If you still doubt that the burgeoning foreclosure scandal is going to have nasty consequences for the economy and the financial system, take a look at this New York Times story this morning.
It reports from the center of the foreclosure mess, finding that sales of foreclosed houses are already being delayed.
Amanda Ducksworth was supposed to move in to her new home this week, a three-bedroom steal here in central Florida with a horse farm across the road. Instead, she is camped out with her 7-year-old son at her boss’s house….
Fannie Mae, the giant mortgage holding company that buys loans from commercial lenders, is pulling back sales of homes that might have been foreclosed in bad faith.
Yves Smith points to a letter from Congressman Alan Grayson and says:
… the banks’ failure to adhere to contractual and legal requirements in the residential mortgage backed securities market are so extensive and widespread as to constitute systemic risk.
How so?
Although the data points we have seen so far could be considered anecdotal, we have evidence that strongly suggests that major RMBS originators, the investment bank packagers, and the bank trustees failed to convey the notes (the borrower IOU, which is critical to having the legal standing to foreclose in 45 states) to the RMBS trusts starting in 2005, perhaps even earlier. And comments from industry insiders suggest this problem is pervasive.
That puts a cloud over the entire US RMBS market, the biggest asset class in the world. This paper was sold as secured; the ability to offset the cost of borrower defaults by seizing and selling his house is critical to the value of the instruments. And if no assets were conveyed to a particular trust by closing, an even uglier possibility exists: under New York law, which was elected by RMBS as governing law for the trust, it would be considered to be “unfunded”, which means it does not exist.
Felix Salmon also isn’t mincing words about how enormous the impact could be. He calls the scandal “an absolutely monster legal mess” that “‘threatens not only a large chunk of the financial system but also venerable civic institutions, like the courts.”
Argentina’s sovereign default has been called “the slowest trainwreck in history”, but this one might turn out to be slower, bigger, and much less fair. Millions of people have already lost their houses to lenders who didn’t have the proper paperwork, and it’s unlikely they will ever get any redress. For people who haven’t yet been foreclosed upon, however, it could now be a very long time before they lose their house.
The Washington Post writes about this not unlikely scenario:
For big banks, “there’s a possible nightmare scenario here that no foreclosure is valid,” said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.
For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again.
MIchael Hudson notes that fraud has been a way of life for a good part of the mortgage industry for the last decade or so. He calls the fake documents, forged signatures, and rocket dockets
Shocking stuff. But surprising? Not for anyone who’s been tracking the recent history of the mortgage machine. Just about every corner of America’s mortgage industry has been blemished by significant levels of fraud over the past decade.
Reuters’s Scot J. Paltrow reports on a conveniently timed bill that sailed through Congress and would help give the financial industry “cover” for its misconduct.
After languishing for months in the Senate Judiciary Committee, the bill passed the Senate with lightning speed and with hardly any public awareness of the bill’s existence on September 27, the day before the Senate recessed for midterm election campaign.
And, not to even mention, all mortgages since MERS came online, whether in default or not, are also illegal. Stop paying it NOW!
#1 Posted by CameraManSWAIZE, CJR on Fri 8 Oct 2010 at 12:49 PM
So, go back and do the proper conveyances. What is so hard about that? It may take time but clearly there is a trail regarding where the monthly mortgage payment is going - so clearly there is also a trail regarding who should have the promissory note conveyed to them. Also, just as clearly someone still owns that promissory note that they forgot to convey.
So, straighten it out. Geez.
#2 Posted by MM, CJR on Fri 8 Oct 2010 at 05:41 PM
It is too late, MM, to go back and do the transfer of the notes. http://bgamall.bravejournal.com/entry/67137
#3 Posted by Gary Anderson, CJR on Fri 8 Oct 2010 at 06:55 PM
I've read every one of the articles excepted here, and I do not yet understand what happened or what the ramifications are. We need some really great journalism here to help the public and our elected representatives understand. One Item which is repeated is several of these articles is that failure to speed these sales will have catastrophic consequences for the banks and the economy. I very much doubt this assertion. For three years it has been the banks dragging their feet on executing foreclosures in order to avoid recognizing losses on their books. If they wanted the process to be fast they could have done it fast. What appears to have happened is that they preferred to commit fraud.
One thing that is missing from all of the discussion of the issue is the fact that fraud is a felony that carries jail time. How much jail time is at stake? Who Might end up in the slammer. You has standing to prosecute? Are the planning to do so? It would be truly a travesty if no one goes to jail.
@MM it may be possible to properly execute the paper trail. But then again it may be criminal fraud to do so.
Foreclosed and defaulted properties are now effectively off the market. Perversely this may drive home values up for those properties which are not short sales. Why is no one covering this angle?
We should all be very careful about how we source articles about this and we should be clear about who our sources are and we should double check each others sources and motivations. In the next few days we should expect a wave of press releases from the mortgage industry trying to spin this. We must be very careful when reporting on these to verify what they allege are facts.
#4 Posted by timothywmurray, CJR on Sat 9 Oct 2010 at 01:39 PM
MM... it is impossible to understand what really happened and is happeing in this mess. Your solution sounds simple and even may may sense logically. Here's where it gets complicated... The notes don't exist in most cases. They were destroyed. If they did exist, the chain of ownership has forever been broken so no one knows who owns the note, therfore no one knows who the money is owed to. The borrowers are paying loan servicers, not the note holders. The loan servicers are illegaly foreclosing on peoples homes without the legal right to do so and then they further complicated the mess by comttiing fraud on the court submitting totally false fabricated documents. Think of it this way... I could file a complaint against you right now to foreclose on your home which would be absurd because I don't hold the morgage on your home. But to prove my case I make up all the paper work that says I do and you get thrown out of your house while I illegally become the new owner. This is what they have been doing. This is and has been the biggest scam in history from the time the mortgages were written, through and beyond the time they are foreclosed on. It's so unbelieveable... no one wants to believe it, or admit it. The truth is coming out finally. Insiders have known the facts of this for over 3 years now. The question is not whether or not borrowers owe the money. they do. No question. The problem is no one knows who it is owed to and the banks have committed massive fraud to cover it up. If yo were the note holder, would it be fair to you if a bank took posession of the house you held a mortgage on? Shouldn't you get it? The legality of this is staggering. This fraud perpetrated by the banks is what has caused the economic collapse of the world... not just the US.
#5 Posted by You Got It Wrong MM, CJR on Sat 9 Oct 2010 at 02:26 PM
According to UCC law, the IOU's could be reconstituted, rebuilt, if there was proof that they were originally conveyed to the trustees of the MBS's. But they were never conveyed. So, the bonds don't own the mortgages, plain and simple.
#6 Posted by Gary Anderson, CJR on Sat 9 Oct 2010 at 08:21 PM
I have always argued that this was a conspiracy, a real conspiracy, from Basel 2 allowing off balance sheet banking, to Glass Steagal repeal, which allowed banks to write swaps, a form of insurance, on crap loans to foreclosuregate, where we find out that the banks never conveyed the IOU's to the MBS trusts in order to hide how bad the loans were from investors who thought they were getting AAA investments.
Now Basel 3 wants all mortgages forever guaranteed. I wrote about that at Seeking Alpha: http://seekingalpha.com/article/223959-does-the-tea-party-understand-the-attack-by-basel-3-against-taxpayer-sovereignty
#7 Posted by Gary Anderson, CJR on Sat 9 Oct 2010 at 09:27 PM
What nobody mentions in all this mess is that a whole lot of people (perhaps millions) are living in foreclosed homes and paying nothing but the utility bills until the legal proceedings force them out. I do not wish to get into the moral position of either the banks or the "homeowners" in these situations, but I would point out that there are economic consequences when there are millions of people living for free.
#8 Posted by Roger Wingelaar, CJR on Tue 12 Oct 2010 at 05:43 PM
Roger, what are the moral implications of banksters getting zero interest rate loans from the government, yet not passing those savings to mortgage holders or credit card borrowers? No other businesses would get away with such a theft. They get money from the government at a sweet deal, then raise rates or at least don't allow rates to decline. This is pure stealing yet these banksters walk free.
If they want to play that way, we don't have to pay. This is a no brainer. I have argued this for years. A scam that depended on securitization gone bad should not punish retail consumers with high interest rates when the banksters, the wholesalers if you will, get sweet deals from the taxpayers.
This is crony capitalism, and there is nothing free market about it.
#9 Posted by Gary Anderson, CJR on Fri 15 Oct 2010 at 02:04 PM
If your property is collateral in a Ponzi scheme - do you continue to participate?
#10 Posted by Virginia, CJR on Sun 14 Nov 2010 at 04:28 PM
I live in a home that started out with Homecomings Financial in November 2002 and then ended up with Countrywide. What little information there is at the county court clerks office indicates MERS took over the record-keeping in early 2003. When I called MERS to find out the specifics of the mortgage, they faxed me a printout that stated Fannie Mae was the investor and Bank of America was the servicer. Coincidently, MERS said I would have to call the Bank of America MERS department to get my chain of assignments from inception to the present.
We had been paying Countrywide mortgage payments every month up until Bank of America claimed they bought out Countrywide. My understanding is Fannie Mae really doesn't have possession of the original promissory note with the original wet-ink signatures. A Fannie Mae representative even admitted that they did not have the original paperwork. The Fannie Mae representative instructed me to call the servicer, Bank of America, to obtain the information.
I have sent one VOD request and recently a RESPA/TILA request/report to Bank of America. I've given them havoc over the fact that they had been fraudulantly collecting on a mortgage that was paid off two times: first, from the bailout money; and second, the investors that were stupid enough to buy my mortgage with the millions of other mortgages as a mortgage-backed security. My mortgage is like a needle in a hay stack of mortgages that can't be touched by any outside bank like Bank of America.
Bank of America has stopped sending monthly billing statements since I have stopped sending payments as well as putting the burden of proof on them through my legal requests. I will not pay Bank of America or any bank a single penny until they can prove they are holder in due course and have proper chain of assignments to prove it. I will sniff down any forged signatures, like I already have found through a fabricated MERS representative (another issue).
Between the free trade agreements and the mortgage fraud going on among the big banks, America will become a 3rd world country. Some of our founding fathers warned the American people of the consequences of allowing a national banking system from entering this country.
If you ask me, I think this mortgage mess is financial terrorism upon millions of American people. The financial terrorists are Obama and the rest of congressmen who allowed us to get sold out.
#11 Posted by Mark, CJR on Sun 20 Feb 2011 at 02:19 AM
Calling it a foreclosure mess is an understatement! My husband and I have been very cautious with our money for a long time now because we have always been planning to invest in a good house for our future. We bought a one story home four years ago in Fresno, CA, three years after we got married (we used to rent an apartment before), so we could raise our children there. We had two kids (now 1 1/2 and 3) and our house is about to get foreclosed. We used to live in Oakland, so coming from a not-too-great neighborhood, we had even taken measures to look into various home security systems and had chosen to install one for the children's safety when we left them with the sitter. Obviously there was no point because this "mess" is forcing us to leave our home we had chosen to raise our children in! These politicians need to get their act together! Regardless of the predicament of me and my husband, I'm more concerned about our children's education. We're looking to move into my father-in-law's home temporarily but hopefully we can figure something out soon. This is not how I imagined our life would turn out...
#12 Posted by Jessica Moore, CJR on Mon 25 Jul 2011 at 02:49 PM