I haven’t written about the mess that’s unfolding in the scandal about banks’ slapdash, improper, and likely illegal handling of mortgage foreclosures. Yves Smith has been hammering this story.
I find myself in agreement with Barry Ritholtz:
If you have been in any way personally harmed by the illegal actions of any bank, law firm, process server, or loan servicing agency, you MUST file criminal charges.
If your home was broken into by a firm to change the locks illegally, that is breaking and entering, and conspiracy. If the wrong bank filed a foreclosure action, if the wrong house was foreclosed upon, its time to go criminal prosecution route.
Go to the local police department, fill out the requisite forms. Then go to your District Attorney’s Office or County Prosecutor’s office, and ask to speak to someone in charge. Tell them you want to prosecute. You can also contact your state Attorney General about the same. Follow up with written letters, that you send you your local newspaper and the NYT, WSJ, USA Today.
The open question is how many legitimate claims this will result in vs. how many nuisance suits. I don’t honestly know or have any feel for how many people who were up-to-date in the payments on their homes have been foreclosed on illegally. I strongly suspect that the preponderance of problems are technical violations in the sense that proper foreclosures were improperly executed to save time or money or just because the volume they were handling had risen so suddenly they were unable to handle them properly.
However, this should go farther to disabuse people of the notion that just because you work in finance you must be one of the smartest guys in the room. You might be. I have no doubt that some of the smartest, hardest working people in the country work in finance.
Or you might be a burger-flipper. You can’t tell by the nameplate.
I’m not sure what the correct adjective to use to describe the situation of having rescued the banks only to have them overwhelmed by a deluge of lawsuits. Ironic? Poetic? Futile?
Arrogance is a variety of pride and pride is numbered among the deadly sins for a reason. To this amateur’s eye it looks as though the same arrogance that lead investment bankers to believe that horrifically risky financial instruments were safe (or even to believe that they could understand them) has lead to bungling the foreclosure process in who knows how many cases?
I also suspect that a majority are technical violations, particularly in states w/ judicial foreclosures. More important than Ritholz’s advise would be to consult an attorney if you receive foreclosure documents. If you’ve slept on your rights and lost your home, I’m not sure how the criminal justice system will remedy the situation.
This from Salmon could also be important methinks. It looks like the banks knew they had bad mortgages in the pool and sold them anyway. They also represented them in the prospectus as having been reviewed by an underwriter. This would be fraud if you were selling a car or house. I am not sure about laws in this area, but it may be fraud here also. That could lead to serious lawsuits.
http://blogs.reuters.com/felix-salmon/2010/10/13/the-enormous-mortgage-bond-scandal/
Steve
I’ll also add that while I find the MERS issues interesting, I think they really devolve to an issue between originating banks and the secondary market. I don’t think anything the secondary market does improperly with the mortgage interest can undo or modify the original mortgage transaction. If the originating bank purports to sell it’s interest in a $100,000 mortgage to the secondary market and that conveyance is determined to be ineffective or unprovable, I think the net effect is the secondary market has to write-off the value from it’s books, and the originating book restores the value to it’s books.
I say this because I’m reading that we might need more money to bailout the banking sector, when it seems to be that the net effect is nil. One bank has been unjustly enriched at the expense of another bank, and there will probably be lawsuits to determine if that situation is remediable.
Hmmm. . . A contributor at Zero Hedge disagrees:
“To repeat: If the chain of title of the note is broken, then the borrower no longer owes any money on the loan. ”
http://www.zerohedge.com/article/gonzalo-lira-second-leg-down-americas-death-spiral#comments
I think if the chain of title of the note is broken, then the chain is only as long as the last unbroken link. More importantly, there are ways to mend the chain or bypass the chain.
Hope somebody figures it out before 75% of the homeowners in America decide they no longer have to pay their mortgage.
PD:
I don’t think that Lira understands how a secured loan works.
I was just looking at Lira’s Wikipedia entry and scratching my head about what his expertise might be.
Yeah, I checked him out the first time I ran into one of his posts (I believe it was on deflation). I don’t he understands money supply stuff, either. He’s not alone on that one.
How many of these mortgages are part of Mortgage Backed Securities (MBS) that are either owned, held, or backed by the government?
The solution was designed by the same folks who designed the system that caused the problem that they needed to solve. Trillions of dollars (US) flushed down the toilet, and we are still left with the same old s*%t. And yes, this was fraud from the start. Any drug dealer would recognize the scheme. “Give ’em a little taste, and catch on the comeback.”
The solution was simple: Federal Government pay off mortgages, and setup repayment plan. These mortgages are like student loans with the same obligations – taxes, student loans, death. Short sales are allowed, but the remaining balance will be considered as back taxes.
Due to the MBS scam, they would probably need to be paid in full, but these scammers would not get off without any losses. By servicing the loan, the mortgage originator has a revenue stream for the life of the loan. By paying off the loan, this is no longer available. The MBS is still obligated to pay the interest (coupon?), but with the mortgage paid off, that stream is also no longer available. Somebody will not be happy.
This is not a perfect solution, but my guess is that it would have been a lot cheaper. I realize that a lot of this toxic crap is held by pension funds and others. They may be hurt by the loss of funds, but since the MBS would not lose the principle, the loses would be limited. I think that the Credit Default Swaps (CDS) would require those holders to pay the loses.
As an added benefit, the CDS holders would not have been rewarded, and since the loses would have been substantially less, they should not have needed a bailout.
But, I could be wrong.
One of the things that the feds are going to need to decide promptly is whether to seize MERS, Inc. This law review article I linked at OTB identifies issues of whether corporate formalities at the company have been adequately maintained. There are no employees, officer positions (v.p. and asst. secretary) are outsourced, and the corporate seal is sold on-line for $25.00. There is not enough information to determine whether the structure is a fraud, but enough information to necessitate an investigation.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1684729
This whole MERS thing is just bizzare.
The corporate governance looks like a fly-by-night operation;
The database system looks as well designed as Ezra Klein’s secret list serv;
The legal risks with the system seem so patently obvious that I’m not sure why the lawyers for MERS and the affiliated banks aren’t being hunted down by disciplinary boards and executed.
And I’m told that it’s all to save $35 filing fees.