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Quelle Surprise! State Legislatures Aren’t Buying Bogus Mortgage Settlement

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The Obama Administration’s full-bore effort to push a bank-favoring mortgage “settlement” over the line earlier this year has led to a rearguard action that appears to have caught the mortgage industrial complex and its allies flatfooted.

As Nick Timiraos reports in the Wall Street Journal (hat tip Richard F), states are disgusted with the way that banks have ignored their long-established real estate laws. Many are passing new legislation to put more teeth into existing requirements to offer modifications to borrowers that could be salvaged and comply with foreclosure procedures. You can detect the consternation from his story:

States across the country are proposing a range of new rules that would make it more difficult for banks to foreclose on troubled homeowners.

The moves have been prompted by concerns that lenders have been inefficient in restructuring mortgages, which results in unnecessary foreclosures, while using shoddy paperwork to repossess homes.

Lenders are strongly resisting the measures, arguing that they will introduce new bottlenecks in the foreclosure process that could obstruct the incipient housing recovery.

Notice how the two sides are talking past each other? The beef of the states is that banks are failing to negotiate in good faith with borrowers, and thus breaking the law there and with their reliance on bogus documentation in foreclosures. The banks, amazingly, continue to insist that more foreclosures are good for the market. Since when is increasing supply (homes for sale out of foreclosure) likely to yield an increase in prices?

The reality is that banks make more foreclosing than they do on mods, even with bribes from taxpayers like HAMP 2.0. Doing a mod is tantamount to underwriting a new loan. The servicers would have to set up new infrastructure to do that, and they don’t want to make the investment. On top of that, their existing servicing platforms are terrible, so a good deal of borrower abuse comes from their refusal to improve their systems.

Banks had hoped to escape that. Even though the Administration touted the supposedly tough enforcement standards in the settlement, Abigail Field has documented at length how the new servicing standards allow the banks to continue to engage in widespread abuses. They allow stunningly high error rates in a process that once was fail safe (did you ever, 30 years ago, hear of someone who had paid off their mortgage being foreclosed upon?). As we wrote in March:

Remember that the Administration also trumpeted that enforcement would be tough, even as Abigail Field has shown that idea to be a joke. For instance, the servicing standards allow for the astonishing concept of an acceptable error rate. Banks aren’t permitted to make errors with your checking account and ding you an accidental $10,000 and get away with it. But with people’s most important asset, their homes, servicers are allowed a certain level of reportable errors, and many of them can be serious as far as borrowers are concerned. This is one example from her post:

Let’s return to page E-1-6, and look at the second metric, which applies to everyone with a mortgage: “Adherence to customer payment processing.” According to Column C, it’s not reportable error for the B.O.Bs to tell their computers that you paid less than you did, if “Amounts [are] understated by the greater $50.00 or 3% of the scheduled payment.”

Since most people don’t pay more than what they owe each month, posting less than you paid would seem to make you delinquent when you’re not. How can that be ok? What are the consequences? The servicing standards say the banks have to take your payment if you’re within $50, (See page A-5 at 3.a) but if your mortgage payment is $2000/month, 3% is $60. What if you start facing fees? What if you were trying to bring your account current and the bank screws up the data entry and starts foreclosing? Why isn’t that potentially devastating error reportable?

And again, it gets worse because of Column D. Again, reportable error has to happen 5% of the time to matter. There’s more than 50 million mortgages in the country. 5% of 50 million is 2.5 million. In a single year the banks can tell their computers that 2.5 million people paid so much less than they in fact paid that it’s reportable error, and still the bankers won’t get in trouble.

Most plainly, the bankers can tell 2.5 million people:

“Hey, you didn’t make your payment this month, your check’s short and we’re putting it in the no man’s land of a “suspense account” triggering delinquency and fees, even though you really did pay in full and have the canceled check to prove it. And guess what? No one but you cares; law enforcement won’t even consider dinging us for it.

I’m struggling with the same level of disbelief I had when I first learned that banks were systematically committing forgery.

She also points out that wrongful foreclosures at a 1% rate are acceptable. Procedures around real estate are deliberate because any error of this magnitude has devastating consequences. But this new provision means that 1%, or over 33,000 erroneous foreclosures since 2008 would be perfectly OK as far as the authorities are concerned.

Abigail also discussed at length how the servicing standards run roughshod over the rule of law.

The amusing bit in the current bank v. states row is the way Kamala Harris, attorney general for California, appears to have played the Administration. Her cooperation was critical to getting the mortgage settlement over the line. She used that to extract more financial concessions for her state (note they were grossly inadequate, given the damage done to homeowners, but they made for nice headlines). Now look what she is trying to foist on the banks:

The biggest showdown between lenders and lawmakers could occur as soon as Monday in California, when the state legislature is set to vote on an overhaul detailing new requirements banks must follow in the foreclosure process. While similar measures have failed in each of the last two years, the state’s attorney general, Kamala Harris, has pushed strongly for the bills, improving the odds the bills will pass…

California is getting the most attention because of the volume of homes lost to foreclosure every month, and because of its bank-friendly foreclosure process. The California bill would prevent foreclosures from moving forward while a borrower is trying to modify a mortgage, require large lenders to provide a single point of contact for borrowers seeking modifications, and allow homeowners to sue mortgage companies that fall short of the new rules.

“Most fundamentally, this legislation is about having a clear process, getting to a simple ‘yes’ or ‘no’ answer on a loan modification application before they start the foreclosure process,” said Paul Leonard, California director of the Center for Responsible Lending, a borrower-advocacy nonprofit.

Equally important, they say, is a new right for borrowers to sue banks, which they hope will make it harder for lenders to dodge new rules. With voluntary loan-modification programs, “there have not been any reliable consequences for anybody’s failure to follow the rules,” said Mr. Leonard.

If California’s law passes, it will help efforts in 24 other states to pass legislation with enough penalties to get banks to start doing what they have refused to do: obey the law and honor their contracts. This fight may not be over till it’s over.

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55 comments

  1. Anonymous Jones

    Quelle surprise!!! What happened to the housing meltdown that was predicted here over and over again? Oh, yeah, I guess CR was closer to predicting the future than y’all. [Again, I was agnostic. I just ridiculed those who were so sure but obviously ignorant!]. Hmmmmm….

    What else has happened recently? Has the shrew been encouraged with a morality play from Mr. Market? Oh, yeah, not yet. I’m sure it’s coming, though. Anything before 2099 redeems the ideas, right? Of course!!! As long as it happens within the lifespan of anyone alive right now, then she was right all along!!! Hmmmm…. Oh yeah, maybe being right in the long run is just a farce if you’re not actually right when it matters. WHAT??!!??!! THAT WAS A JOKE!!! Of course any evidence that is in her favor proves her right always, and any evidence that contradicts her is only going to subside over time!!!!!! She’s impervious to failure!!!! She’s the philosopher king!!! (Queen?) Right??? The housing market failed!!!! Mr. Market showed that She’s right all the time!!!! Quelle surprise. The shrew wins!!!! Always!!!

    OK, all joking aside, the health care decision was a catastrophe. I know all the retards here don’t know why. I’m sure it’s all “Kabuki” to them, because they don’t know any other words or any other context in which to judge it (not that I’m judging them in a normative sense (I’m sure they’re all fine (really, you’re smart, smarter than everyone else, don’t worry about your grades, they don’t mean anything, or your bank account, or how many people hate you, they’re all jealous, and improperly valued, you’re so much smarter than they are, I’m sure); they’re just ignorant in an objective sense (this is not a pejorative sentence!!!!))

    For everyone that’s not clued in to the most plausible scenario (I don’t claim to know the “truth”):

    It’s obvious from the opinions that Roberts defected at the last moment. What is the most plausible explanation for why he would defect at the last moment, not concede anything from the core beliefs of the dissenters, and try to find a “loophole” to not strike down the law?

    Hmmmm….

    Maybe the Republican party understood this was a wedge issue? Maybe the “winning” side was going to have to face an uprising from the “losing” side in the next election? Isn’t it most plausible that the anger from the “losing” side was going to propel a groundswell of support and money toward a reversal from the election?

    Hmmmm…

    If I were Machiavellian, wouldn’t I get to Roberts? Wouldn’t I get convince him to “fall on his sword”? Wouldn’t he look like a real Chief Justice, putting the needs of the country above his personal ideology, even though he could write an opinion in which he didn’t concede one iota (!!!!) of his ideology?

    If I were Machiavellian and conservative, isn’t this the greatest outcome ever? I energize my base, I subtly change stare decisis in constitutional review, I get to uphold a terrible law that helps the elites and the health insurers and delays single payer for decades!!!

    I mean, this is genius, right? It’s absolutely freaking genius.”

    OK, I’m off to hiding again. I can’t stand you people. I have no doubt that some sort of inverse is true. Enjoy your hatred, as I enjoy mine. Ha!!!

    Oh yes, forgot, Lambert is going to scoff that this is all ridiculous because there’s no difference between the parties. He’s not sensitive enough to discern subtle differences. He wants one thing and when he looks at everything else in the world that’s not that one thing, well, it’s all the same right??? It’s part of the “thing he doesn’t want”!!! There’s no differentiation possible. I get it. There’s the people who live on Mars. And then there’s everyone else. See? That’s the deal. Easily segregated. It’s not a lie as long as you believe it, Jerry!!!!

    Good night.

    I’ve used up my exclamation points for the next few years. Rest easy. (Not that you care or are capable of understanding or are capable of anything that supersedes your cognitive bias).

    1. Foppe

      I’m sure it’s just me being obtuse, but I really don’t see how this affects ‘the housing meltdown’; though mostly because I don’t really get what you mean when you use the term. Do you mean that the market will lock up, that prices will drop, or that the destruction of the chain of ownership is irrelevant?

      As I’m sure you’re well aware, legal action takes ages. So how can you conclude now that nothing bad will happen in the future that is reasonably connected, when all you have to go on is that you don’t see anything sufficiently bad happening yet?

    2. ebear

      >>I’ve used up my exclamation points for the next few years.<<

      There's always Usenet. You can use as many as you like over there.

    3. K Ackermann

      Thanks for making everything so clear. Gosh, was I stupid.

      I hate to ask what is surely a stupid question of a clearly superior intellect as yourself, but you call ACA a stupid law, but forgot to mention that smarter alternative.

      Certainly Mr. Market can’t deliver. He’s too busy squatting down, smoking Big Business two at a time, like they were Havanas.

      B.T.W. I hate to break this to you, but Roberts will be delivering these “defeats” for years to come. You’re so used to believing demagogues that it’s become an expectation. This guy is going to drive you ape-shit because you’ll be waiting for the other shoe to drop, and it just ain’t there.

      Stare decisis is a case in point. His views on it are completely pragmatic, and that works best for progressives.

      I’m not laughing at you right now. It’s just a smile… and it’s gas.

    4. bulfinch

      Dear Anonymous squirt — whatever gland responsible for your scathing quipperies, I think it’s growing a little sluggish. I tried, but couldn’t even get through the first third of your flabby, silly comment. Even at a glance, it just looks frantic and tetchy and goes on and on. Next time, keep your hatred succinct and dynamic. Not everyone is on adderall.

      Or…you could just be nice.

      1. Elaine

        Thank you Bulfinch! You made me laugh out loud. I kept reading and re-reading A.Jones – and kept thinking WTF is is his point and/or problem. He was all over the place. Your assessment was truly accurate and also very funny!

    5. Heron

      We haven’t had a housing meltdown? Gee, someone should really tell home-buyers, because in most markets you’d be lucky to get $20k for houses which were, in 2006, selling for $100k. I guess that’s why the banks are all holding on to the houses they’ve forclosed on and insisting that they’re really worthy those inflated values; because the housing market is so strong right now.

    6. Paul Tioxon

      The SCOTUS functions as a legitimation machine for the social order. As a pillar of the precious rule of law, that separates us from the whims of kings and despot, it is important that the people believe that the laws that give meaning to their political freedoms are derived from more than the police power of the state. We can all buy into the national enterprise if we all be believe there is something more principled than Newt Gingrich and Paul Ryan legislating.

      Speaking of which, the conservatives may have a hard time sinking Social Security as a public good by COERCING people into buying a 401k or variable annuity from their friendly neighborhood branch of BofA. Since many public goods such as medicare and medicaid are government run, forcing us into private health insurance by republican legislated mandates are prevented by this Roberts guy. You know, when it comes to legal mumbojumbo, DO NOT CONJURE UP WHAT YOU CAN NOT CASTE DOWN!! GSEs such as Fannie and Freddie, which is basically the government supported market can not be displaced by TBTF banks creating their own private label secondary market, not that will actually happen anytime soon, but republicans don’t dare legislate it or they will be sued for COERCION into a currently inactive private non-GSE secondary market. See, the SCOTUS ruling has housing implications. The private enterprise sector can no longer count upon rigging the markets by getting congress to pass a law funneling them business from previous inactive participants.

    7. Yves Smith Post author

      You don’t seem to like facts, do you? I must note there was nothing in your rant that related to the current post, you just seemed in the mood to have a hissy fit. And your commentary on the ACA was remarkably thin on analysis and long on venom. It isn’t clear what your objection is, save you seem to think that the ACA is good for the country, ergo Roberts decisions was a noble sacrifice.

      The view that the Roberts decision was a plus for the Republicans and that ACA is not a good program is hardly unique to this blog, see this for one of many examples:

      http://www.huffingtonpost.com/marcia-angell-md/roberts-romney-health-care_b_1637397.html

      As for housing, need I remind you that consensus opinion, both in early 2010 and 2011, was that a general economic recovery was underway, and that is looking a smidge premature?

      Oh, and how about the fact that Fannie, which is considered to have the best housing analysts, is calling for housing to bottom in 2013, which contradicts CR? And it might be based on the same data that made its way into the latest FHFA IG report:

      Managing the Ongoing and Expected Surge in Foreclosed Property Inventories

      Foreclosed property inventories have grown rapidly since 2007. According to Enterprise data, Fannie Mae’s and Freddie Mac’s combined REO inventory nearly quintupled from about 48,100 units at the end of 2007 to 234,582 units at the end of 2010 (see Figure 3). In 2011, the Enterprises’ combined REO inventory declined by 25% to more than 179,000 units, which was still more than three times higher than the 2007 level.

      This decline continued in the first quarter of 2012 with the Enterprises’ combined REO inventories falling by approximately 3% from 179,083 properties to 173,480 properties

      And take note of this part:

      Further, general distress in the housing sector will likely continue to result in elevated REO inventories. For example, the Enterprises’ financial data indicate that, as of the end of 2011, more than 1.1 million mortgages held or guaranteed by the Enterprises were “seriously delinquent,” i.e., were 90 or more days past due. At that time, the volume of seriously delinquent mortgages was more than six times the size of the Enterprises’ REO inventories (see Figure 5).

      This from our Tom Adams:

      My rough calculation of their REO and delinquency numbers would indicate that they will have about 300,000 new REOs (acquisitions, in their parlance) per year for the next three years, assuming their isn’t a surge in new defaulters from their portfolio (ie – just using the loans currently seriously delinquent). They also report 179,000 properties currently in REO (end of 2011).

      If they maintain their 2011 rate of REO dispositions at 353,000, the pipeline would be largely cleared in about 3 years. If they are able to increase the pace a bit, perhaps the inventory clears in 2-2.5 years.

      Either way, it is very likely that about 1 million REO properties will be disposed of by the GSEs over the next 2-3 years. Over the last 3 years, they have disposed of about 833,216 REOs.

      What will the impact on home prices be in the rate of REO disposition in the next 3 years matches or exceeds the rate of disposition of the last 3 years? I’d expect that it will be pretty negative.

      Most of the current REOs are concentrated in 15 states. Are the delinquent loans which will be future REOs concentrated in the same states? If so, that will be pretty bad news for those states. If the loans are more diversified or concentrated in other states, that might mean that the adverse impact on home prices spreads to new states. In the states that haven’t been hit as hard economically (like New York), there is anecdotal evidence that asking and sales prices are finally starting to reflect the fact that, outside of the super high end, housing demand is weak and supply is very high. If you throw in an increasing supply of new REOs dumped on the market, prices could get pushed down fairly quickly.

      From a taxpayer-bailout perspective, it’s good that the GSEs are moving faster on REO disposition. But the faster they sell REOs, the worse it will likely be for housing markets, at least for the next 3 years or so. Assuming the economy doesn’t get any weaker over those 3 years.

      1. charles sereno

        “I must note there was nothing in your rant that related to the current post, you just seemed in the mood to have a hissy fit.” (From Yves’ reply to Anonymous Jones)

        Out of respect, Yves, I read through your reply for its factual content, not as a response to a vanishing spirit who, after all, has promised us his/hers/its “Goodnight.” Troll-a-la.

    8. LeonovaBalletRusse

      AJ, many at NC came to this conclusion long ago. “Ancient history” by NC standards.

    9. skinla

      Hey Anonymous Jones,
      What the hell are you ranting about and why are you so mad? Go. yell inside your house to you wife if she has not already left you.

  2. R Foreman

    Let’s throw some bankers in prison, I mean c’mon, let’s just do it… give geitner a real pin-stripe suit, and jamie dimon can have a cell-mate named bubba.. :)

    So states are realizing that increasing unemployment numbers and taxpayers living in hostels are not good for their public coffers. That’s original thinking.. and it only took them 5 years to figure it out.

    1. Heron

      And only a few have figured it out; on the flip-side we’ve got state leges like that of Texas which are not only pursuing policies that make it easier to throw people in the street, and harder to find work, but are also doing their level best to avoid providing any sorts of services for those people because it’s “their fault” they ended up that way.

      1. Guy Fawkes

        I still blame Lincoln for not allowing the Confederacy to secede.

        Texas. You’ve got Bush, Crawford, and the Texas Board of (Dis)Education.

        1. LucyLulu

          Could we give ‘papers please’ AZ, along with Jan Brewer and Sheriff Joe, back to Mexico?

          1. Ian Ollmann

            The prescription for AZ seems clear. The SCOTUS seemed to make clear that the law regarding “Show us your papers” appears likely to be discriminatory, but they are waiting for an actual case to occur before deciding that issue. So, to avoid any hint of discrimination, AZ needs to dutifully enforce the “Show us your papers” on every interaction between law enforcement and individuals of any kind _indiscriminately_.

            I imagine that if non-Hispanics were arrested and reported to the INS for each and every traffic stop if they can’t prove citizenship, the law might prove a tad unpopular.

        2. Nathanael

          Guy Fawkes, Lincoln didn’t really have an option: the Confederacy was trying to invade the North and conquer California.

          I blame *Johnson* for pardoning the traitors who started the War To Expand Slavery — and I blame *Hayes* for allowing the KKK and other white supremacist gangs to steal the governments of the ex-Confederate states back from the freedmen.

          All of the ex-Confederate states should have been kept as non-voting territories under federal military control until the ex-Confederate elite had had its power completely broken (land redistribution, execution of Confederate officers, the works). In retrospect it seems quite clear, but the bleeding-heart liberals of the time wanted to forgive the traitors and rebels.

      2. LeonovaBalletRusse

        Heron, that’s why Texas won’t buy the “Medicaid Deal”–in fact, this Deal was made in heaven for the Neocon Old Confederates, to facilitate emigration of “undeserving.”

    2. EH

      Obama’s saving the perp walks until just before Holder resigns due to election poll numbers being too low.

      1. Christophe

        EH, are you still waiting for the real Obama ex machina to save the day? You have been witnessing the real Obama for over three years now. He is not saving perp walks nor bank regulation nor dismantling the military complex for a more politically advantageous moment. He is doing exactly what his funders demanded in reciprocity for their bribes.

  3. Norman

    I knew something was wrong with my machine and found ads all over the free space. Good ol’ Firefox cut the blocker out because I wouldn’t upgrade to the latest issue. (My Gateway is like MOI, a senior), but what is the 1st comment got to do with anything? I read the story, then the comment! I guess there’s a message here?, I know, I should stay with the comic page, leave all the serious issues to those young enough to see the . . . . . . . . !

  4. LucyLulu

    “Lenders are strongly resisting the measures, arguing that they will introduce new bottlenecks in the foreclosure process that could obstruct the incipient housing recovery.”

    The lenders could benefit from a few more bottlenecks. They can’t manage to process the foreclosures that they already have. My childhood bestfriend’s little sister had lis pendens filed in FL in 2008. She’s had numerous health issues and hospitalizations, no health insurance, no income, no assets left, they wouldn’t approve short sale in 2009. She’s moved back in with mom. She hasn’t made a payment since 2008 and has made no move to block the proceedings. The foreclosure is still pending. It’s a condo on the Intracoastal in Boca Raton. It’s sad because she was so successful a few years ago, before falling ill, only in her 40′s.

    Other than the right to sue, CA’s legislation sounds like a rewrite of the things the lenders have already agreed to do before…….. in consent orders with the OCC and the 49 state AG settlement. Will Ms. Harris be the first to enforce the law, even when the offenders are the big banks? (Especially given Ms. Harris’ career-oriented focus,) I’ll believe it when I see it……

    1. C

      I agree. I found it hilarious (in a sick sort of way) the other day when I heard a bank shill arguing that Florida’s requirement that banks go to court and prove ownership over a home was to blame for their mortgage crisis. Apparently needing to actually substantiate documents and prove you aren’t committing widespread fraud is to blame and that the “market will clear” faster if this doesn’t happen.

      As to California’s laws I also will believe it when I see it. Interestingly according to a summary at Daily Kos it seems that the law turns on giving homeowners the right to sue when the banks break the law. My first thought on this was “holy crap they didn’t before?” and my second thought was “Hmm the state is outsourcing enforcement to individuals, so what does the AG do?

      The proof will be in the pudding but it is sad that banks are being drug kicking and screaming to good business practices and reduced fraud.

      1. Nathanael

        That is correct: *Calfornia*, due to its unusual “deed of trust” scheme for mortgages, made it *very* hard for people to sue when the bank started defrauding them on their mortgages. *Very very* hard.

        This law would bring California closer to the rest of the states; I think California is the single most difficult state to fight mortgage fraud in right now.

  5. YankeeFrank

    Are there any NYS pending laws that would be helpful to homeowners? I ask as a good friend is being foreclosed upon (despite getting a reinstatement number and paying the amount due months ago, the reinstatement was never done — BofA are so eager to foreclose, and thanks to Yves we know why). The crazy thing is the mortgage is a small one — only a quarter of the actual property value.

    I know about the new(ish) document certification requirements for foreclosure attorneys here, just wondering if anyone knows of anything else in the pipeline…

    1. Nathanael

      No, but NYS has a buttload of *old* laws, and you want a lawyer who knows them all. If you can point to repeated bad behavior by the bank, NY judges have the latitude to stop foreclosures. In NY “unclean hands” has sunk several foreclosure attempts.

    2. Nathanael

      Also, proof of good-faith attempts to pay off the mortgage is valuable in NY. NY judges seem to be quite hostile to banks which refuse genuine offers of money. (This is not the case in all states, astoundingly.)

  6. Guy Fawkes

    It is the chain of title that is so important in this legislation. We have proved up that even in a non-default situation, the bankers are screwing up title.

    The title companies are reconveying without the original prommissory note to cancel the underlying debt, they are being indemnified by the bankers.

    Research your own state. I just found in my own state that the ONLY ENTITY RESPONSIBLE for the integrity of title is the HOMEOWNER when they sign the Warranty Deed. So, the title companies are selling snake oil and providing the homeowner with a list of exemptions that they won’t cover (all the things the banks have done to title) and the only person who has any responsibility is the homeowner.

    Isn’t that perfect? The banks are setting up the populace for the next perfect storm…..title fraud and title crisis.

    1. Nathanael

      Adverse possession. It’s gonna be all about adverse possession. If you sit tight, declare yourself the owner, and refuse to be kicked out for ten years, that’s going to give you a stronger title than anyone else.

  7. LeonovaBalletRusse

    Yves, is it possible that the banks won’t do mods because they now realize the obvious: that no-one knows who’s holding the “pay dirt” paper on the goods, with no interference? They really did kill the goose. No more foie gras.

  8. Justicia

    Personal anecdote. Banks are frustrating buyers who are ready, willing and able to purchase for cash (moi) because they don’t want to recognize losses. A property that I was interested in was noticed for sheriffs sale four times in the past 18 months and each time the sale was stopped. It was then advertised through broker websites. When I contacted the broker he told me he couldn’t even get the keys to show the property.

    So, they won’t do mods, they can’t foreclose without forging the paper work, and they’re hanging on to REO inventory. Something’s gotta give — but the punditocracy wants us to believe that the housing market has bottomed out.

  9. steelhead23

    “If California’s law passes, it will help efforts in 24 other states to pass legislation with enough penalties to get banks to start doing what they have refused to do: obey the law and honor their contracts. This fight may not be over till it’s over.” YS

    What exactly would be the damages that could be recovered? Could a person who was foreclosed upon while attempting to modify his/her loan obtain fee simple title if successful? If so, wouldn’t this increase the risk to bondholders while leaving the originator and servicer to reap a benefit?

    The problem, as I see it is that servicers may not work to protect the trusts they service – for a wide array of reasons, not the least of which is that the parent may hold CDS against the very trusts they service. Baby, if that ain’t a conflict of interest for a fiduciary, I simply don’t know what is. Yet, this appears to be the norm.

    Isn’t there a potential for a federal lawsuit from OTS? The new law would appear to test federal supremacy. The courts have been siding with the feds on this.

    Also of interest is that this is California – a very large source of bankster revenues. I doubt that the mortgage industry would threaten to blackball California if it does this. It is good that they may be first.

    1. C

      “What exactly would be the damages that could be recovered? Could a person who was foreclosed upon while attempting to modify his/her loan obtain fee simple title if successful? If so, wouldn’t this increase the risk to bondholders while leaving the originator and servicer to reap a benefit?”

      My understanding, based upon secondhand comments, is that the law puts the fees on the servicer and focuses on foreclosure practices. So if a bank breaks the law and siezes properties illegally then the homeowner can be given up to 3x damages (i.e. value of the home) but that comes from the servicer not the bondholder. So in that respect it is an attempt to make sure that the punishment falls on the real bad actor and is not just passed on to bondholders.

      The catch is that the law also turns on individual lawsuits not AG action meaning that people who have already lost their homes are now expected to cough up the cash to sue banks. Good luck with that.

  10. Harold Q

    Y’know, I have to be honest and say that I DON’T CARE that banks (and other private companies like Internet/utility providers and oil companies) don’t want to change their infrastructure – OR their entire business method – to keep up with public needs and wants.

    If it means better services for us, then it should be mandated. I’m getting angry enough to start wanting to do bodily harm to anyone who does lobbying for any industry group or financial institution. Nothing else seems to deter them from destroying our societies and our world.

  11. LucyLulu

    From the article in WSJ (for those behind paywall):

    “New York’s assembly is considering a measure that would criminalize foreclosure paperwork forgeries.”

    Question for any and all:

    Aren’t these forgeries already criminal acts? And if not, should we all file forged satisfactions on our mortgages tomorrow?

    1. Nathanael

      Yes, they are already criminal acts.

      Currently, however, only the lackeys (the robosigners) can be prosecuted criminally in a straightforward fashion; prosecuting the higher-ups is a pain, you have to prosecute them for conspiracy to commit forgery, they will claim they didn’t know forgery was illegal, blah blah blah.

      I believe the proposed law in NYS is designed to make it easier to prosecute the higher-ups.

  12. LucyLulu

    From the article in WSJ (for those behind paywall):

    “New York’s assembly is considering a measure that would criminalize foreclosure paperwork forgeries.”

    Question for any and all:

    Aren’t these forgeries already criminal acts? And if not, what is to stop everyone from filing forged satisfactions on our mortgages tomorrow?

    1. C

      Sadly no not always. In recent years foreclosure laws and other chains of title rules were “streamlined” in many states. This process just so happened to change the rules under which documents were presented so that, for example, attorneys presenting mortgage documents were not required to attest to their validity or accuracy before doing so. They just had to attest to their existence. As a consequence the foreclosure mills could run the robo-signing mills to make fake docs and then attorneys could present them without fear of consequences.

      In some states such as Colorado the laws were even streamlined to the point where it was not necessary for the foreclosing entity to produce any documentation proving they owned the home or that the owner was in default. Documentation requirements were all on the side of the home owner. The Colorado legislature recently refused to change this on the grounds, according to one opponent, that they were tired of the issue and had already ‘dealt’ with it.

      So sadly what is happening with these efforts seems to be an effort to simply reassert basic fraud laws.

      Having said that there are still questions about the false filing of mortgage documents in many areas. Prior to the 49 State AG Capitulation it looked like that process of title destruction and forgery might be pried into. Now it appears that the state AGs are silent on the need to enforce basic practices.

      To my knowledge my state AG has declined any opportunity to explain why the false filings that they know about are not being examined.

      1. LucyLulu

        Even if attorneys weren’t required to attest to the validity of the documents, they weren’t the ones I had in mind. Didn’t those who created the forged documents, e.g. DocX, commit criminal acts?

        1. Nathanael

          Yes. The trouble is that those are the “little fish”; prosecute them and the banks will just hire more people to do the same thing. The key is to make it criminal for the banks to hire people to forge documents. (Technically it already is criminal but it requires proof of intent, and they’re all gonna play dumb.)

  13. Carpe D.

    Has anyone noticed that Bank of America is no longer maning their customer service lines? Nobody home for weeks now.

      1. Nathanael

        If you actually have funds deposited at BoA, indeed, RUN. Withdraw all your money from the nearest branch. Tell them you are closing your account and demand evidence that the account is closed. (“Account closure fees” are illegal, but they may try to pull that crap on you.)

        Demand a cashier’s check and demand that the check be provided without fee; if they refuse, demand cash. (They are required, legally, to provide cash, though if it’s a lot of money you’ll have to fill out an IRS or Treasury Dept. form.)

        If you have automatic payments or deposits (both of which are, frankly, a bad idea), cancel them all first, and make sure you have the paperwork proving that they’ve been cancelled.

        If you *owe* money to BoA, unfortunately, it may be a *lot* harder to disentangle from them. Get your loans refinanced somewhere trustworthy first. If your credit is too poor to do that, you probably need to declare bankruptcy.

  14. Conscience of a Conservative

    For the states the big issues will be collecting on real estate and transfer taxes. We’ve already seen a few cities hit ard by an inability to collect on one or both. At the end of the day state coffer revenue will be the issue. It’s a hard argument to make that one should stand up for people being foreclosed on improperly when they arne’t paying anyone.

  15. Don Lowell

    All this talk about Roberts is confounding. I just want to say the man is a Fedralist and to think his decision is good for our side is poppycock. He has an untoward plot that we don’t understand at this point in time. He is not our friend!

    1. Nathanael

      Roberts is a “results-oriented” judge who makes up whatever argument he can think of this week to justify the *results* he wants to get.

      This is different from ideologues like Scalia.

      Roberts didn’t want to eliminate the mandate (big corporations want the mandate). He did want to eliminate the Medicaid expansion (big corporations don’t want the Medicaid expansion, because they want people to come begging for corporate jobs in order to get health insurance). So he made up some bullshit to justify this result.

      That is all the explanation there is.

  16. cripes

    Far be it from me to parrot the reich-wing “state’s rights” babble, but I’m seeing a continuing pattern of federal law/programs/neglect (depending on the circumstance) that place states in positions to respond by pillaging the poor. ‘scuse me “middle-class.”

    Slash education, welfare, medicare/medicaid funding; watch state’s scrabble to cut off dialysis and pregnant mothers.

    Watch state’s reduce medicaid eligibility from 400% of peverty level to 133% (400% is not nearly enough to afford health insurance, in case anyone wondered). Then use the extra medicare federal money from ACAS to plug holes in their budgets, not provide actual Medical care to residents.

    Pardon and bailout banks, foreclosure mills, AIG and MERS, and watch states (and towns) struggle with decimated tax rolls, squatting, arson, homelessness, poverty, death.

    It’s not new, it’s just accelerating to a scale and and a pace we can barely track.

    As you make your judicious study of reality, the Rove-Koch-Huns will create it.

    Bullshit austerity, pillage and loot. A home and passport in another nation helps, too, if the rabble get restless.

    Airlifts of bulk rice and wheat to famine-plagued Americans aren’t that far off. Bono and Bob Geldoff can cash in, too.

    Face it, folks, we bein’ played for suckers.

    1. Nathanael

      They’re not creating the reality they think they’re creating. By creating a global catastrophe, there will be no foreign country for them to run to. The Chinese elite have no use for them, neither do the Russian elite.

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