Obama Gives Banks Another Pass; State AG’s Not So Much

11 Oct

How the world can change in a weekend.

On Friday everyone was predicting Obama would pocket veto H.R. 3808 and would stand up for the rule of law, due process in our courts and against the now seriously unraveling cover-up of what looks to be a massive securitization fraud by the banks which could have far reaching implications into proper legal title and ownership of real property across the country.

This morning, the landscape has shifted again as the executive branch has come out accusing members of Congress of ‘playing politics’ with foreclosures and saying the administration does not support a national foreclosure moratorium until this mess gets sorted out…

Meantime, it looks as though the State Attorneys General are moving ahead; with the latest Ohio filings the cases are rolling in from the AGs showing not only that they are not in alignment with the Administration’s position, but that they have the evidence to prove WHY they are proceeding with RICO, anti-racketeering and fraud charges against the lenders.

This is not just about the servicers or the robo-signings anymore; this is about the underlying loans and securitized instruments created by banks which effectively destroyed the chain of title on those properties.

All of this amidst a background of very seriously bad lender behavior: The woman whose home was broken into by employees workign for JPMorgan Chase when she was not even foreclosed upon and the resultant 911 call she made from her bathroom where she locked herself in as the intruder attempted to break down her door (later it was determined the man was changing the locks on her house as she cowered in the bathroom!) or the man whose house was foreclosed when he had no mortgage.  These are not the stories of an industry in control – but quite clearly the stories of an industry gone out of control.

Here are a few of the pieces which have shwon up this morning on the Net about it all:

Obama: Due Process Of Law Irrelevant

In a stunning display of turning The Constitution into toilet paper once again, our Dear President is again fellating the bank executives:

The Obama administration does not support a nationwide moratorium on foreclosures at this time, Federal Housing Administration Commissioner David Stevens said Sunday in an e-mail response to questions.

Calling the growing evidence that lenders have used inaccurately prepared and even fraudulent documents to foreclose on homes a “serious problem,” he said it had already “thrown a lot of uncertainty into the housing market that is already fragile.”

“I’m not sure about a national moratorium, because there are, in fact, valid foreclosures that probably should go forward, and where the documentation and paperwork is proper,” Axelrod said.

Notice the two immediate problems:

  1. In this country we are supposed to err on the side of not punishing innocent people.  That is, if a particular legal thing would catch five guilty people while at the same time persecuting any meaningful number of innocent ones, our system of justice is supposed to eschew that path.

  2. The Constitution’s 5th Amendment says, in part:
    No person…… (shall) be deprived of life, liberty, or property, without due process of law.

Fraudulent paperwork – in any amount – is a clear violation of The Fifth Amendment.

But again, our Dear President and his officials are attempting to ignore the facts.  This is not now and never has been about “simple errors.”

It is about covering up what was done during the 2003-2007 years – the improper bundling of loans that did not meet standards and the willful and intentional failure to transfer notes.

Just as Richard Nixon attempted to cover up the Watergate burglarly by destroying the evidence he had proving he knew what was going on, President Obama is attempting to deflect attention from the actual offense and pattern of conduct.

The issue is not “robo-signed” documents.  The issue is that the robo-signed documents are an attempt to cover up for previous failures in the securitization process which have left investors worldwide holding an empty bag, and homeowners with seriously-damaged chains of title.


Bank Disinformation III: Obama Throws Weight Behind Banks, Housing “Market” Over Borrowers

from naked capitalism by Yves Smith

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I should have expected this, Team Obama is so predictably bank friendly that it was inconceivable that the Administration would ever decide against them on anything other than the occasional sop to maintain plausible deniability. But this morning’s news stories reveal the officialdom isn’t even bothering to keep up appearances.

First, from Politico writer Ben Smith, via a newsletter targeted to policy types:

WALL STREET WARNS WASHINGTON ON MORTGAGES – The financial services industry is growing increasingly concerned as more politicians get behind the idea of a broad moratorium on home foreclosures, which banks and many outside analysts say could be good short-term politics but terrible long-term policy.

One senior Wall Street executive told Morning Money over the weekend: ‘President Obama should be very cautious about aligning himself with Congressional leaders who are playing politics with the foreclosure issue. With foreclosed properties comprising one in every four homes sold in the United States, the spreading moratorium could disrupt real estate deals in progress, slow down the process of clearing the backlog of troubled home loans and [endanger] the economic recovery.’

So we are back to Wall Street calling the shots, the very same Wall Street that invokes the “give us what we demand or we’ll shoot the economy” demand whenever its pet interests are threatened. Here the securitization industry was colossally irresponsible in its conduct, and has created a mess that will be monstrously difficult to remedy….and we’re supposed to plow onward in business as usual mode?

And notice the false dichotomy: the banks who screwed up yet again (and will need to be recapitalized again, trust me, foreclosure moratorium or not, there is a tsunami of litigation on the horizon that will bury servicers and the major trustees on securitizations) versus “Congressional leaders who are playing politics.” Huh? And it FURTHER, and falsely implies that those evil Congressmen are the reason banks have imposed moratoriums. Erm, it has to do with the fact that filing an improper affidavit is a very serious matter, and the banks have to straighten that out (at a bare minimum, as we stress here repeatedly, the affidavits are merely the presenting problem, not the fundamental failing).

And we further get another lie, that it’s the foreclosure freezes imposed by banks, and the prospect of more at the state level, that might affect REO sales. That’s another Big Lie; the most pressing impediment, and it’s not getting better any time soon, is title insurers withdrawing from foreclosure sales from banks that have admitted to having affidavit problems. Other title insurers are reported to be writing qualified policies on foreclosure sales.

The other disturbing but revealing report of the morning is the new Obama administration straw man: that it’s not backing a national foreclosure freeze. First, as bank expert Chris Whalen points out, this is eventually going to happen, but on a state-by-state basis. not nationally. But second, look at the deplorable logic. Per the Washington Post, boldface ours:

The Obama administration does not support a nationwide moratorium on foreclosures at this time, Federal Housing Administration Commissioner David Stevens said Sunday in an e-mail response to questions.

“We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not, is simply not the prudent step to take in this fragile housing market,” he said.

The statement couldn’t be more clear. “Markets” as in bank/corporate interests uber alles, no concern with the rule of law.


Bank Disinformation II: Banks Attacking Rule of Law Frontally

from naked capitalism by Yves Smith

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Readers may argue I’m reading more of a bank PR role in a page one Wall Street Journal story than is warranted. However, even the Columbia Journalism Review took notice of the Journal’s scanty reporting on the foreclosure crisis, a mounting series of problems that is deservedly damaging to the banking industry’s image and bottom line. Now we have the Murdoch paper feature a remarkably one sided story on foreclosures. That looks to be no accident.

The story, “Courts Add To Foreclosure Delay” is utterly one sided. Having a judicial process for making foreclosures, as is required in 23 states, is bad for you….because it is preventing the housing market from bottoming. This argument is the polar opposite, by the way, of the Administration’s lame defense of its HAMP mod program.

Readers may recall that HAMP for the most part merely delayed foreclosures of participating homeowners for a few months, allowing banks to extract a few more payments from stressed borrowers and extract some incentive fees. Team Obama contended that was really a good thing, a feature, not a bug. The housing market was weak; better to have foreclosure properties dribble out on the market to prevent overshoot on the downside. So it seems that bank defenders will spin the delay issue whatever way they need at any point in time to flatter the banks.

The author also leads with an exaggerated claim up front:

One comparison widely cited: In California, where judges don’t handle foreclosures, the housing market appears to have hit bottom a year ago and has been bouncing back. In Florida, where foreclosures go through the court system, prices keep falling, and foreclosure inventory continues to rise.

Correlation is not causation, and indeed, the author backpedals, but it’s a full 13 paragraphs later:

The judicial process isn’t the only determining factor. California’s economy is more diverse than Florida’s and real estate, long term, has always been a stronger bet in California, which explains why buyers would pounce once prices declined.

The article attributes differences in foreclosure times solely to the judicial versus non-judicial issue. Yet it has repeatedly been reported that banks themselves are failing to foreclose on severely delinquent borrowers. Indeed, the “deadbeat borrower” reaction comes up repeatedly whenever we talk about people fighting foreclosures. In fact, relatively few people who can’t afford their homes fight; most are beating back a bank motion to break a bankruptcy stay or believe they are the victim of servicing errors; in Florida, some were partway through getting mods, yet the servicer failed to call off the foreclosure mill. The banks aren’t about to release the data, but a fair bit of the lengthening of time to foreclosure is due to the banks’ choice: they keep the borrower in place so that they are liable for the real estate taxes. If a bank has a lot of real estate already in a certain city or area, it’s going to have trouble moving inventory, so it sees delaying foreclosure as a way to save holding costs.

There is also not a single acknowledgment in the article that affidavits submitted were improper. Look how timid the Journal’s formulation is: “alleged irregularities in foreclosure documents submitted by the banks.” The banks have ADMITTED the affidavits were fraudulent, prepared by people who had no direct knowledge. This isn’t an “allegation”; these are admissions by bank employees in multiple depositions.

The article focuses strictly on the same theme of the Axelrod Face the Press remarks on Sunday: delay is bad for the economy, and gives as little mention as possible to the dead body in the room, that the “documentation” problems are severe and not fixable in any simple fashion.

That isn’t to say that some of the issues and data in this article aren’t worth exploring. But this piece was not an inquiry; it’s a badly skewed account, but the framing and the heavy use of data provides effective camouflage.

On another front, we had a pretty lame sighting over the weekend, the president of MERS, Mortgage Electronic Registry System, trying to defend his firm’s activities. We’ve avoided talking much about MERS, simply because it is a secondary problem in the foreclosure mess. The big failing of the securitization industry was not conveying the borrower IOU (the note) correctly to the securitization trust. In 45 of 50 states, it’s no tickie, no laundry: if you don’t own the note, you can’t foreclose. The mortgage (aka a deed of trust) is an “accessory” to the note in those states.

Some statements made in a Q&A released in connection the the president’s remarks are patently untrue, as in they have been repeatedly contradicted by sworn testimony by MERS employees. For instance:

1) MERS holds legal title to a mortgage as an agent for the owner of the loan
2) MERS can become the holder of the promissory note when the owner of the loan chooses to make MERS the holder of the note with the right to enforce if the mortgage loan goes into default.

This is utter baloney. MERS has no legal relationship to the note-holder. The owner of a loan (in the MERS context) will always be a trust. Per Max Gardner, a Federal bankruptcy attorney:

The Trust is NOT a member of MERS by a bi-lateral or tri-lateral agreement. The Trust cannot be a member of MERS per the MERS By-Laws. The Trust has never signed any document or filed any document that appoints MERS to execute any documents for the Trust. You simply cannot have a
silent or unauthorized “agent” or “nominee” for a NY or Delaware Trust without a specific designation and appointment by the Trust…..The mortgage note is never transferred to MERS.

There is more from the Q&A that is false:

Claims that MERS disrupts or creates a defect in the mortgage or deed of trust are not supported by fact or legal precedents….MERS does not remove, omit, or otherwise fail to report land ownership information from public records.

Yves here. Ahem. This is misleading. There is no public record of the transfers from the originator to the trust (assuming that was done correctly).

MERS also falsely insists it increases transparency:

MERS was created to provide clarity, transparency and efficiency by tracking the changes in servicing rights and beneficial ownership interests. It was not created to enable faster securitization.

Um, MERS was create to save recording fees. And transparent? Absolutely not. Only MERS members, which are basically banks and servicers, can access the service. And it appears any MERS member can assign a mortgage. Moreover, from what I can infer, MERS is lacking in the sorts of checks you’d expect in a registry of this importance (requirement of approval or confirmation by a second party of a records change; audit trails, etc).

Although the MERS effort at image-burnishing is a side show, it’s still worth noting that they can’t even keep their own story straight. And MERS is hardly alone in that regard.


Bank Disinformation I: PR Machine in Overdrive on Foreclosure Fraud Front

from naked capitalism by Yves Smith

A DC contact warned me last week that the banks were readying a massive pushback on the foreclosure crisis. It went into full swing over the weekend.

Obama, admittedly through his proxy, David Axelrod, threw his weight in behind the banks on Face The Nation:

Q: I guess the first question I would have is does the administration favor some kind of national moratorium on these foreclosures to get this all sorted out?
A: First of all, Bob, it is a serious problem. It’s thrown a lot of uncertainty into the housing market that as you know is already fragile. It’s bad for the housing market and it’s bad for these institutions which is why they’re scrambling now to go back through their documentation for all of this as they should. The president was concerned enough to veto a bill that came to him last Thursday that would have unintentionally made it perhaps easier to make mistakes. so we are concerned. We’re working with these institutions. I’m not sure about a national moratorium because there are, in fact, valid foreclosures that probably should go forward and where the documentation and paperwork is proper. But we are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don’t work.
Q: I mean, I guess people are worried about what do you think the impact this is going to have on an economy that’s pretty shaky right now?
A: Look, our hope is is that this moves rapidly and that this gets unwound very, very quickly and that if they can go back, reconstruct their paperwork and what we’ve stressed to them is that they need to expedite that process and work very, very quickly to get it done. we’re going to continue to push for that.

Yves here. The sense of priorities is astonishing. Axelrod repeatedly stresses the need to get “this” resolved quickly. Notice the refusal to use accurate and honest language: at best, these are improprieties, but the more accurate word is fraud.

The emphasis is NOT on doing things correctly but on the need for haste. Yes, there is what amounts to an aside on the need to have “proper” paperwork, but that is more an assertion that some foreclosures aren’t afflicted by doubts over the securitization trust that supposedly owns the note, the borrower IOU, actually having taken the steps to prefect its rights.

And this is simply a variant of the spin the banks have tried since the affidavit mess surfaced: that this is a mere “paperwork” problem. As we commented earlier in the weekend, that’s utter bunk. First, even the supposedly minor manifestation, that of “improper” affidavits, is a fraud on the court. And it hasn’t just been taking place in the 23 judicial foreclosure states; it has also taken place in non-judicial states every time a foreclosure is contested. Second, the banks and their mouthpieces are being disingenuous in implying that they merely need to find the right parties and redo the affidavits. Some states, like South Carolina, are very strict on procedures; they disbar lawyers who screw up residential real estate closings (the logic is if a lawyer can’t handle something that simple, he has no business practicing law). The lawyers involved in providing these bogus affidavits to the court ought to be subject to sanctions; some judges may require cases to be refiled. Not only is this a big operational hassle; there are judges who take the propriety of their court seriously and may not be terribly accommodating when banks try resubmitting affidavits.

And that’s before we get to elephant in the room, namely, the affidavit “improprieties” are a mere symptom of much deeper problems, namely, with the failure of the key parties in the original securitization (the originator, the investment bank packager, and the trustee/custodian) to make sure all the contractually-stipulated steps were taken to make sure the trust actually got possession of the properly-endorsed note and related documentation.

Another bit of bank-defending rubbish was in the Washington Post over the weekend (the intensity of coverage in the WaPo is a function of bank industry efforts to get its message out). Even though the headline wasn’t too awful (”Government had been warned for months about troubles in mortgage servicer industry“), it was a defense of the Administration’s failure to bring servicers to heel. The core argument is Treasury party line; Geithner took exactly the same position in the blogger meeting last August:

In an interview this week, a senior administration official confirmed that the White House and Treasury Department had received warnings that the mortgage industry employed inexperienced staffers to oversee foreclosures, had problems handling documents and communicating with borrowers, and often failed to comply with regulations.

But the government had struggled to address shortcomings in the industry, the official said, because the administration was also seeking the servicers’ help with modifying the home loans of millions of borrowers to help them avoid foreclosure.

In addition, a Treasury official said the federal government’s power to tackle problems in the servicer industry is limited because foreclosure law is largely the domain of states.

Yves here. We are supposed to take this seriously? Any regulator with guts could very quickly make life miserable for the servicers if it wanted to. If they were to threaten investigations on, say, issues where there is clear evidence of servicer problems that really ought to be cleaned up regardless (the gaming of HAMP and other mod programs, plus illegal application of payments to fees first rather than principal and interest, or servicing errors generally are all ripe targets), they would easily unearth a lot of poor practices that could be used to gain leverage over uncooperative banks. And the point would not be even to make the investigations, but to have a staredown with the banks and make it clear that if certain things didn’t happen that were in everyone’s best interest, there would be consequences. This isn’t about lack of leverage, as the Treasury falsely contends, it’s an unwillingness to inconvenience the industry.

And below is the text of a letter making the rounds on the Hill. This is simply dishonest. First, note the complete lack of mention of the foreclosure crisis; this is an effort to divert attention from the real issue, the mess the securitization industry has made of the housing market at pretty much every step of the process, from ginning up bad “spready” loans on purpose to feed demand for CDOs, to deciding to ignore the carefully-devised procedures to make sure the securitization trust complied with all the requirements needed for it to have ownership of the mortgages; to rampant document forgeries and fraud to remedy the procedural failings. Second, it implies that servicers are happy to mod mortgages. Huh? They’ve done it only under duress, and with bribes, um, fees. And even then, most of what they call “mods” are short-term payment catch-up plans which do the servicer more good than the borrower; even the so-called HAMP “permanent” mods are mislabeled; they are five year payment reduction plans; there is nothing “permanent” about them.

So get used to the barrage from the Ministry of Truth; you’ll be subjected to a lot more of the same over the next few weeks.

October 8, 2010

The Honorable XYZ
United States House of Representatives
Washington DC 20515

Dear Representative XYZ,

We are writing to set the record straight on the efforts mortgage servicers are making to assist
at-risk homeowners, as well as to address the issues that are being raised about the processing of documents for mortgages that are in foreclosure.

Foreclosure Document Reviews

As we have said consistently, foreclosure helps no one, and it is the last thing our mortgage servicing companies want to have happen. That is why our members work hard every day with their customers who are behind on their mortgage to try to find a solution that avoids a foreclosure. This effort has produced dramatic positive results for homeowners. Mortgage servicers have completed 1.3 million loan modifications for homeowners thus far in 2010 and more than 3.7 million since 2007.

Unfortunately, there are circumstances when a modification or other potential solution such as a short sale is not possible and foreclosure proceedings must be undertaken. As has always been the case, no change in the terms of the loan will help a homeowner if they don’t have adequate income to make even greatly reduced monthly payments, or if they have no desire to remain in the home. If that is the case, a foreclosure must be pursued by the servicer.

We want to assure you that foreclosure is not initiated by servicers until many months of delinquent payments, after repeated attempts to work with the homeowner, and only when all other foreclosure prevention efforts have failed.

In several states, some mortgage servicers have put final foreclosure sales on hold while they review their document procedures. It is important to note, however, that these are document process reviews; in almost all cases there are no factual disputes about whether the mortgage is delinquent, the amount of the arrears, or whether foreclosure is proper. Indeed, a substantial percentage of foreclosures are uncontested by borrowers. In the overwhelming majority of cases, we believe the facts presented to the courts in foreclosure proceedings about the debt amounts and delinquencies have been accurate.

Servicers should be permitted to complete the review of their document processes that they have already begun. Calls for a blanket national moratorium on all foreclosures are a bad idea and would cause significant harm to communities at risk, the unstable housing market and the fragile economy. A foreclosure moratorium would not change the ultimate outcome for borrowers impacted by this situation.

Distressed Homeowners Are Being Assisted

The foreclosure document and affidavit reviews servicers are conducting are only a part of the on-going efforts being made to help homeowners avoid foreclosure and stay in their homes. Servicers are also continuing to work to assist thousands of homeowners everyday who are behind on their mortgage payments.

These are the facts:

* Mortgage servicers completed 149,000* loan modifications for homeowners in August 2010, including 116,000 proprietary loan modifications and 33,000 Home Affordable Modifications (HAMP.) [*HOPE NOW Alliance October Data report]

* 91% of all proprietary loan modifications in August reduced homeowners’ monthly payments so that the modifications are affordable and sustainable.

* Through August, mortgage servicers completed 1.3 million loan modifications in 2010 and almost 3.7 million since 2007.

* There have been 775,000 completed foreclosure sales through August 2010, compared to 1.3 million loan modifications through August. 2010

* Short sales and deeds-in-lieu are being offered as a dignified alternative to foreclosure for homeowners who have exhausted all their foreclosure prevention options and cannot maintain their mortgage.

* Servicers continue to contact and assist at-risk homeowners in a wide variety of ways. Companies have individual customer assistance centers and participate in face to face outreach events across the nation individually and sponsored by Making Home Affordable and the HOPE NOW Alliance. More than 77,000 homeowners have received assistance at 87 HOPE NOW face-to-face events held all across the country since 2008.

* Homeowners can reach a non-profit counselor at a HUD-Certified counseling agency 24 hours a day, 7 days a week through the 888-995-HOPE Homeowners’ HOPE hotline operated by the Homeownership Preservation Foundation.

* Servicers and Counselors have worked to enhance electronic submission of documents for loan modifications through the new HOPE LoanPort system.

Mortgage servicers continue to help thousands of consumers avoid foreclosure every day. Real progress is being made. The foreclosure document and affidavit review process that servicers are undertaking will clarify the situation significantly.

Attached is a link to the resource sheet for Congressional staff to assist your constituents. We will continue to work with all Members of Congress on mortgage loan inquiries that you receive from your constituents.


Steve Bartlett
President and CEO
The Financial Services Roundtable

John Dalton
Housing Policy Council

John A. Courson
President and Chief Executive Officer
Mortgage Bankers Association


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