It’s time to resurrect that 1960s expression, “credibility gap,” since it applies so well to the bank and Administration posture towards the foreclosure mess. The banks continue to insist, despite the unheard specter of foreclosure freezes, that they just need to check some things and tweak some processes and they will be back to normal programming soon.
Now, admittedly, there are some palpable signs of anxiety amongst the officialdom. David Axelrod, in his Sunday Face the Press chat, repeatedly stressed the need to resolve this crisis quickly, when there is simply no way that can take place. Similarly, Freddie and Fannie are cudgeling servicers to hurry up and make this go away. Per the Washington Post:
To protect themselves from those losses, Fannie and Freddie have threatened to penalize thousands of lenders if they fail to rapidly fix the way they seize the homes of borrowers who missed their payments, according to letters sent by the firms to lenders.
Yet this isn’t going to go away quickly. The rumored-since-last-week investigation by up to 40 attorneys general (wonder who is fence sitting) is getting close to going live; New York state AG Andrew Cuomo has expanded his own probe; Obama continues to alternate bank friendly actions (his Administration’s stance against a national foreclosure freeze) with playing to the consumer crowd (saying today that the Administration supported the AG investigations).
Astonishingly, despite mounting evidence that the lapses in industry conduct were egregious and widespread (the failure to adhere to their own contracts; the widespread use of fabricated documents), the industry is trying to keep the focus very narrow and pretend the only thing at issue is the, um, improper affidavits, and surely that will be fixed shortly, really there is nothing wrong with the underlying process. The abject failure to convey notes says otherwise, as does more and more evidence of people losing their homes due to servicing errors or other abuses.
Before readers start arguing that these problems are small and therefore inconsequential, consider Barry Rithotz’s remarks:
There are multiple failsafes and checkpoints along the way to insure that this system has zero errors. Indeed, one can argue that the entire system of property rights and contract law has been established over the past two centuries to ensure that this process is error free. There are multiple checks, fail-safes, rechecks, verifications, affirmations, reviews, and attestations that make sure the process does not fail.
It is a legal impossibility for someone without a mortgage to be foreclosed upon. It is a legal impossibility for the wrong house to be foreclosed upon, It is a legal impossibility for the wrong bank to sue for foreclosure.
And yet, all of those things have occurred. The only way these errors could have occurred is if several people involved in the process committed criminal fraud. This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.
That it is being done for expediency and to save a few dollars on the process is why the full criminal prosecution must occur..
In another widely-circulated sighting, Georgetown professor
Adam Levitin provided a prognosis that some sites touted as a surprisingly dour forecast. I was actually found his remarks to be pretty moderate; I’ve been told by litigants who have sought his input that his private views are more pointed (although it is possible they cherry picked his views). From the Citigroup report (hat tip Karl Denninger):
Levitin articulated three possible outcomes to the aforementioned issues and assigned an equal likelihood to each. In his best case scenario, these issues are deemed merely technical in nature and are successfully resolved but it takes at least year to do so and all foreclosures are delayed by at least a year. Levitin disputed the claim by banks that these issues can be resolved in a month or so and attributed the banks’ claims to “legal posturing.” In the medium case scenario, litigation ensues and it takes years to sort out these matters. In the worst case scenario, the aforementioned issues become a “systemic problem” which causes the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes
I see the odds that the problems are “merely technical” as zero. Levitin hedged his bets on how widespread the problems are with the conveyance of the notes. The reports I am getting are providing more and more confirmation for the notion that the notes were seldom, if ever, conveyed correctly from 2005 onward. And if that is the case, the problems are not technical but fundamental.
It would be better if I were wrong, but brace yourself for a rocky ride.