60 Minutes on Mortgage Securitization Document Lapses and Foreclosure Fraud

For readers of Naked Capitalism and any of the foreclosure-related blogs, this 60 Minutes report covers familiar ground. However, the fact that the story is coming now shows that even with bank efforts to pretend that there is nothing to see here, in fact the problems are widespread and difficult to solve. This segment, as highlighted in the text advanced release last Friday, includes a discussion of DocX and the practice of using “surrogate signers“, which are temps signing….in the name of robosigners! Having robosigners relying on corporate authorizations wasn’t low cost enough, apparently. Rather than take the time and effort to have more robosigners authorized (which is already not kosher, as we know, since the robosigners were attesting to have personal knowledge when they clearly didn’t), they went beyond providing bogus affidavits to having workers engage in forgery.

It also showed the work of NACA, but didn’t provide the most crisp description of the NACA process and how it addresses servicer bottlenecks (see here for more details). But it does feature Lynn Szymoniak and the procedures of the now-shuttered DocX, the infamous document fabricating subsidiary of LPS.

So consider this an interesting view of the state of play. The MSM is willing to cover practices that banks have been forced to admit they engage in and they claim to be cleaning up. This is helpful in terms of public outrage, as in validating the charges made on specialist blogs for blogs for more than two years, but is still far from the hot button issues now, such as servicer-driven fraud or chain of title problems.

One aspect that is distressing is that per her remarks in this clip, Sheila Bair does not appear to understand or worse, understands but is not willing to admit the seriousness of the chain of title issues. Often, the banks botched the transfer process in such a fundamental manner that retroactive fixes are not possible. This isn’t a matter of “if the banks spend enough time, they can prove the trust they are acting for owns the note” as Bair contends. It’s that in many cases the note didn’t get to the trust as stipulated, and the trust doesn’t have the ability under New York law, which governs virtually all of these trusts, to accept it now. A party earlier in the securitization chain is typically the owner, but no one wants that party to foreclose, since it would confirm the failure to handle the assignment of the note properly.

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32 comments

  1. Terry Fitzparick

    Here in arizona, I live in north central Phoenix, 70 percent of us are underwater…

    I purchase a 2 BR condo, 30 yr fixed, 5.75 percent interest.
    I could ‘sell’ today for 36 percent of the purchase price.

    My mistake, following the ‘advice’ of financial adviser, t put 20 percent down, $40,000 Gone.

    Wells Fargo said the would consider mortgage for the current balance, at 5.25 Plus fees! Which is Twice what I could sell it for.

    Yves thank you for being one of the few forthright, informed, economic bloggers,

    Deems and re bs…hopeless
    Fed reserve worse
    Geithner et al…

    Sheila Bair OH Please!

    We need principle reduction…
    RE market will never fully recover

    Arizona

    15 percent of land is privately owned
    Walmart is the number one employer

    1. Diogenes

      Hi Terry,

      We are in the same area and are in the process of doing a strategic default. AZ has an anit-deficiency statute and you are protected for purchase money mortages, which includes refis, but not HELOCs.

    2. Diogenes

      Also, note that deficiencies in foreclosure, as forgiven debt, become taxable as income after the end of 2012 if the MOrtage Debt Relief Act is not extended.

  2. keith

    http://www.sun-sentinel.com/business/sfl-judges-crack-down-on-foreclosure-disorder-20110403,0,4800057,full.story

    According to this article judges in Florida are starting to award homes outright to borrowers when lawyers representing the foreclosing party present fraudulent documents. Also reported in the same article is that David J Stern has filed official notice that his firm no longer has the resources to continue to service somewhere in the neighborhood or 100,000 foreclosure suits and will be dumping them.

  3. obejason

    I’m sure you’re aware of this already but ZeroHedge wrote an article about this – and the “$50 billion rent boom” that will accompany this story.

    I think more American families should be made aware of the channels to stop the banks from seizing their homes – things like RESPA Letters.

    Thanks for the video embed. I found your site through Google Realtime after missing the 60 Minutes episode.

  4. Bravo

    I wonder how Sheila Baer got stuck with the interview? Maybe because she’s soon to retire and was possibily perceived by banksters (fronted by the OCC of course) to be the least sympathetic to the plight of the banking cartel in the settlement discussions? Was this about making her the scapegoat….…to be put into the spotlight by 60 minutes so that the general public can identify her with the regulatory negligence of her predecessors, and her successor can ride in on the white horse and pretend to fix that which has no fix? Either she was put in a tough spot or she was a brave woman to take the interview. I suspect she can’t wait to get out of the brewing firestorm, now that MSM has finally caught up with where Yves was long ago.

  5. Ryan

    Yves.

    What I don’t understand is why investors aren’t talked about in many of these stories. They have taken such a large hit through these CDOs- and if these CDOs were not legally created, why aren’t there more law suits? It seems like a pretty straightforward way to force the banks to buy back bad loans. While there is a lot of press on the homeowner end of this issue- there is surprisingly little on the investor end, and it seems that they would have the easier case to win.

    1. Yves Smith Post author

      The CDOs are a completely different issue than the mortgage securities. The 60 Minutes did a real disservice by taking about complexity, which is much more a CDO than a mortgage bond issue (the problem there was bad assumptions re defaults and housing market declines).

      The CDOs were made of either (to a large degree, they always had other constitiuent elements) actual bonds (the lower rated tranches of residential mortgage bonds) or CDS that referenced specific bond tranches. The typical CDO would have 100 to 250 exposures.

      The CDO investors don’t have any rights to demand putbacks. The servicer is supposed to put back defective loans to the originator on behalf of mortgage bond investors, but they pretty much never do, and the rights of bondholders to sue are very restricted (pretty much al deals require 25%).

      The CDO investors don’t have any rights as far as the mortgage bond is concerned. Think of a mutual fund. If one of the stocks the mutual fund owns decided to make an acquisition, you as mutual fund investor don’t have the right to vote on the merger proxy.

      1. Ryan

        Thanks.

        I have no financial background at all- I’m just trying to understand the implications of the securitization issue. I know it’s been mentioned that “mortgage backed securities” may not be mortgage backed if it’s true that they weren’t transferred correctly. So what are the implications? And what is the major difference between a MBS and a CDO? I don’t think I get it. haha- it’s really tough for us laymans out here sometimes with all these different terms.

        1. readerOfTeaLeaves

          Ryan, Yves’ book, Econned, lays out all of this and is a great resource if you are interested in all the acronyms.

          If you use Yves’s search box, you can also check out her guest appearances on business programs, where she explains some of these topics. She did a two-part interview with Real News Network that’s a wealth of information, very easy to follow.

          For more general focus on some of the topics, I’ve found Dylan Ratigan’s show at MSNBC to have some good segments (you could google ‘Ratigan + CDO’ and probably get some relevant segments). Ratigan also does a podcast called ‘Radio Free Dylan’, and one of the episodes he interviews Congressman Brad Miller and it delves into some of these topics. If you find podcasts handy, that may be your best bet.

          Another super-handy, easy-to-follow resource is the documentary “Inside Job” (which won this year’s Oscar for best documentary), which explains CDOs pretty simply.

          And of course, there are her daily posts for which audio makes it simple and easy to keep up with all the craziness, and build a pretty decent knowledge base over the months.

  6. gs_runsthiscountry

    While the focus of the 60 mins piece was the foreclosure fraud within the banking and financial industry, and was not lost in my viewing, I find it amazing how easy it was to find people to sign these documents.

    Where has the moral fabric of this country gone? When did moral ineptitude take hold so pervasively? Has the education level, and feelings economic desperation gotten so low, people are willing to throw their values away for 10 bucks an hour?

    Is it any wonder we get the politicians we have in office, or the CFO’s of our corporations committing fraud, when most Americans can’t find true north on their own moral compass.

    Have we now reached a point where we have to teach Ethics and Philosophy at the Jr High school level? Since, the parents obviously don’t do it, and 35% of children don’t make it out of high school, I think that answer is yes.

    Signed,

    Utterly Disgusted.

    1. mp

      “Has the education level, and feelings economic desperation gotten so low, people are willing to throw their values away for 10 bucks an hour?”

      DocX overpaid.

    2. Dan Pennell

      Morals are wonderful things to have but it should amaze nobody that they are tempered by hunger.

      If you NEED a $10 pr/hr job then you likely are in desperate straights that includes not eating on a regular basis.

      I find it understandable the willingness of a desperate person to accept the line sold to them by better educated people who look successful and have lawyers. Particularly when their phone or water is going to be shut off.

    3. Zachary Pruckowski

      The average person has very little understanding of the law outside of the basics you learn in kindergarten about not hitting and not stealing or what you see on CSI. If a smart-looking lawyer is telling them it’s legal, they can’t argue. And the job market for low-education workers has sort of sucked the last few years, to the point where $10/hour in an air-conditioned environment is heaven. People are inclined to trust lawyers when it comes to the law, and the fact that it works great for them precluded second-guessing.

    1. psychohistorian

      That none are in jail continues to gall me also.

      I wonder if all those Randian and neo tea part types believe that abandoning consistent application of rule of law is a good thing?

      1. Cynthia Farmer

        Tea Party types believe in rule of law, believe in due process, believe that protection of property rights is essential. Most people simply don’t know what is going on, and Main Street Media left or right have not done a good job. Subject is complicated, hard to explain the many patterns of fraud. However, complexity, confusion, smoke and mirrors tend to enhance fraud.

  7. Mike D

    I watched the 60 minutes program. It was a bit lightweight but not too bad compared to some stuff I have seen on that program. I would have liked to hear more from the fraud-expert attorney whose house was in trouble. I bet most of those people who were standing in line to get some reduction in their payments did not get a lowering of the unpaid balance of their loan–but I did not hear that come out in the presentation–probably just a temporary reduction in payments. 60 Minutes can be careless about these details.

    The interview with Ms Bair and her talk of some kind of settlement to resolve this situation made no sense to me–I concluded she was blowing smoke, outright lying, or did not understand what is going on. From what I can see, it is state law that determines these property ownership issues, and they cannot go away just because the federal government wants to intervene. And if the title was not properly conveyed into the trust, then some federal sleight on hand will not be able to fix a bad title. Thus, the future sale of the property will be impossible unless the feds come up with a guarantee system. I assume the state courts can make an inquiry that can result in a good title, but if so, it would be one title at a time–a very slow process.

    I am not certain what Zero Hedge was talking about with regards to a $50 billion rent boom–anyone expand on that?

    1. gs_runsthiscountry

      You asked a question about ZH comment on rent boom.

      I believe they are referring to those that believe part of our recent supposed recovery (boom), is due to synthetic stimulus or “Free Rent.” People that have not paid their mortgage for over a year or longer, filing bankruptcy, going through foreclosure, or both. Being free of a mortgage payment allows for the purchase of a lot of I-pads.

      This phenomenon does exist, although, to what extent I am not sure, it may be way overblown.

    2. skippy

      Mike, I believe TD is making the inference, that monies not payed to mortgages are going into consumption. There by providing a short lived offset to GPD, of which today consumption is around 70% and with out would stick out like a sore eye.

      Skippy…just think if all the people that have negative equity in their homes or reduced means kept paying, cough…attacking the largest component of the GDP, the life blood of our economy. Money spent on a non performing asset rather than adding value to GDP…lol.

      PS. have close relative in MM house in exclusive enclave, electric indoor doors snicker, all custom accoutrements, launching new product line, yet has not made a mortgage payment in almost a year, living the high life!

      PSS. “Atlas Shrugged” and “The Stand” tag as favorite books on FaceBook…dbl lol.

  8. Rebel Cole

    The 60 Minutes interviews document criminal perjury and forgery by agents of the major servicers, including BofA, Citi, JPM and Wells.

    Why are the OCC, Fed and FDIC not investigating these servicers for felony misconduct? At least Chairman Bair had the guts to appear on camera.

    Former OCC Comptroller John Dugan has rejoined the law firm of Covington and Burling, which specializes in representing white collar criminals. Funny that this is from where he came before taking such a critical regulatory position. In leaving, he (and his law firm) apparently knew that this would be a lucrative practice going forward.

    No one will be going to jail because the Obama administration is “looking forward,” not backwards.

  9. nonclassical

    what has gone “wrong” with our country?..people should view
    small town newspaper offerings-fundamentalists are completely in denial, refuse to believe their sacred “free-market” could have had anything to do with economic disaster.

    It is truly “intentional ignorance”= Orwellian “double-think”.

    1. skippy

      My mother who went to SLU and UCLA, worked for some of the top company’s in the US up to CFO, thinks it all because politicians buying votes from socialist groups (poor people) al la Fanny and Freddy et al.

      Skippy…shades of FDR nightmares! Bloody polis cheating by giving the poor what want…free stuff!

      1. Rabid Cranky Troll

        That is a false narrative. Carefully crafted via collaborative effort by both parties.

        The way it works is this: Democrats corporate-whore by passing lobbyist-written legislation, but claim they did it to help poor folks.

        Example: the revision to the Community Reinvestment Act in 1997. Portrayed by the architects, Barney Frank and Charlie Rangel as an effort to boost home ownership amongst disadvantaged minorities (read: poor black folks). An absurd pack of lies. How much political power do black folks have in our political system? So how was this revision able to pass? Well, who else benefits other than poor black folks from this? Yep, the folks giving out the mortgages then repackaging them as mortgage backed securities and selling them – Finance-Insurance-Real Estate. And we know those folks have great power, as they own both parties lock stock and barrel.

        Republican response: Did they blame the true culprits, the FIRE sector? Of course not, since they’re owned by them as well. So yell about how stupid Democrat’s do-gooder welfare scheme for poor people caused financial Armageddon.

        Combine these mutually self-reinforcing lies with people’s unfortunate tendency to look up to their “betters” and despise those worse off than they are and presto. You get blame-the-victim-ism run amock.

    2. Rabid Cranky Troll

      We don’t have, and we have never had true “Free Markets.”

      The reality is far, far worse than you Lefties’ worst nightmares about “Free Markets.”

      What we have is Corporatism. Government intervening in the economy to tilt the playing field in favor of Big, politically influential corporations.

      “Corruptissima Republica Plurimae Leges.”

      And that’s exactly what we have. As the number of “regulations” in the Federal Register, and in the tax code have proliferated, as power has become more and more centralized in the hands of the central government, as the money channelled through the central government has increased, wealth has become more and more concentrated at the hands of the super-rich, the financial elites.

      The idea that the government could hold private economic power in check was always an Orwellian lie. The government, politicians, have always been in the back pockets of the super-rich.

  10. Max424

    If I was the United States I would put together an elite crime fighting unit at the Federal level, and I would call it: the Federal Investigations Bureau — or, the F.I.B.

    Why we don’t have an organization like this is beyond me. Without an F.I.B. (or if you prefer, the B.F.I. – the Bureau of Federal Investigations), at any time, criminals could choose to go wild, all across our nation.

    And from what I’m hearing on the street, it is has finally dawned on criminals that the US has no Federal law enforcement organizations, of any kind, so they’ve chosen to go wild, all across our nation.

  11. Eureka Springs

    The system is completely corrupted… criminals are still in charge. We desperately need an Egyptian style revolt in this country.

    I won’t go into the dreadful job 60 minutes did, years late… except to say, remember when they used to at least chase crooks who wouldn’t take an interview through parking lots and such?

    No big fish was shown on camera… very telling considering just how many choices they had.

  12. Margret Reeh

    I must say i must have been a little leary of all the so-called hype happening around solar. After checking out plenty of programs and buy options my spouse and i chose to make the leap. We finished up getting solar without money down and then we immediatly started lowering costs the 1st month is was installed. I must say that the benefits of solar are real and I am very happy that we made a decision to proceed with it.

  13. JohnF

    What I found amazing was that Sheila Bair could barely look into the camera and most often averted her eyes lower left–a tell of a lier!! This means that she’s clearly not telling the whole truth, taking one for the team and feeling extremely embarrassed about such malfeasance.

    Last time I saw an interview like this was Bernie Ebbers…but he never looked into the camera at all.

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