantic via Business Insider
10/12/10
Foreclosure Ethics
"Foreclosure Fraud: It's Worse Than You Think
...There has been precious little talk of what the real legal issues are behind the robosigning scandal.
...The real issue is ownership of these loans and who has the right to foreclose.
...foreclosures are governed by state law. There is no real federal jurisdiction.
...Adam Levitin, a Georgetown University Law professor who specializes in, among many other financial regulatory issues, mortgage finance...says the documentation problems involved in the mortgage mess have the potential "to cloud title on not just foreclosed mortgages but on performing mortgages."
The issues are securitization, modernization and a whole lot of cut corners.
Real estate law requires real paper transfer of documents and titles, and a lot of the system went electronic without much regard to that persnickety rule.
Mortgages and property titles are transferred several times in the process of a home purchase from originators to securitization sponsors to depositors to trusts. Trustees hold the note (which is the IOU on the mortgage), the mortgage (the security that says the house is collateral) and the assignment of the note and security instrument.
The issue is in that final stage getting to the trust.
The law demands that when the papers get moved around they are "wet ink," that is, real signatures on real paper.
But Prof. Levin tells me that's not the worst of it. Affidavits assigned to the notes and security instruments are supposed to be endorsed over to the trust at the time of sale, but in many foreclosure scenarios the affidavits have been backdated illegally.
So with the chain of documentation now in question, and trustee ownership in question, here is one legal scenario, according to Prof. Levitin:
Josh Rosner, of Graham-Fisher, put the following out in a note today,
claiming violations of pooling and servicing agreements on mortgages
could dwarf the Lehman weekend:
Diana Olick
CNBC Real Estate Reporter
...There has been precious little talk of what the real legal issues are behind the robosigning scandal.
...The real issue is ownership of these loans and who has the right to foreclose.
...foreclosures are governed by state law. There is no real federal jurisdiction.
...Adam Levitin, a Georgetown University Law professor who specializes in, among many other financial regulatory issues, mortgage finance...says the documentation problems involved in the mortgage mess have the potential "to cloud title on not just foreclosed mortgages but on performing mortgages."
The issues are securitization, modernization and a whole lot of cut corners.
Real estate law requires real paper transfer of documents and titles, and a lot of the system went electronic without much regard to that persnickety rule.
Mortgages and property titles are transferred several times in the process of a home purchase from originators to securitization sponsors to depositors to trusts. Trustees hold the note (which is the IOU on the mortgage), the mortgage (the security that says the house is collateral) and the assignment of the note and security instrument.
The issue is in that final stage getting to the trust.
The law demands that when the papers get moved around they are "wet ink," that is, real signatures on real paper.
But Prof. Levin tells me that's not the worst of it. Affidavits assigned to the notes and security instruments are supposed to be endorsed over to the trust at the time of sale, but in many foreclosure scenarios the affidavits have been backdated illegally.
So with the chain of documentation now in question, and trustee ownership in question, here is one legal scenario, according to Prof. Levitin:
The mortgage is still owed,
but there's going to be a problem figuring out who actually holds the mortgage,
and they would be the ones bringing the foreclosure.
You have a trust that has been getting payments from borrowers for years
that it has no right to receive.
So you might see borrowers suing the trusts saying give me my money back,
you're stealing my money.
You're going to then have trusts that don't have any assets that have been issuing securities
that say they're backed by a whole bunch of assets,
and you're going to have investors suing the trustees for failing to inspect the collateral files,
which the trustees say they're going to do,
and you're going to have trustees suing the securitization sponsors
for violating their representations and warrantees about what they were transferring.
Adam Levitin
Georgetown University
Josh Rosner, of Graham-Fisher, put the following out in a note today,
claiming violations of pooling and servicing agreements on mortgages
could dwarf the Lehman weekend:
Nearly all Pooling and Servicing Agreements require that
“On the Closing Date, the Purchaser will assign to the Trustee
pursuant to the Pooling and Servicing Agreement
all of its right, title and interest in and to the Mortgage Loans
...and the Trustee shall succeed to such right, title and interest...
Also, an Assignment of Mortgage must accompany each note
and this almost never happens.
We believe nearly every single loan transferred was transferred to the Trust
in “blank” name.
That is to say the actual loans were apparently
not, as of either the cut-off or closing dates,
assigned to the Trust as required by the PSA.
Rather than continue to fight for the “put-back” of individual loans
the investors may be able to sue for and argue that the “true sale” was never achieved.
Josh Rosner
Graham-Fisher
Diana Olick
CNBC Real Estate Reporter
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