Posted on 10/11/2010 9:13:41 AM PDT by ex-Texan
If you work in the mortgage industry or for a title insurer, you might not want to make any plans for the next six months. Foreclosuregate is about to explode. It is being alleged that many prominent mortgage lenders have been using materially flawed paperwork to evict homeowners. Apparently officials at quite a few of these firms have been signing thousands upon thousands of foreclosure documents without even looking at them. In addition, it is being alleged that much of the documentation for these mortgages that are being foreclosed upon is either "improper" or is actually "missing". As lawyers start to smell blood in the water, lawsuits challenging these foreclosures have already started springing up from coast to coast. In fact, some are already calling Foreclosuregate the biggest fraud in the history of the capital markets. JPMorgan Chase, Ally Bank's GMAC Mortgage and PNC Financial have all suspended foreclosures in the 23 U.S. states where foreclosures must be approved by a judge. Bank of America has actually suspended foreclosures in all 50 states. Now, law enforcement authorities from coast to coast are calling for investigations into this controversy and it could be years before this thing gets unraveled.
This thing just seems to escalate with each passing day. It is being reported that the attorneys general of up to 40 U.S. states will be working together on a joint investigation into this foreclosure crisis. Lawmakers in both houses of the U.S. Congress, including Nancy Pelosi and Christopher Dodd, have called for an investigation to begin on the national level. U.S. Attorney General Eric Holder said last week that he is looking into the issue. Things are certainly getting very serious out there. Never before has there ever been such a national focus on foreclosure paperwork.
But apparently there are good reasons for such scrutiny....
*One GMAC Mortgage official admitted during a December 2009 deposition that his team of 13 people signed approximately 10,000 foreclosure documents a month without reading them.
*One Bank of America employee confessed during a Massachusetts bankruptcy case that she signed up to 8,000 foreclosure documents a month and typically did not look them over "because of the volume".
But the "robo-signing" aspect of Foreclosuregate is just the tip of the iceberg. Apparently there is a whole lot more going on than just a bunch of bad signatures.
Peter J. Henning, a professor at Wayne State University Law School in Detroit, was recently quoted by MSNBC as saying the following about Foreclosuregate....
"You've got so many potential avenues of liability. You don't even know the parameters of this yet."
The sad truth is that potentially millions of foreclosures across the United States could potentially be invalid because the securitization process has muddied the chain of ownership. In fact, an increasing number of judges from coast to coast have been ruling that the "owners" of the mortgage have no right to foreclose on a property because they lack clear title.
At the core of this title controversy is MERS - Mortgage Electronic Registration Systems. MERS is based in Reston, Virginia and it was created by the mortgage industry to enable that big financial firms to securitize and swap mortgages at high speed. MERS allowed these big financial firms to largely avoid the hassle of filling out more forms and submitting new filing fees every time that a mortgage was traded.
But now MERS is facing some very serious legal challenges. A recent article in Businessweek described the situation this way....
A lawsuit filed on September 28th in federal court in Louisville on behalf of all Kentucky homeowners claims that MERS was part of a conspiracy to create false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures. Similar class actions have been filed on behalf of homeowners in Florida and New York. Karmela Lejarde, a MERS spokeswoman, declined to comment on any pending litigation.
The reality is that as millions of U.S. mortgages have been bunched together and traded around the globe at lightning speed, it has become increasingly unclear who actually has title to them and who actually has the right to foreclose on these properties.
Title insurers have backed the titles of millions of these foreclosed properties and now potentially find themselves in a heap of trouble. Some of the biggest title insurers have already begun circling the wagons in an attempt at damage control. For example, one of the biggest title insurance companies in the United States, Old Republic National Title Insurance, has already declared that it will no longer write new policies for homes that have been foreclosed on by JPMorgan Chase and GMAC Mortgage.
So what happens if nearly all title insurers start avoiding foreclosed properties?
Won't that make it much more difficult for the banks to sell the massive backlog of foreclosed properties that they have accumulated?
In addition, Americans that have purchased foreclosed homes may now be facing some serious problems themselves. Millions of Americans may now "own" homes that they do not have clear title for. When it comes times to sell those homes, many Americans may find themselves unable to do so.
Needless to say, this is a complete and total mess.
Already, U.S. banks have a record number of foreclosed properties that they need to clear out, and now all of this scrutiny on foreclosure paperwork and all of these lawsuits are going to grind the process of getting these homes sold off to a standstill.
In fact, the true legacy of Foreclosuregate may be the massive amount of bank failures that it causes.
It would be difficult to understate how much of a nightmare Foreclosuregate is going to be for U.S. mortgage lenders. Having to go back through the paperwork of millions of old mortgages is going to be a complete and total disaster. If banks end up being unable to foreclose on a large number of bad mortgages, it could potentially be enough to put many banks out of commission for good. Not only that, but the legal fees that many of these banks will accumulate defending lawsuits related to Foreclosuregate will be astronomical.
The U.S. mortgage industry was already on the verge of death, and Foreclosuregate may just be the straw that broke the camel's back.
The reality is that U.S. banks are drowning in foreclosures and this current crisis is just going to make things a lot worse. Back in 2005, there were approximately 100,000 home repossessions in the United States. In 2009, there were approximately 1 million home repossessions in the U.S. and RealtyTrac is now projecting that there will be an all-time record of 1.2 million home repossessions in the United States this year.
For the U.S. mortgage industry, Foreclosuregate must feel like someone has dropped a bomb on them after they have already been beaten up and doused with gasoline.
Attorney Richard Kessler, who recently conducted a study that found serious errors in approximately three-fourths of court filings related to home repossessions, says that foreclosuregate could haunt the U.S. mortgage industry for the next ten years....
"Defective documentation has created millions of blighted titles that will plague the nation for the next decade."
While it may be easy to beat up U.S. mortgage lenders and say that they deserve all this, let us not forget that this is going to impact a whole lot of other people too.
It is going to become much harder to get a mortgage. It is going to become much harder to buy a home. It is going to become much harder to sell a home. The U.S. housing industry is likely to suffer a significant downturn due to all of this. There is even a good chance that the entire U.S. economy could be dragged down for an extended period of time.
So no, Foreclosuregate is not good news for anyone.
Well, except maybe for lawyers.
But for virtually everyone else this is really bad news. Any hope that the U.S. housing industry would experience a quick recovery is completely and totally gone.
OK, I stand corrected. Thank you for illuminating my misuse of terms.
Let me restate: Deadbeat borrowers are scumbags who deserve to get screwed just as much as a bank with shoddy records deserves some sort of penalty.
what’s everyone worried about? Obama will make sure you get a free house, free car and free gas..
This too, shall pass. Like a kidney stone, but pass it will.
Money was chasing Tech for the longest time. Dot-coms that consisted of nothing but a dubious idea and a roomful of servers had market capitalizations in the billions.
After 2000, money chased housing, leading to today's problems. After that, it was oil. Now, it's gold. My bet? Sooner or later, it will gradually flow back into real estate. Might need to wait for the current gold bubble to deflate, and whatever the Next Big Thing is to start inflating.
All those dollars need to wind up somewhere.
>>The problem is that this may be too big, by several orders of magnitude, to resolve while following the US constitution or preserving the US as we know it.<<
The Constitution is a powerful document which is more than capable of withstanding an economic crisis.
The only thing it ISN’T capable of withstanding is a tsunami of idiocy washing out from the population.
About 5 years ago I posted excerpts from statements Bozillo had made about his homeland in Sicily. Rumor has it he has a huge private compound there. If people know anything about the history of Sicily they soon learn the Mafia controls all virtually commerce. 'Nuff said here.
Like the Mortgage Bankers Assocation, who bought a nice shiny new headquarters building in DC, then walked away when they decided they couldn't afford it, strategically defaulting to the tune of about $40 million.
What about the rest of us? It follows logically that if the people forclosing on the home do not have clear title, then neither do the people being forclosed upon, AND neither does anyone else who purchased or refinanced a home since the creation of this system whereby the different pieces of a mortgage were split and sold off into tranches.
If people who never could own a home end up keeping theirs because the bankers goofed on the foreclosure papers what do you think all the people who keep paying for their homes will do? Say? Vote for? Vote against?
Here’s Bush in a speech, pushing home loans for totally unqualified minorities.
http://www.youtube.com/watch?v=MqR15H0gNBU
I agree. The “fraud” seems to be that officers of banks have been signing off on foreclosure documents,without properly reviewing the files.
Right or wrong, this sort of thing is common in all areas of business. Does anyone think the CFO of some Fortune 500 company actually reviews all the checks his signature gets printed on?
In essence, what the robo-signers were saying is “I trust that the the professionals working for me properly checked the documentation I am signing.” Not a wise practice, but not “fraud” in the sense that they are trying to rip anyone off.
Now, the shoddy record keeping may cause huge losses for banks, give a huge break to thousands of deadbeats, and directly or indirectly taint or put a shadow on nearly every home title in the country, but this is NOT a massive effort to seize homes that don’t rightfully belong to the banks.
What if people are paying a mortgage to someone who doesn’t actually hold title to the property? Sounds to me that most lenders are not capable of selling an unencumbered deed.
It’s not about the deadbeats, but about those who are paying to the wrong person. It’s a complete and utter scam.
.......This too, shall pass......
It will be unwound. The procedures bypassed aren’t germane to the payments missed nor the original unsold contract.
The original note holder will make the forclosure and provide the proceeds and title to the one holding the bag, less of course a foreclosure handling charge.
You know, it isn’t even a question of who holds “title.” The purchaser holds the title. The purpose of a foreclosure is to obtain that title. The only thing possibly fuzzy because of all the transfers of the loan is who holds the note and trust deed. But the trust deed isn’t “title,” it is a lien.
What is absolutely clear by the time these things get to foreclosure is that the one person who has no right to the house is the one sitting in it, who hasn’t made payments on it for many, many months. If two banks ultimately end up fighting over who owns the loan, it would not affect the home purchaser at all.
>>The Constitution is a powerful document which is more than capable of withstanding an economic crisis.<<
I agree, but it gets its power from the blood of patriots. And sometimes it requires real blood to survive. I’m speaking academically here. I’m trying to find some sort of “soft landing” solution to all this stuff (and the OP is only a piece of it) and am just not finding one.
What if the original lender has gone bankrupt without assigning or selling the note? Does the Bankruptcy court hold temporary title until the note is sold? Who does the property owner legally pay? Without an assignment, who has the right of enforcement?
to me it seems these obligations have to be split from the real estate.
The borrower continues to own the obligation to “somebody” however, the lien should be stripped off the property.
I also think the judges who rubber stamped these forclosures should be stripped of their robes and if needed law licenses. The judges who rubber stamped these cases should be held to account. In FL the FLSC should be held complicit with their “rocket docket”.
I am amazed how nobody on CNBC “gets it.”
Any banker who sells property to which they do not actually own title to the deed, should lose the value of the entire house in a court settlement.
That seems fair to me.
>>Meanwhile, the other 80-90% of the people who played by the rules to the best of their abilities (like you and I) will continue to get along just fine. <<
You’re right.
I can kiss my hubby, hug my kids and sleep at night.
Cause the house isn’t as important as they are.
You are absolutely right. This whole “fraud” and “scandal” hysteria is just ridiculous.
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