The spectacle of the nation’s biggest banks—Bank of America, JPMorgan Chase & Co, GMAC—halting foreclosures because of evidence of mass-scale fraud among mortgage servicers provides official confirmation of a full-blown scandal that may, just may, mark a turning point in the narrative of the financial crisis.
The public can now see for itself how one functionary purported to attest to the accuracy of mortgage paperwork at the rate of 10,000 foreclosures a month, one per minute of every workday.
How Florida’s kangaroo justice throws due process out the window, a travesty summarized here by a dumbfounded Naked Capitalism describing a judge’s instructions:
He says that if the bank is foreclosing, he’s not going to consider any evidence that the foreclosure is in error (servicing errors, plaintiff can’t provide proof it owns the note, which means it might not be the right party and procedurally, means it lacks standing to take action). He says he has already heard everything, there is a lot of unemployment in the area; he is going to schedule a court date, but that is merely a deadline for negotiation.
How business is done in one of the ballooning foreclosure-mill law firms, according to testimony of a former paralegal.
Kapusta, who spoke under oath, said the Stern firm ballooned from 225 employees when she started in March 2008, to more than 1,100 when she was fired in July 2009. She described a disorganized workplace where documents got lost and mortgages were misfiled. The training process was “stupid and ridiculous,” she said.
“There were a lot of young kids working up there who really didn’t pay attention to what they were doing,” she said, according to a transcript. “We had a lot of people that were hired in the firm that were just hired as warm bodies.”
And, for perspective, here’s Ohio Secretary of State Jennifer Brunner, posted on 4closureFraud, making the commonsense observation that banks, which insist on holding borrowers to the letter of their exploding mortgages, should be required to produce coherent paperwork when forcing someone out of a house:
For some consumers, if you’re a day late on your payment, up goes your interest rate. Or if you’re a day late on your payment, they’re going to go ahead and foreclose.
And why is it the banks don’t have to follow the letter of the law when it comes to something so important as someone’s home?
Whether Foreclosuregate turns out to be the “banking industry’s Stalingrad,” as Zero Hedge colorfully puts it, is an open question.
But as Mike Hudson, for whom revelations of the mortgage industry’s dark side are nothing new, reminds us, the fraud factories on the back end of the mortgage process are only an extension of the mortgage boiler rooms on the front end that generated millions of what turn out to be the financial equivalent of Ford Pintos and Chevy Chevettes.
We’ve argued for a while that the mainstream financial press has not yet—to this day—gotten its arms around the degree to which the financial services industry went rogue during the mortgage frenzy.
But now finally the revelations are starting to take hold, overwhelming feeble counter-narratives.
The WSJ, the financial news giant with feet of clay on this story, today, in a news story, goes for the angle that due process is holding up the housing recovery!
In the 23 states in which foreclosures must be approved by a judge, the process takes longer than in states where courts are not involved, and some economists say it’s among the factors delaying a housing rebound.
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.
That unbalanced story, exuding all the compassion of a robo-notary, is nicely undressed by Naked Cap.
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.
Meanwhile, Steven Pearlstein takes the revelations of widespread lender fraud as an opportunity to lecture borrowers on their obligations. Go figure.
But if, as appears to be the case, the overwhelming majority of homeowners facing foreclosure have fallen far behind on their payments, then it is a good deal harder to summon up the same moral outrage over reports that the banks and loan service companies cut corners, failed to keep the right documents and engaged in shoddy and even fraudulent practices. Just because the banks and servicers have screwed up doesn’t mean they and their investors are no longer entitled to get their money back.
Note, by the way, how in one sentence “fraudulent practices” (crime) somehow becomes “screwed up” (oopsie) in the next.
Really, though, what will it take to “summon” “moral outrage”?
Now, two dozen attorneys general and the Justice Department are opening probes. With the press, mainstream and blogs, fully engaged, more revelations are only matter of time.
Here is a story that both involves human tragedy and carries systemic implications. It’s the biggest financial story going.
There are “gates” (well worth the click), and there are a “gates.” This is a real one.Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.