By Richard Smith, a recovering capital markets IT specialist
Housing Wire’s Paul Jackson has another post up continuing his row with Yves over securitization chain of title issues. It presents itself as a rebuttal of her previous post, about an Alabama trial court decision that Jackson deems to be a significant defeat, but which Yves and more recently Adam Levitin have argued is both insignificant and not very relevant.
Normally I’d leave the two of them to slug it out. However, Jackson’s weekend submission, in which he says he is “going to address her latest talking points” piqued my interest. Rather than addressing any of the substance of the post itself, he mounts a bizarre attack on the motives of the attorneys behind the Alabama case, based on a pretty peculiar interpretation of one of Yves’ comments to the post. The comment:
Are you kidding? Each side spent over $250K on this case. Trials where you are making real legal arguments, as opposed to presenting papers for a judge to approve, are costly. And Alabama billing rates are a lot lower than in other states. For borrower’s counsel, since the borrower has no money, the “spent” is what their time was worth plus hard dollar expenses (experts witnesses and so on). They are out the real out of pocket real costs.
The banks’ lawyer gets paid, so yes, this is an epic fail for the bank. I’ve mentioned this in other posts. The more borrowers fight cases, the more loss severities are gonna rise. Investors already are losing 70% on the average foreclosure and housing prices are projected to fall further in most states this year. If on top of that they start having more cases with 300% losses on foreclosure, investors might wake up and finally do something a lot more serious to pressure servicers.
Sooo…bank attorneys run up a tab fighting a foreclosure in a pretty obscure courthouse, that results in a 300% loss to investors, when all the borrower’s attorney wanted was the house back and a loan modification. The big numbers are the result of the bank attorney’s posture, and of eleventh hour moves that many judges would have rejected: introducing an allonge on the eve of the trial. This was clearly a bad economic result for the borrowers’ attorney! It was not hard to see that the trial had become a war of escalation, with the bank’s attorney in an ideal position to up the ante. The post makes clear that unlike the bank’s lawyers, borrower’s counsel was “out”, in hard dollar terms, vastly less than the total, which would have to include the opportunity cost of unpaid for billing time.
For Jackson this somehow becomes the basis for a statement of his worldview: that everyone is greedy, ergo these attorneys must be too! In his own words:
Morality and the accompanying emotions to that noble love of justice are simply a varnish for the fires of greed. In other words, everything is about the money, and if you can find a viable angle to make more of it than someone else. And I mean everything.
Taking guidance from this exceedingly dubious, indeed self-refuting claim (if it’s all about the money, we can’t trust Jackson either, can we?) is quite foolish. In fact Jackson doesn’t really believe it either: elsewhere in his oeuvre, we find a bizarre exception to his rule:
Believe it or not, mortgage servicing is a noble industry. Or, at least, it’s supposed to be. Even in managing borrower defaults and repossessing property, there is something noble to the work, underneath it all — and it comes from following the law, enforcing contracts, ensuring that our nation’s system of property rights maintains its integrity for all Americans.
Though it could be that he’s just slapping a spot of varnish, on some fires of greed, for the money; I do hope that varnish isn’t flammable, Mr Jackson, or you may decide you are underpaid.
At any rate, armed only with his distractingly inept imagery and his defective moral compass, Jackson sets out on a fishing trip, in his latest, and gets hopelessly lost almost immediately:
Yves tries to suggest that in writing about the Congress case I was claiming “Mission Accomplished,” attempting to associate me with an infamous Dubya moment during the far-from-over war in Iraq. Nothing could be further from the truth.
If you have the attention span of a gnat, you might take this at face value. On the other hand, the very next sentence says this:
Yves spends a fair amount of time suggesting that the effect of the Congress case elsewhere will be muted, if it has any effect all. In attempting to minimize the relevance of this case, however, what she misses is an important reality: that the defense here saw fit to mount one in the first place.
So make your mind up, Mr Jackson: is the case widely relevant or not?
Or was the choice of court and case, perchance, simply something of a goof by some attorneys looking to develop a theory that might have more lucrative applications? That’s one sensible conclusion you could draw, and a basic step in puzzling that out, that does not even occur to Jackson, is doing some minimal research and actually looking up the plaintiff’s lawyers. And the idea that deep pockets types would go to of all places Alabama, not exactly known for cutting edge jurisprudence or friendliness to consumers, and hire two no-name attorneys to represent a black borrower, is beyond belief. If you are Jackson, though, you skip the homework, or the sanity check, and go for the ASF paranoia:
In many ways, the plight of the distressed borrower is a convenient lever to pull if — for example— you’re a buyside Wall Street firm that decided to load up with cheap nonagency mortgage-backed securities in the wake of the market’s collapse, betting on a mechanism that could open the door to damage claims and settlements worth more than the securities themselves. Or maybe a mortgage insurer looking for novel ways to repudiate claims en masse.
I’m not at all suggesting that’s what went on here…
I have a suggestion straight back at Mr Jackson: if you want to not suggest something, the best way is simply not to make the suggestion. Otherwise, it looks as if you’re trying to have it both ways. Keeping the accusation vague is a smart move, admittedly, if you happen to be a bit clueless and not very brave. Bill Gross for one has made the trade that Jackson mentions, but does Jackson actually mean Bill Gross? He doesn’t say. Perhaps he doesn’t want Bill Gross on his case.
Yves by contrast doesn’t care a bit, roundly dissing Mr Gross’s self interested utterances. Ultimately, Jackson is too vague to be interesting here: it’s just a smear. As for the mortgage insurer theory: there’s no evidence for that either; just Tom Adam’s prior employment history and his occasional contributions at this blog. Mortgage insurers can make claims directly, on the very same theory that Naked Capitalism and the Congressional Oversight Panel have discussed. They have no reason to test a theory on a case in a largely irrelevant jurisdiction. And there are business reasons that the monolines are going the putback case route rather than this one. Remember that most of the MBS exposure (excluding CDOs) that monolines have is via HELOCs or second liens. That may put them in a position similar to that of the big banks: unwilling to take action on the first lien mortgages for fear of write downs on the second liens.
Yes, Bill Gross and MBIA and others are out there. And if they want to work the legals to make some money, or claw some back, they, or others like them, will. It’s really hard to see why the output of “Naked Capitalism” would so heavily in their ruminations as to be worth paying for (if that is what Jackson’s insinuating: he doesn’t seem to be able to bring himself to spell it out).
All of this stuff of Jackson’s is irrelevant and pretty much content-free; but still, it’s an interesting glimpse of sell-side anxieties.
So what really matters about this case? Three things: the unfortunate Erica Congress, who has had her hopes dashed twice over now, once when she couldn’t pay her mortgage and a second time when she was turfed out of her house; and two blithe but pernicious affirmations by the judge: first, that an allonge doesn’t have to be affixed to the note, which just opens up the floodgates for document fabrication, and second that “digital signatures” are valid endorsements to the note.
Unfortunately, neither Jackson nor the judge seem to grasp the difference between a digital signature, “a mathematical scheme for demonstrating the authenticity of a digital message or document”, as Wikipedia has it, and a digitally reproduced signature, a simulacrum that can be knocked up in minutes by any sad sack in a servicer that can use Photoshop, Word, and a laser printer, and doesn’t authenticate anything at all, least of all a transfer of title. Using 21st century technology to recreate a state of screwed-up title that hasn’t existed in anglophone countries since the mid-17th century is nothing to crow about, Mr Jackson. As a citizen of the US, it ought to make your blood run cold. It’s not just about the money.
At any rate, the more this stuff is talked about, the more lawyers (in less frivolous jurisdictions) will furrow their brows about the damage being done to the integrity of basic property transfers. So we will keep the pot boiling.