Economic Shock Therapy For Wall Street As Mortgage Lenders Could Start Falling Like Dominos

Economic Shock Therapy For Wall Street As Mortgage Lenders Could Start Falling Like Dominos

“Maybe this is like shock therapy. Maybe this will actually get the lenders to the table and encourage them to work out deals that are to the benefit of everybody.”--Economist Karl E. Case, quoted in the New York Times

The hits are coming fast and furiously. Major Wall Street mortgage lenders could soon be falling like dominos – and looking again for handouts.

On September 20th, Ally Financial Inc., which owns GMAC Mortgage, the nation’s 4th largest lender, halted evictions and resale of repossessed homes in 23 states. This was after a document processor for the company admitted that he had signed off on 10,000 pieces of foreclosure paperwork a month without reading them. The 23 states were all those where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.

On September 24, Representatives Alan Grayson (D-FL), Barney Frank (D- MA) and Corrine Brown (D-FL) directed a letter to Fannie Mae questioning its use of “foreclosure mills,” which were described as “law firms representing lenders that specialize in speeding up the foreclose process, often without regard to process, substance or legal propriety.” The letter followed a report by the Florida attorney general’s office in August that it was investigating three law firms that had allegedly fabricated documents in thousands of cases to obtain final judgments of foreclosure.

On September 24, California attorney general Jerry Brown asked GMAC to halt foreclosures in his state until the lender could prove it was complying with a law that prohibits lenders from taking steps to foreclose a home before making an effort to work with the borrower. California is a non-judicial foreclosure state, meaning foreclosures do not require the prior approval of a court.

On September 28, JPMorgan Chase said it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions were in the 23 states where foreclosures require court approval.

On September 29, the Washington Post reported that a top federal bank regulator had directed seven of the nation’s largest lenders to review their foreclosure processes, after learning about widespread mishandling of homeowner evictions. Besides JPMorgan Chase, they included Bank of America, Citibank, HSBC, PNC Bank, U.S. Bank and Wells Fargo. The Washington Post reported:

The paperwork problems range from potentially forged documents to bank employees who never read borrowers' files before signing off on an eviction. . . .

"While we don't expect our review to find that consumers were harmed, we will take appropriate action if we find any impact," JP Morgan spokesman Tom Kelly said.

No harm perhaps except the illegal taking of thousands of homes without due process . . . .

On September 30, Rep. Alan Grayson posted a devastating seven-minute video, in which he gave four real-world examples of such travesties of justice, including a man who was foreclosed on when he didn’t have a mortgage and paid cash for the home; a home that had two foreclosure suits against it because both servicers claimed ownership of the title; and a couple foreclosed on over a contested $75 late fee. Grayson blamed the massive foreclosure problems largely on the electronic shortcut called MERS. “The banks simply digitized mortgage titles into a privatized system, called the Mortgage Electronic Registry System (or MERS),” he said. “And it did the transfers by trading Excel spreadsheets among the banks and trusts, rather than endorsing the notes as required by their own contracts, by state real estate law and by IRS rules.” He stated that 60 million properties are recorded in the name of MERS -- 60% of the mortgages in the USA, and 97% of the loans made between 2005 and 2008.

On October 1, Bank of America announced that it was delaying foreclosures in 23 states.

The same day, Connecticut Attorney General Richard Blumenthal took the radical step of putting a halt to all foreclosures from all banks in his state.

All of this is a major headache for the banks, but according to the New York Times, “The companies say they are reviewing their procedures to take care of any violations.” They seem to think they can correct the problem by redoing some paperwork. But if the holdings in recent court decisions are upheld, it will not be just a question of hiring extra staff to clean up some files. For all those mortgages filed in the name of MERS, say these courts, the chain of title has been irretrievably broken. Humpty Dumpty has had a great fall and cannot be put together again.

MERS is simply an electronic data base. On its website and in assorted court pleadings, it declares that it owns nothing. It was set up that way intentionally so that it would be “bankruptcy-remote,” something required by the credit rating agencies in order to turn the mortgages passing through it into highly rated securities that could be sold to investors. MERS not only has no assets; it has no employees. The thousands of people enlisted to sign affidavits on its behalf are merely conduits. The arrangement satisfied the ratings agencies, but it has not satisfied the courts. Increasingly, judges are holding that if MERS owns nothing, it cannot foreclose, and it cannot convey title by assignment so that the trustee for the investors can foreclose. MERS breaks the chain of title so that no one has standing to foreclose. The homes are effectively owned free and clear.

That does not mean the homeowners don’t owe money to someone. They do. But the claim for relief is not in “law” (by virtue of an enforceable contract or rule) but in “equity” (a remedy provided just because it is fair), and MERS is not the proper plaintiff. Every MERS case involves a securitization, which means the real parties in interest are a group of investors somewhere; and before the homeowners can be made to pay, the investors have to come forward and prove not only that they are the parties owed the money, but the actual sums they are owed. In some cases they might already have been paid; for example, by insurers on credit default swaps held by the investment pool. The investors are entitled to recover in equity only so much as they are actually out of pocket, not the full amount of the original promissory notes, since they were not parties to those notes and there is no way to re-establish the chain of title.

Foreclosures have been suspended by JPMorgan, GMAC and BOA in 23 states, but what about the rest? The others are non-judicial foreclosure states, which means they allow foreclosure through a power of sale clause in a deed of trust without going to court. The presumption is that if the lender doesn’t have to prove his standing to sue before a judge, he can proceed. State laws in non-judicial states allow the sale of a property to satisfy a foreclosure as long as the trustee follows the regulations concerning notice. That would seem to violate Constitutional due process, but the United States Constitution has held that due process protections apply only when the government is involved in the taking of property. When a deed of trust and promissory note are executed between two private parties (homeowners and lenders), there is no automatic due process protection. The homeowners agreed to it in writing; case closed.

But here’s the catch: what if the lender signing the original documents is not the party foreclosing on the property? Then it becomes a question of fact whether the foreclosing party has authority to proceed, and that makes it a judicial issue – a question of fact for the courts. If the foreclosing party can show a clear chain of title – an assignment or progression of assignments from the original lender to himself – he is home free. But courts have increasingly been holding that MERS breaks the chain of title. Foreclosure expert Neil Garfield argues that even in non-judicial foreclosure states, that means the investors have to go to court to prove their case. And when they do, they will run up against the brick wall of MERS. He concludes:

There will be a head-slapping moment when title carriers, attorneys, judges and administrative agencies and clerks suddenly realize that the monster created on Wall Street has its equivalent in the public records of counties across the nation. I doubt if more than 6-7% of all the foreclosures in the past 10 years have resulted in clear title delivered to anyone. And the only corrective instrument can come from the original owner. That homeowner is sitting in the catbird seat and doesn’t know it. Millions of people who THINK they have lost their homes still own them and if anyone wants a signature from those people to clear title, they are going to be required to pay dearly, which is at it should be. Eventually the purse gets returned to the victim from whom it was snatched.

Where does that leave JPMorgan, GMAC, Bank of America, and the other major lenders? Investors have massive claims against these banks, and so do homeowners. A major title insurance company has already said it will not insure title to properties foreclosed upon by GMAC until further notice. Moody’s has placed the servicer ratings of GMAC and JPMorgan Chase on review for possible downgrade, and the Treasury is asking regulators for an investigation.

Investment adviser Christopher Whalen thinks we could soon be looking at more Wall Street bankruptcies. If so, hopefully we won’t fall into the trap this time of underwriting the losses while letting the banks keep the profits. If we the people are picking up the tab, we should insist on owning the banks.

Yeah, I know about loan servicers. And I know banks do not keep the loans they make but offload them quickly. But with the nutroll these guys created, how can we be sure the payments are in fact going to the right place? It only becomes _apparent_ during a foreclosure that nobody knows what is going on. This may only become apparent years later, when people go to sell. Title insurance is illegal in Iowa, but our mortgage still required it, because the bank was going to sell the loan right away and we weren’t smart enough to notice. See where I’m going with that?

I should think counties should be miffed they have been bypassed in all of this, because they are owed a TON of fees/taxes on the sales of securitized products. MERS was a worm designed to bypass proper recording procedures is what it looks like. Or at least MBS were.

I think that there could be a qui tam goldmine here, especially considering that many counties are strapped for cash and MERS has been doing things to deliberately cut county recorders (and their fees) out of the loop when notes are sold.

MBS have existed for decades, and they’re on the up and up. Bundling mortgages together and selling them as a package mortgages is why Fannie was created in the 30’s.

MERS, however, is a whole ‘nuther matter.

The borrowers (in most all cases) won’t be able to keep their houses. Someone is still owed money.

The issue here is due process. There is a clear legal process required for foreclosure, and in judicial foreclosure states, a court hearing is required.

Making a fast foreclosure based on fraudulent affidavits might seem like it will speed up the resolution of the housing markets’ problems, but in fact it will set the stage for contests to titles for years to come. Title insurance companies will create carve-outs in the title policies, leaving homeowners, investors and possibly future mortgage lenders in danger of having a claim arise which was not quieted in this mess. There have been cases brought on a single property from two lenders, there have been foreclosures brought on a man who had *no* mortgage whatsoever. As I indicated on another thread, I had a UCC lien placed on our farm for a loan which I never approved or entered into.

What you need to know here is that the banks are corrupt. They might be owed money, but that does not exempt them from the law. The difference between a first-world nation and a third-world nation is the application of property law. In third world nations, people who get on the wrong side of the monied interests find they have no property rights.

“...the application of property law.”

This is what I would call the nub of the problem.

The housing market is so messed up with all of this title confusion, can the claim be made this country has LOST its property rights? If the title claims are unclear one end of this country to the other, doesn’t this wipe out and make property ownership “unrealistic”? Could this be the end game of the socialists that insisted on giving unqualified people mortgages?

How will the courts deal with this is going to be the question. So far, they are just now waking up and this process of foreclosures started picking up in 2008. Almost two years ago. The courts are late, and this country is losing its foundation.

I was slow to get up to speed on this. The banks are forging documents in court. Sometimes they have no idea who holds title to the loans and/or they are not reviewing foreclosure documents. (The dog ate their homework)So they are making stuff up. Telling the court they have served papers to the homeowners when they have not done so. Thousands of filings for lost documents by the banks.

This will make the foreclosed properties toxic. No title company will sell insurance on a foreclosed property if they are on the hook when the original owner can claim the bank didn’t do it right. Epic cluster fark that might be the straw that breaks the camels back.

by Karl Denninger
Just Counterfeit Documents... No, Really!
http://market-ticker.org/akcs-www?singlepost=2190795

‘So just forgive the debt to the homeowner because the banks are corrupt? Is that the solution?”

No, and neither should the banks be given a get-out-of-jail for free card.

The banks were forced to make some bad loans. They gleefully made far far more loans because of the huge profits they were generating though their risky and illegal business practices.

If you support foreclosing on a homeowner then you must also support jailing the bankers who did these things.

One company has totally stopped issuing title insurance for foreclosed properties. That will help the banks get out of trouble won’t it?

It would likely increase title insurance for all.

What scares me is this could be spun into a Democrat win in November. Democrat reps are the only ones that have spoken up about this issue so far.

From : http://4closurefraud.org/2010/10/02/this-is-not-about-free-houses-market-ticker-foreclosure-fraud-update-weekend-condensed-edition/

THIS IS NOT ABOUT FREE HOUSES – MARKET TICKER FORECLOSURE FRAUD UPDATE

“This is not, at this point, about whether the homeowner is paying or not. I am not going to sit here and try to justify the impossible-to-justify – giving people free houses. That is something we clearly cannot do.

No, I’m going to make the case here instead that this is not about “free houses” at all. Rather, it is about due process of law, about the statutes of the 50 States and respect therefor, and the rights of the people to expect that those statutes will be honored and obeyed.

It is about the right of the people to expect that when the court system is abused and bamboozled by a band of hyenas who have designed systems and procedures that on their face are an affront to the legal rights, statutes and privileges of the citizens in the 50 States the people who do so, and who benefit from having done so, will not get to keep their ill-gotten gains but instead will be indicted, tried and if convicted sentenced to time in prison for their crimes.”

http://4closurefraud.org/2010/10/02/this-is-not-about-free-houses-market-ticker-foreclosure-fraud-update-weekend-condensed-edition/

Obama Just Got The Green Light For A Massive Bailout Of Underwater Homeowners

"But with foreclosure-gate -- banks are halting foreclosures left and right due to shoddy or missing paperwork -- Obama might have the green light. Rather than pitch the homeowner bailout as a bailout, it would be a mere intervention so that homeowners aren't under seige from evil bankers.

A lot of folks seem to think this charlie foxtrot is going to result in a free house. It might in some cases, but it will become unsaleable in the future

I was in Uganda, which has the English system of titling. The 20 years of Idi Amin were a wreck to the system and a gap exists. They just learned to live with the gap in titling.

Absolutely. But I don’t approve of the courts imposing a solution that let’s homeowners keep their houses for free because of technical improprieties by the banks. This is truly injustice enrichment and rule of lawyers. And it has unintended consequences. It will greatly increase the number of defaults and finish off the corrupt financial system, which in itself is not a bad thing. But it will also lead to a complete implosion of the financial system with replacement system ready to be implemented. I think that a golden jubilee is the only solution and a return to sound money, which is where all the problems started from. Look at the inflation charts. Things got really bad after Nixon took us off the remainder of the gold standard.

Money is far too important to be taken away from the free market and put in the hands of the political system.

The problem is the Bright Boys wanted a way to make lots of money, which they have already walked off with, while not taking the risk, much of it involving loaning money to people who should not have been getting loans. Hence the current MCF. The people borrowing the money had NO CONTROL over how those loans subsequently got packaged, sliced and diced. If the table were turned do you think the lenders would give a rats a@@ about the borrowers?

“But I don’t approve of the courts imposing a solution that let’s homeowners keep their houses for free because of technical improprieties by the banks. “

It was not “technical improprieties by the banks”, it is fraud, perjury, forgery and should fall under RICO.

“Money is far too important to be taken away from the free market and put in the hands of the political system.”

Its already about 90% there.

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