The pushback on the foreclosure scandal has already begun along predictable lines and amongst the usual suspects. It’s blame the borrowers all over again! Time to wheel out Rick Santelli’s “losers.”
According to variations of this spin, the scandal is a “paperwork” (WSJ) problem involving “clerical errors” (ex-Goldman dude) but at base it’s still about “deadbeat” (John Carney) borrowers hoping to get a “house as a freebie” (Megan McArdle).
First, forgery is pretty much by its nature a “paperwork problem.” Funny how the Journal glosses over the bedrock functions of the property system when its convenient for Wall Street. As Barry Ritholtz said the other day in knocking down this line:
It is a legal impossibility for someone without a mortgage to be foreclosed upon. It is a legal impossibility for the wrong house to be foreclosed upon, It is a legal impossibility for the wrong bank to sue for foreclosure.
And yet, all of those things have occurred. The only way these errors could have occurred is if several people involved in the process committed criminal fraud. This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.
That it is being done for expediency and to save a few dollars on the process is why the full criminal prosecution must occur.
Second, nobody is “lionizing deadbeats,” and it’s unfortunate that the millions of folks who’ve lost their jobs or whatever and are down and out have a CNBC journalist call them what they’ve already been called a hundred times by two-bit bill collectors. Carney:
The vast majority of people (say, 88 percent) behind on their mortgages aren’t strategic defaulters and would pay if they could.
Further, most, I’d bet, would be able to keep paying these mortgages if the banks worked to modify them like they’ve said they would. But how can you modify the mortgage when you don’t even know if you own it? And why would you restructure it if you have no incentive to do so?
Carney, who wrote a very good primer on the scandal the other day, and McArdle need to go read Mike Konczal on the servicers’ role here (emphasis mine):
… we need a system of rules and a process for collecting and presenting evidence in order to kick a family out of their home. And we need a system where this process sets the ground rules that in turn allow for lenders and borrowers coming together and negotiating a situation that is best for both of them.
Because the first rule of mortgage lending is that you don’t foreclose. And the second rule of mortgage lending is that you don’t foreclose. I’ll let Lewis Ranieri, who created the mortgage-backed security in the 1980s, tell you: “The cardinal principle in the mortgage crisis is a very old one. You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure. In the past that was never at issue because the loan was always in the hands of someone acting as a fudiciary. The bank, or someone like a bank owned them, and they always exercised their best judgement and their interest. The problem now with the size of securitization and so many loans are not in the hands of a portfolio lender but in a security where structurally nobody is acting as the fiduciary.”
@Ryan,
You've been doing some fine, fine work on this latest scandal. Isn't it curious how these rightwing "populists" all of a sudden find themselves defending the banks against the homeowners. I find that quite baffling. I guess they aren't such "property rights" purists after all. McCardle all of a sudden found issue with title insurance? ha!
And the straw teetering precariously on the camel’s back is this: Nobody has any confidence that Wall Street will have to pay for any of this.
You said it all, right there.
What's next, then? Congress passing a law giving retroactive immunity to the banks' criminal fraud? That isn't out of the realm of possibility. Have you talked to Barney Frank on this? What does he think?
#1 Posted by James, CJR on Thu 14 Oct 2010 at 10:38 PM
Oh where to start. First of all, many Tea Party people are starting to see that the banksters hid stuff from investors, and now are trampling the rights of people who still own their houses, though behind on payments.
I can't help it if Megan McCArdle has hitched her career to a bunch of crooks. That is too bad for her. She has to look at herself in the mirror.
Strategic default is ethical for two simple reasons:
1. Without this phony securitization, house prices would not have appreciated at the rate they did, and people would not have panicked about owning homes. They would not have bought with easy money except for David Lereah and others saying that real estate always goes up while a bubble was occurring. People would not be underwater without this phony securitization scam in the first place.
2. Banks are not passing their low borrowing costs onto the consumer. They get bailed out by us at zero percent loans, and they raise credit card rates and refuse to negotiate rates for homeowners. This is just a continuation of the greedy scam. They can never be trusted again. They are killing the golden goose of world prosperity, the American consumer. Don't be fooled by the retail sales figures because they are wrong.
The scam has not only unearthed the bankster cockroaches but has also unearthed the dark underbelly of the legal profession. We have bad judges either on the take or insensitive to their mandate to watch out for the unrepresented underdogs.
Any politician that bails any bank out from now on will be looking for a new career. If that is ok with them then proceed.
Retroactive immunity will cause a boycott of big banks, a boycott of the economy. People will take their ball and go home. The consumer still holds the cards once he is informed. Banksters are taking a big risk that they can get away with criminality. That is a very big risk.
Barney Frank has been one quiet fellow lately hasn't he? And Phil Gramm too. Both of these people are corrupt to the core in their screwing of America.
Basel 3 wants permanent guarantees for mortgages. This is the only thing I agree with John Carney about, that this is really bad. Can you imagine a permanent capturing of Fannie and Freddie by the tentacles of international banksters? I hope Fannie and Freddie dump every mortgage back on these banksters and quickly. http://seekingalpha.com/article/223959-does-the-tea-party-understand-the-attack-by-basel-3-against-taxpayer-sovereignty
Thanks for this article, Ryan. We know that the banks have messed with mainstreet financially, and now by the use of the legal process, which is just disgusting. It will be interesting to see if Goldman Sachs shorted the CDO's with knowledge beforehand about what really went into these investments. If they knew that these investments had mortgages that should not have gone into the investments in the first place, then perhaps this criminality will no longer be tolerated by Washington DC.
#2 Posted by Gary Anderson, CJR on Fri 15 Oct 2010 at 02:27 PM
Wow, the Ohio State Attorney General says the banks cannot escape without working out mortgages. So they work them out, the borrower falls behind, the bank attempts to foreclose again with fraudulent affidavits if they aren't all in jail by then, and then the court will throw out the foreclosure again, and essentially we have a permanent standoff.
This is getting exciting. This attorney general, in describing the fraud on the court, said that these banks are in deep trouble if they don't clean this up the right way, which is to offer deals to the owners. Nice.
#3 Posted by Gary Anderson, CJR on Fri 15 Oct 2010 at 03:40 PM
First of all, unless you have lived this nightmare you have no idea. I filled a modification in Oct 2008 and still nothing!! They lost our paper work 3 times, they changed software twice. I paid a payment every month and a down payment. In April of 2010 I was informed we were denied for no reason on file! I was told that my house would sell in 3 weeks on less I came up with $34,895.56. We paid them $22,370.00 and weren’t given any credit. Come to find out 3 hours later, 4 phone calls to the bank, 5 calls trying to find the money, holding my 3 week old baby. I was informed they would be starting a new foreclosure in 3 weeks not a sale! Can we say GOD help me. Six months later 2 lawyers we still do not have a breakdown including our payments!! Oh by the way we pay our payment to one bank but another is doing the foreclosure. So WHO owns my loan??
I sell real estate and I know there are people that don’t pay and just give up till they are asked to leave. I have been the agent to offer them cash for keys. But I can’t recall the number of short sales I tried to do to help people out and the bank would not respond!! So yes they are screwing over the ones who have tried so hard!!
#4 Posted by GINA, CJR on Fri 15 Oct 2010 at 09:45 PM
Yeah, I agree, I feel really sorry for somebody who borrowed my money to buy a house (probably with zero down and falsifying his income) and now can't pay me back. I say "me" because I am among the Americans who saved and invested their money, instead of trying to live like a high roller by borrowing. Anyone with money in a pension fund is also "me".
The Ohio AG is a good example of the kind of dirtball that gives lawyers a bad name. Does he intend to prosecute borrowers who falsified income to obtain my money? No. Does he intend to prosecute for theft borrowers who took out loans having no intention of repaying them (which is a crime punishable as theft in many states)? No. He's just a pimp pandering for votes.
#5 Posted by Chuck Cardiff, CJR on Sat 16 Oct 2010 at 12:45 PM