February 2012 archive

More Foreclosure Mischief: Bankruptcy Hijackings

Yves Smith, Naked Capitalism

Tuesday, February 21, 2012

One of the common complaints from banks that the concerns raised by borrowers over robosigning are mere “paperwork” problems, that everyone who is foreclosed on deserved it, and no one was really hurt. That is patently false, as there have been an embarrassing number of instances where someone with no mortgage was foreclosed on, as well all too many cases of servicer-driven foreclosures. And that’s before we get to damage to property records.

Attorney Timothy Fong called our attention to a below the radar form of chicanery that is predictable when you have nonjudicial foreclosure with no significant oversight and agents who lack incentives to do a good job.

…

So get this: the procedures are so bad that totally bogus documents can be created and slipped into the bankruptcy of an innocent victim to stop foreclosure sales. Even worse, the servicer, who OUGHT to know better, treats this person in BK who suddenly materialized out of nowhere from his perspective as a real owner and hits him with a motion for relief of stay so they can take a house from him that he never owned. And the foreclosure mill lawyers don’t question this because more motions of relief of stay means more fees.

If this example wasn’t such a serious indictment of our system, it would serve as a black comedy in bureaucratic incompetence.

Quelle Surprise! Servicers Rip Off Investors as Well as Homeowners

Yves Smith, Naked Capitalism

Tuesday, February 21, 2012

We’ve been giving examples off and on about how servicers scam borrowers. Examples include impermissibly deducting fees before applying payments to interest and principal; force placed insurance, inflated prices on and excessive frequency of broker price opinions, and in altogether too many cases, treating payments that are on time as late. What many observers fail to appreciate is that these are tantamount to scamming investors. If a borrower goes into default, any bogus charges will be deducted from the sale of the house, and hence come out of investors’ hides.

Lisa Epstein of Foreclosure Hamlet is a mortgage document maven and has been looking extensively at investor reports and compared them to court documents and has found serious discrepancies. Her research shows that servicers are not only taking advantage of borrowers but are also scamming investors.

…

Investors have told me they’ve seen signs of even more gross abuses, such as servicers treating fees as credit losses. But this sort of remark in a way shows investors suffer from the same agency problems as servicers, who have no reason to do a good job but instead are motivated to game a complex system of fees. Institutional investors are running other people’s money and therefore have no incentive to crack down on miscreant servicers (they feel it is not their job, plus if any one investor were to take this issue on, the rest of the industry would free ride on his work).

So no wonder we only have isolated and very dedicated individuals chipping away at this looting. Everyone else appears to be part of the problem.

John O’Brien: Mortgage Settlement Fails to Address Banking Criminal Enterprise

John L. O’Brien of the Southern Essex District Registry of Deeds – Salem, MA, Naked Capitalism

Wednesday, February 22, 2012

When you enter my registry you see a sign that reads “The deeds tell the story.” Before the big banks took it upon themselves to corrupt the land recordation system, the deeds used to tell a happy story, one in which people purchased a home and lived “the American Dream.” Today, however they tell a different story one of greed, fraud, and forgery. By now everyone in Massachusetts knows what I have been doing over the past two years to expose and stop the schemes by the Mortgage Electronic Recording Systems, Inc. and their shareholder banks. The accuracy and integrity of the land records in my registry are of the upmost importance to me.

Just this past week the Attorney Generals of this country said they will enter into a deal with the 5 largest banks who have agreed to stop robo-signing, provide principal reductions of between 20 to 25 thousand dollars to a million underwater homeowners. This amount will in no way solve the housing crisis that we are faced with nor even begin to turn our economy around. In addition, the settlement suggests that approximately 750,000 people who have had their homes taken by foreclosure using fraudulent documents will receive a check for $2,000. As Yves Smith has said, “that amount is the new penalty for forgery.” This is merely a slap on the wrists to these lenders. It is my opinion that this deal has been crafted for the banks and by the banks. It is not in the best interest of the consumer, the homeowner, or the taxpayer. Simply put, I do not trust these lenders who have flooded my registry with over 32,000 fraudulent documents to do the right thing. Those homeowners who now have a corrupted title are looking for answers. This deal gives them none. The illegal activity by the banks is nothing shy of a criminal enterprise, where they crossed state lines using the United States Postal Service to deliver the instruments that were fraudulent and contained forgeries.

I will continue to pursue my request for Federal and State grand juries to be impaneled to hold the CEO’s of these banks liable for the crimes that have been committed under their watch. The only thing missing in this illegal scheme that MERS and the big banks came up with was a gun and a mask. I will continue to expose this fraud and work everyday to make sure that the taxpayers are fully reimbursed for the over $44 million dollars in lost recording fees in my district alone by institutions who still believe fees are “for thee but not for me.” A message needs to be sent to these banks that they may think that you are too big to fail but they are not too big to go to jail.

Yes, Virginia, Foreclosure Is Theft

Author: L. Randall Wray, EconoMonitor

February 22nd, 2012

There’s a lot of pushback anytime someone points the finger at banks. As I’ve argued for a couple of years now, virtually all recent foreclosures really amount to theft. The banks have no legal standing to take homes. They created the MERS monster, which destroyed the chain of title and “lost” all the documents. That is why the mortgage servicers hire robo-signers to forge new ones. Yet, 4 years into the crisis, almost no one wants to admit the truth. Foreclosure in the US is theft-as practiced it is almost always illegal. Yet, the servicers are now ramping up foreclosures after they bought out the state attorneys general under pressure from the Eric Holder at the White House.

Audit Reveals 84% of San Francisco Foreclosures Violated Law

David Wallechinsky, Noel Brinkerhoff, AllGov

Tuesday, February 21, 2012

City officials requested the audit that examined 382 randomly chosen foreclosures that occurred from January 2009 through October 2011. The findings revealed that 84% of the files involved “what appear to be one or more clear violations of law.” The violations included not giving homeowners warning that they were in default on their loans (6%), not giving homeowners adequate legal warning their property was being sold (10%), backdating of documents (59%) and transfers of loans by entities that had no business doing so (45%).

Another disturbing discovery related to the Mortgage Electronic Registry System (MERS). In 1995 the bigger banks created MERS as a privately owned electronic system for registering mortgage sales that was supposed to replace local county recording. In the words of the New York Attorney General’s Office, they did so “to allow financial institutions to evade local county recording fees, avoid the hassle and paperwork of publicly recording mortgage transfers, and facilitate the rapid sale and securitization of mortgages.” The San Francisco audit found that in 58% of cases, the loan beneficiary listed on the deed of sale was different from the one listed in the MERS database.

Audit Uncovers Extensive Flaws in Foreclosures

By GRETCHEN MORGENSON, The New York Times

Published: February 15, 2012

(T)he detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation.

…

The depth of the problem raises questions about whether at least some foreclosures should be considered void, Mr. Ting said. “We’re not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues,” he said.

California has been among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized. Mr. Ting said his report was the first rigorous analysis of foreclosure improprieties in California and that it cast doubt on the validity of almost every foreclosure it examined.

“Clearly, we need to set up a process where lenders are following every part of the law,” Mr. Ting said in the interview. “It is very apparent that the system is broken from many different vantage points.”

…

The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”

Our regular featured content-

• On This Day In History February 22 by TheMomCat
• Punting the Pundits by TheMomCat

These featured articles-

• Supreme Court To Revisit Affirmative Action by: TheMomCat
• The Joke Is On Schneiderman by: TheMomCat
• Crooks on the Loose! by: ek hornbeck

This is an Open Thread

Tom Miller, HUD Officials Laugh at Schneiderman Publicly

By: David Dayen, Firedog Lake

Wednesday February 22, 2012 8:55 am

Whether you believe in Eric Schneiderman’s ability to deliver a legitimate investigation on mortgage securitization fraud or not, you have to admit that the united front on opposition to a settlement on foreclosure fraud collapsed the moment that he agreed to helm that federal investigatory task force. He immediately separated “pre-bubble” and “post-bubble” conduct, allowing for a settlement on the latter while he joined the investigation on the former. And eventually, every other AG on the Democratic side fell in line, as they didn’t have New York as an anchor to stay out of a settlement.

That’s just what happened. And now we have HUD Secretary Shaun Donovan and Iowa AG Tom Miller, head of the executive committee that settled on foreclosure fraud, clowning Schneiderman on the record, saying that he got next to nothing in exchange for his holdout.

…

There is no guarantee that the settlement will lead to the maximum amount of $32 billion in principal reduction that Donovan hypes. In fact, the government’s own press release only guarantees “at least $10 billion” in principal reduction. Needless to say, even the high-end amount is next to nothing relative to the scale of the problem for underwater borrowers. And according to this article, Geithner was won over when he learned that the program would not be “overly punitive.” We’ve chronicled the numerous ways in which the banks make out very easy on the deal, and can even profit off it.

…

Wow. This is on the record, with Miller saying that the release only looks like it was tailored to Schneiderman’s specifications. Miller, by the way, was announced today as one of President Obama’s re-election campaign co-chairs.

Schneiderman has promised that he would walk away from the task force if he found it insufficient, with his co-chairs slow-walking the investigation. With the task force barely begun, here’s the head of the state settlement and insiders close to Donovan just out-and-out clowning him, alleging that Donovan bait-and-switched him. We’re waiting for that walk-away any time now.

HUD Continues Defense of Allowing HAMP Modifications as Part of the Foreclosure Fraud Settlement

By: David Dayen, Firedog Lake

Wednesday February 22, 2012 11:06 am

The pushback from the Administration on one particular story arising from the foreclosure fraud settlement has been pretty intense. You cannot say that Shahien Nasiripour doesn’t have the attention of HUD.

Today, they devoted an entire blog post (unsigned, from “HUD Public Affairs”) to refuting Nasiripour’s story in the Financial Times (which they don’t link, so I will) about how bank servicers can count HAMP modifications toward the “credits” in the foreclosure fraud settlement. But really they only refute the title of Nasiripour’s story.

…

HUD also leaves key questions unanswered in their post. They say that “if a servicer receives a HAMP incentive of 40 cents for every dollar of principal reduction, it can receive credit at the applicable rate on the remaining 60 cents… in no event can the servicer receive more under the settlement than it would have in the absence of HAMP incentives.” But does this include the additional HAMP incentive for the borrower staying current? Also, isn’t it the investor, not the servicer, who receives incentive payments in the principal reduction plan inside HAMP?

In addition, if this is coming on line with the settlement over the next 6-9 months, as eligible underwater borrowers are identified, why would any servicer in the short term do a principal reduction through HAMP? As HUD says in their post, “most HAMP modifications do not include principal reduction.” That, of course, is why it has such a high re-delinquency rate (up to 30% of borrowers go delinquent within 18 months), because the modifications that servicers perform in HAMP are unsustainable. The entire point of the new HAMP tweaks was to encourage more principal reduction. So why add an incentive to delay principal reduction for 6-9 months?

HUD claims that they could not have exempted HAMP from the settlement, because “it would have freed (servicers) from HAMP’s extensive compliance regime, reporting requirements, and borrower-protection features.” This is a non sequitur. You could very easily have put those compliance guidelines into the settlement. It would have been a simple copy-paste. HUD answers this by saying that “it would make it less likely that HAMP-eligible borrowers would receive principal reduction.” I’m not following the logic there at all. You could just include the evaluation and reporting requirements across all loans as part of the settlement.

And it goes without saying that, until there are terms on a sheet of paper that everyone can read, these claims by HUD just aren’t entirely credible. We don’t know what’s in the settlement yet. That’s a factual statement.

I’ll say this, the criticism appears to be getting to HUD. Some Connecticut lawmakers savaged the miniscule $2,000 check to foreclosure victims (which the Attorney General of the state, who was on the settlement’s executive committee, characterized as $1,500 – what does he know that we don’t?) that’s part of the settlement. Heck, even Pat Robertson is calling for corrupt bankers to be put in jail, citing the experience of Iceland. It must be lonely defending this settlement.

Mary Martin Day

Pain Without Gain

By PAUL KRUGMAN, The New York Times

Published: February 19, 2012

(I)n early 2010 austerity economics – the insistence that governments should slash spending even in the face of high unemployment – became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Now the results are in – and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.

Furthermore, bond markets keep refusing to cooperate. Even austerity’s star pupils, countries that, like Portugal and Ireland, have done everything that was demanded of them, still face sky-high borrowing costs. Why? Because spending cuts have deeply depressed their economies, undermining their tax bases to such an extent that the ratio of debt to G.D.P., the standard indicator of fiscal progress, is getting worse rather than better.

Meanwhile, countries that didn’t jump on the austerity train – most notably, Japan and the United States – continue to have very low borrowing costs, defying the dire predictions of fiscal hawks.

…

(A)s far as I can tell, austerity is still considered responsible and necessary despite its catastrophic failure in practice.

The point is that we could actually do a lot to help our economies simply by reversing the destructive austerity of the last two years. That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level. Remember all the fuss about whether there were enough “shovel ready” projects to make large-scale stimulus feasible? Well, never mind: all the federal government needs to do to give the economy a big boost is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled.

Look, I understand why influential people are reluctant to admit that policy ideas they thought reflected deep wisdom actually amounted to utter, destructive folly. But it’s time to put delusional beliefs about the virtues of austerity in a depressed economy behind us.

Hoover/Brüning 2012

Paul Krugman, The New York Times

February 20, 2012, 8:12 pm

(T)hinking about today’s column, I realized that it’s even worse than that. What defines centrist heroes, as far as I can tell, is that they are people who, faced with a catastrophic slump driven by private-sector abuses, and a severe shortfall of spending, declared that our most urgent priority is … to reduce budget deficits.

That’s often described as a courageous position, but it’s actually anything but: nobody in the Beltway dinner-party circuit has ever been ostracized for demanding entitlement cuts. And aside from being totally conventional, it’s also deeply wrong-headed – and if you ask me somewhat unethical, too, because it involves exploiting a crisis to push an agenda totally unrelated to that crisis.