Readers may argue I’m reading more of a bank PR role in a page one Wall Street Journal story than is warranted. However, even the Columbia Journalism Review took notice of the Journal’s scanty reporting on the foreclosure crisis, a mounting series of problems that is deservedly damaging to the banking industry’s image and bottom line. Now we have the Murdoch paper feature a remarkably one sided story on foreclosures. That looks to be no accident.
The story, “Courts Add To Foreclosure Delay” is utterly one sided. Having a judicial process for making foreclosures, as is required in 23 states, is bad for you….because it is preventing the housing market from bottoming. This argument is the polar opposite, by the way, of the Administration’s lame defense of its HAMP mod program.
Readers may recall that HAMP for the most part merely delayed foreclosures of participating homeowners for a few months, allowing banks to extract a few more payments from stressed borrowers and extract some incentive fees. Team Obama contended that was really a good thing, a feature, not a bug. The housing market was weak; better to have foreclosure properties dribble out on the market to prevent overshoot on the downside. So it seems that bank defenders will spin the delay issue whatever way they need at any point in time to flatter the banks.
The author also leads with an exaggerated claim up front:
One comparison widely cited: In California, where judges don’t handle foreclosures, the housing market appears to have hit bottom a year ago and has been bouncing back. In Florida, where foreclosures go through the court system, prices keep falling, and foreclosure inventory continues to rise.
Correlation is not causation, and indeed, the author backpedals, but it’s a full 13 paragraphs later:
The judicial process isn’t the only determining factor. California’s economy is more diverse than Florida’s and real estate, long term, has always been a stronger bet in California, which explains why buyers would pounce once prices declined.
The article attributes differences in foreclosure times solely to the judicial versus non-judicial issue. Yet it has repeatedly been reported that banks themselves are failing to foreclose on severely delinquent borrowers. Indeed, the “deadbeat borrower” reaction comes up repeatedly whenever we talk about people fighting foreclosures. In fact, relatively few people who can’t afford their homes fight; most are beating back a bank motion to break a bankruptcy stay or believe they are the victim of servicing errors; in Florida, some were partway through getting mods, yet the servicer failed to call off the foreclosure mill. The banks aren’t about to release the data, but a fair bit of the lengthening of time to foreclosure is due to the banks’ choice: they keep the borrower in place so that they are liable for the real estate taxes. If a bank has a lot of real estate already in a certain city or area, it’s going to have trouble moving inventory, so it sees delaying foreclosure as a way to save holding costs.
There is also not a single acknowledgment in the article that affidavits submitted were improper. Look how timid the Journal’s formulation is: “alleged irregularities in foreclosure documents submitted by the banks.” The banks have ADMITTED the affidavits were fraudulent, prepared by people who had no direct knowledge. This isn’t an “allegation”; these are admissions by bank employees in multiple depositions.
The article focuses strictly on the same theme of the Axelrod Face the Press remarks on Sunday: delay is bad for the economy, and gives as little mention as possible to the dead body in the room, that the “documentation” problems are severe and not fixable in any simple fashion.
That isn’t to say that some of the issues and data in this article aren’t worth exploring. But this piece was not an inquiry; it’s a badly skewed account, but the framing and the heavy use of data provides effective camouflage.
On another front, we had a pretty lame sighting over the weekend, the president of MERS, Mortgage Electronic Registry System, trying to defend his firm’s activities. We’ve avoided talking much about MERS, simply because it is a secondary problem in the foreclosure mess. The big failing of the securitization industry was not conveying the borrower IOU (the note) correctly to the securitization trust. In 45 of 50 states, it’s no tickie, no laundry: if you don’t own the note, you can’t foreclose. The mortgage (aka a deed of trust) is an “accessory” to the note in those states.
Some statements made in a Q&A released in connection the the president’s remarks are patently untrue, as in they have been repeatedly contradicted by sworn testimony by MERS employees. For instance:
1) MERS holds legal title to a mortgage as an agent for the owner of the loan
2) MERS can become the holder of the promissory note when the owner of the loan chooses to make MERS the holder of the note with the right to enforce if the mortgage loan goes into default.
This is utter baloney. MERS has no legal relationship to the note-holder. The owner of a loan (in the MERS context) will always be a trust. Per Max Gardner, a Federal bankruptcy attorney:
The Trust is NOT a member of MERS by a bi-lateral or tri-lateral agreement. The Trust cannot be a member of MERS per the MERS By-Laws. The Trust has never signed any document or filed any document that appoints MERS to execute any documents for the Trust. You simply cannot have a
silent or unauthorized “agent” or “nominee” for a NY or Delaware Trust without a specific designation and appointment by the Trust…..The mortgage note is never transferred to MERS.
There is more from the Q&A that is false:
Claims that MERS disrupts or creates a defect in the mortgage or deed of trust are not supported by fact or legal precedents….MERS does not remove, omit, or otherwise fail to report land ownership information from public records.
Yves here. Ahem. This is misleading. There is no public record of the transfers from the originator to the trust (assuming that was done correctly).
MERS also falsely insists it increases transparency:
MERS was created to provide clarity, transparency and efficiency by tracking the changes in servicing rights and beneficial ownership interests. It was not created to enable faster securitization.
Um, MERS was create to save recording fees. And transparent? Absolutely not. Only MERS members, which are basically banks and servicers, can access the service. And it appears any MERS member can assign a mortgage. Moreover, from what I can infer, MERS is lacking in the sorts of checks you’d expect in a registry of this importance (requirement of approval or confirmation by a second party of a records change; audit trails, etc).
Although the MERS effort at image-burnishing is a side show, it’s still worth noting that they can’t even keep their own story straight. And MERS is hardly alone in that regard.