If you’ve got twenty minutes or so to spare I recommend that you read Joseph Tauke’s mammoth 5,600 word indictment of the mortgage industry at Daily Caller. It provides chapter and verse on the massive irregularities in how foreclosures have been handled by the industry and is quite clearly making the case that the infractions have been systematic rather than incidental. Here’s a snippet:
Americans have stopped believing. 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. And banks are finally starting to react to the disbelief. The CEO of JP Morgan Chase, one of the founding members of MERS, has told CNBC that the bank has stopped naming the system as a plaintiff to foreclose. He actually said that JP Morgan had stopped naming it two years ago. The foreclosures that relied upon the information MERS holds, however, didn’t stop. Coincidentally, JP Morgan bumped up the reserves it was holding for “litigation and repurchase,” referring to events that would require buying back mortgages that had been mistakenly sold off. 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.
I don’t honestly know the truth of this matter. What we are seeing may simply be a reflection of the modern reality that the financial system has grown beyond the capacity of the legal system to control. The truth has relatively little to do with the importance of the story. It’s political dynamite. Some, for example John Carney at CNBC, think that the Congress will act in lame duck session to indemnify the banks against the consequences of their own mistakes:
Bank of America’s recent decline—down almost 10% this week—is driven by fears that the bank could be hit with huge liabilities for faulty mortgage pools. And I’m pretty sure that is not going to happen.
Because the politicians will not let the financial stability of the largest bank in the nation be threatened by contractual rights. Not when there’s an easy fix available that won’t cost taxpayers a dime.
Here’s what is going to happen: Congress will pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act.
Others, like Stan Collender, think that’s unlikely:
I seriously doubt there would be 10 votes out of the 535 in the House and Senate in favor of another bank bailout bill. Actually, I’m not sure it would even make it out of committee in either house.
while yet others, like Felix Salmon, think that the very idea of Congress doing so is frankly looney:
Given that any indication of friendliness towards banks constitutes political suicide right now, I’d guess that the banks’ litigation risk is higher than it has ever been.
That’s why the upcoming lame duck session is the key to this story. First, absent some action by Congress (maybe even regardless of action by Congress) these suits will go forward. The mere fact of their going forward will be trouble for the banks. And having to buy back tens or hundreds of billions of dollars in mortages will almost certainly produce another financial crisis. Second, lame duck sessions can be very empowering. Political suicide is not nearly the threat for dead men walking that it is for politicians with a future. They can vote their hearts. Where are their hearts?
Maybe retiring Congressmen will look towards prospects of future employment in the financial sector, reminiscent of the shrewd steward in Luke 16.
Or Congressmen may well have have been sincere in their acerbic comments about the banks over the last couple of years. I’m guessing that Stan Collender is right: there isn’t much appetite for another bank bailout at this point. The president’s veto of HR3808 (the bill, snuck through the Congress in the dark of night, that would have given the green light to the robo-signing that’s been called into question) suggests to me which way the wind is blowing. I can’t imagine the Obama Administration making an impassioned plea for another round of clemency for misbehaving bankers, at least not without exacting a pound of flesh.
While I’m on the subject let me be the first to predict: 2011 and 2012 will see a number of powerful, senior Democratic politicians announce their retirements. Should provide for an even more interesting 2012 general election.
The events of the next year or so should make for good political theater. It would be much more entertaining if you didn’t actually have to live through it.