We Speak on Real News Network About Servicer Driven Foreclosures Posted on December 24, 2010 by Yves Smith This interview was taped earlier in the month and I didn’t know it had been edited and released until I saw it on Angry Bear! A serious topic, but I nevertheless hope you enjoy the discussion. More at The Real News 1600020 Post navigation ← Fraud Ruling Against Wells Fargo in Minnesota Points to Widespread Abuses in Securities Lending Program Links Christmas Eve Day → Subscribe to Post Comments 26 comments psychohistorian December 24, 2010 at 2:28 am Nicely done interview. You are really getting your messages across. Good for you….and us!!!! I kept trying to figure out who the bust was of behind you….LBJ? Happy Ho Ho! rjs December 24, 2010 at 4:41 am i already watched it on AB, and forwarded that link… you got scooped on your own interview! Tom December 24, 2010 at 6:00 am What about the motivation to foreclose mortgages that are guaranteed by Fannie etc. The loan will be paid in full by the government and the lender or whomever owns the loan can reinvest at a higher rate of return. If one has a $100,000 loan outstanding at 5% and there are opportunities to make 10%, then there is motivation to foreclose, get the $100,000 from government and reinvest at 10%. Is this a realistic scenario? aletheia33 December 24, 2010 at 7:21 am in addition, is the following correct? the forecloser of the loan insured by Fannie etc. recovers the original bubble price of the house as stated in the mortgage, rather than having to take the lower amount that the property is worth today. taxpayers buy the house at the bubble price and eat the difference. i have read that around 40 percent of the homes in foreclosure are so insured. this would seem to be a powerful motivator to avoid any other possible resolution. just take the cash and run. Fannie is left with the home and the property taxes and maintenance costs, which we are now all paying for (correct?). great video. good work to help spread the word by doing this kind of thing, this is a labor of love that will help many people. thanks yves for that; and remember that at a dark time, all your wonderful actions also help inspire hope. (off-topic rumination:) the piece linked below by rebecca solnit goes beyond the usual cliches about human altruism redeeming human brutality–recommended holiday reading. (solnit’s book tells how people in catastrophic events often do not revert to a hobbesean survival mode of behavior but the opposite, despite the common expectations per hobbes. when collectively thrown back on their own devices, solnit has found, people apparently choose and in fact actually love to help each other through. perhaps “nasty, brutal, and short” really is a description of life under abusive capitalism.) http://www.tomdispatch.com/ Foreclose on Fannie December 24, 2010 at 8:46 am This is why Fannie’s Williams and the Demarco at FHFA -want to aggressively get the foreclosures done. It’s a bizarre form of frenzied paranoia, the Good Germans as it were, refuse to see the enormous social costs of the housing bubble. So Fannie sends out scum attorneys who, also on the taxpayers dime (to help destroy the neighborhoods these same taxpayers live in) who, for lack of a clue, or outright arrogance, start throwing shit up into the courts to expedite home seizures. It can’t be said enough that foreclosure makes ‘em mo’ money, but it isn’t said much. I blame the press, for their relentless “don’t offend power, keep it simple, keep it stupid, keep ‘em shopping Conscience of a conservative December 24, 2010 at 6:10 am Good interview. Lots of good information. I do disagree that modification is in the interest of the note holders. It really depends on which note holder we are talking about and where they are in the capital structure. Yves Smith Post authorDecember 24, 2010 at 3:08 pm The only ones hurt are sub bond holders that represent about 2% of value at current market pricing. And it’s “worth more” to them only because they are effectively being overpaid on the interest component. Continued sub bond payments are effectively a scam. Conscience of a conservative December 24, 2010 at 4:50 pm The senior note holders should have the authority to direct the activities of the servicer. This is a common sense solution and a much needed reform. Conscience of a conservative December 24, 2010 at 5:02 pm overpaid on interest is a judgment, but they are “called credit based io’s” at some point. Yves Smith Post authorDecember 25, 2010 at 12:00 am You need to read Adam Levitin on this, he has a great co-authored paper on PSAs which describes how they are immutable contracts. http://www.scribd.com/doc/33940688/Southern-California-Law-Review-of-Securitizations-rigidness-of-the-Contracts-MORTGAGE-BACKED-SECURITIES indio007 December 24, 2010 at 10:15 am Bravo Yves! Very good stuff there. We need to break the mortgage mythos. This piece puts a stake right in it’s heart! Pissed and Rightly So December 24, 2010 at 11:58 am Well – what good does this do? There is no end in sight, foreclosures continue, people still can’t find work. And the blogs will only go so far — a bit like the rest of the media. Not sure – is Yves going to start some class action law suits? Call for jail time for powerful lawyers who’ve committed felonies? Call for the prosecution of powerful public officials? Call out any feature of how the entire bubble was planned, plotted and executed and not relegate reporting to “that’s already water under the bridge nothing we can do about it”? Nope, no, no way, nope, negative. We need a website where the debt collecting asshole lawyers have their faces publically jammed into the shit. Prosecuted for felonies, go after the teflon-dons of uber banks , we need aggressive organizing, not bullshit, half-assed writing that still has inexplicable faith in a system rotten to the core. Cock Blocked December 24, 2010 at 12:16 pm Anyone remember when the NYT chose to stop reporting on the homeless? 90s era? Sufferin' Succotash December 24, 2010 at 3:15 pm I’ll say one thing about the Old Dominion: things sure have been downhill since Jefferson died. Sufferin' Succotash December 24, 2010 at 3:17 pm Dang! link got messed up. Sufferin' Succotash December 24, 2010 at 3:19 pm third time does it! Sufferin' Succotash December 24, 2010 at 3:39 pm Anyway, see today’s Wapo (front page). Moving Out December 24, 2010 at 5:00 pm Holy shit, I thought MD was bad. This guy’s an executive, plus he retained a good lawyer – then the lawyer had to cough up 10K? The message here? Don’t even think about stopping forclosure, it’s hopeless. You’ll be thrown off your land faster then a Palestinian in East Jerusalem. DumpTheBankInfoJulian December 24, 2010 at 4:57 pm Yves, Thanks for continuing the “Deadbeat” label. I lost my job DUE to this criminal activity of the banks. So, now, even people like you are continuing the banking propaganda. Thanks, that was a nice Christmas present *dripping with sarcasm* mario December 24, 2010 at 5:30 pm Yves, thank you for the great interview. Happy holidays! Xmas Pleasure December 24, 2010 at 5:39 pm Funny – there wasn’t any discussion about Servicers setting up their foreclosures before the victims even signed, this is certainly what they were doing. Falling prices changed their plans too – but most of these “contracts” were set up to fail, resell ‘em at a higher price. ( Shove that up your Washington Post, Bruce T. Whitehurst) AR December 24, 2010 at 9:22 pm Yves points out in the Real News interview with Paul Jay that the servicers are motivated to foreclose in order to stop having to forward cash to the trusts. And she also says that servicers are motivated to foreclose so that they can make more money by paying themselves the various fees they [unfairly] charged the borrowers by posting their payments late and then crediting themselves for the late fees before crediting P&I, which violates the law. But if that is so then why does she later say that they want to drag out the foreclosures in order to avoid paying for maintenance and taxes? Does the PSA relieve the servicer of forwarding payments once the foreclosure notice is sent, even though they then delay foreclosing? Are the servicers continuing to charge fees to the investors during the pre-foreclosure period? What about cases wherein the servicer had been paying the property taxes, and the pre-foreclosure period extends (478 days?) into tax delinquency because the homeowners (presumably still in the home) don’t know (or can’t afford) to pay the taxes? What happens if the house is sold for the tax lien? What do servicers do in this case to recoup their fees and advances? Or is it that the servicers pay the taxes for which they reimburse themselves upon foreclosure sale? In which case, what’s the difference on the taxes? What about cases where the ‘squatters’ don’t bother to maintain the house because they expect to leave eventually, having given up? Doesn’t this reduce the value of the houses? Do servicers really expect house prices to go up, when it’s clear they still have a long way to go down? Millions more foreclosures are in the pipeline. The servicers want to foreclose on millions more houses, since this is how they make their best money. Stating that foreclosures must go through in order to ‘clear the market’ contradicts the position that the servicers extend pre-foreclosure so that they can trickle the houses onto the market in order to avoid depressing it. Do the servicers really care about the price of houses so long as the price for which they can sell each home exceeds the amount they plan to extract from the proceeds? These contradictions belie the talking point that both the GSEs and the Bankers are using: By hastening the day when [they] can move delinquent loans off their books, it can cut their losses. Only when the necessary foreclosures run their course can real estate prices hit bottom and begin to climb again. (quoting a representative of the Virginia Bankers Assn., from the WaPo article* Sufferin’ Succotash directed us to.) We keep hearing that Fannie & Freddie want to rush to foreclose as fast as possible and refuse to do any loan modifications, purportedly to ‘protect their assets’. Why is their plan the opposite of the servicers’? I think Tom and aletheia33 are onto something when they suggest that the reason Fannie and Freddie are foreclosing en masse is because they’re doing it to pay the banks at par for their foreclosure loans. Thus, the banks don’t care about forcing prices down after all, nor about the taxpayer losses, just so long as the taxpayers are forced to help them back to solvency. *** It woud be instructive to learn what was really going on at Fannie & Freddie during the past decade, especially starting with when Hank Paulson became Treasury Secretary and the Bush administration animosity towards the GSEs was about-faced, resulting in the legislation creating FHFA, shortly followed by conservatorship which happened the week before the Lehman bankruptcy. Quoting from Bethany McLean’s Fannie’s Last Stand** in the February 2009 Vanity Fair: Although the government would provide no up front cash, it would put in money up to a combined $200 billion for Fannie and Freddie if needed. Both Mudd and Syron were out, and in short order they were told to forfeit their “golden parachutes.” The exception was an odd detail: Fannie and Freddie would be allowed to grow their portfolios through 2009 in order to help the mortgage market, but then would have to shrink them to $250 billion each…. ….the terms of the conservatorship are confusing, because the government backing lasts only through 2009, and government officials refuse to confirm that the U.S. actually guarantees Fannie’s and Freddie’s debt. Instead, they say there is an “effective guarantee”…. What’s the “effective guarantee”? * http://www.washingtonpost.com/wp-dyn/content/article/2010/12/23/AR2010122305457_pf.html ** http://www.portfolio.com/news-markets/national-news/portfolio/2009/01/16/Fannie-Maes-Last-Stand/ Yves Smith Post authorDecember 25, 2010 at 12:08 am You attribute more strategic design to the servicers than exists. Businesses often engage in activities that are contradictory. The banks can keep pulling junk fees out as long as the borrower is paying. You forgot the part where the junk fees keep being sucked out as the borrower is unaware that that is happening. Mods and payment catchup plans also allow them to pull out extra fees. It’s only when they’ve gotten all the blood they can out of the turnip that they have to start advancing principal and interest. Since the parent banks are funding at close to 0%, that is not very painful in the current environment. AR December 25, 2010 at 8:57 am Thanks for your reply. During the loan mod, are the servicers stripping away the junk fees from the investors, or are they making up the difference out of pocket? Do they only get around to stripping the investors by taking back all of the advances and fees from proceeds of the FC sale? Any idea about the taxes issue? HuffPo had two articles about vulture dummy fronts set up by the banks to buy tax liens. I was wondering if any of these houses were in tax arrears due to servicer failure to pay from their own funds. … There seems to be a strategic design to this scam in the fact that MERS was created for the purpose, and the software was written for the purpose of maximizing rake-off and forcing people into default, and the jerk-around of the borrowers is designed to drain as much blood out the turnip as possible, and the scripts for the bank spokes men were written: “We worked with the Voltaires for more than a year in an effort to find an option that would allow them to stay in their home,” Goyda says. “That’s our ultimate goal in these situations. But we were never able to obtain all the documentation required and as a result, unfortunately, we needed to do a foreclosure sale.” Translation: “We strung the Voltaires along for as long as suited us, pretending that we weren’t going to foreclose on them when we were good and ready, regardless of the trial modification, which we never intended to make into a permanent modification, because it’s more profitable to string them along and then foreclose. The government’s loan modification program is very handy for milking more money out of families that can’t afford their predatory mortgages, giving them false hope, so they’ll keep on paying until we get around to foreclosing on them.” Universally failing to convey notes into trusts also seems evidence of a long-term plan, due to knowing in advance that the eventual foreclosing entity would be many links down a very long, intentionally confusing chain of transfered MSRs. Perhaps they really didn’t make any contingency plans for wrapping up the con after the bubble burst, which has led to contradictory activities. I just can’t stop asking questions about it all, because it’s such a horrid thought that they were allowed to get this far with such a gigantic con with such world-changing consequences. Merry Christmas. Thanks, really. razzz December 25, 2010 at 3:50 am http://www.cnbc.com/id/40794336 “…MBIA has been handed a powerful tool for establishing its claims. And Bank of America is a bit closer to facing the put-back apocalypse it hoped it could avoid—or at least slow down—by fighting the claims one loan at a time.” John Steinsvold December 25, 2010 at 8:58 pm An Alternative to Capitalism (which we need here in the USA) The following link takes you to an essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy: http://evans-experientialism.freewebspace.com/steinsvold.htm John Steinsvold Comments are closed.