Bank Disinformation III: Obama Throws Weight Behind Banks, Housing “Market” Over Borrowers

I should have expected this, Team Obama is so predictably bank friendly that it was inconceivable that the Administration would ever decide against them on anything other than the occasional sop to maintain plausible deniability. But this morning’s news stories reveal the officialdom isn’t even bothering to keep up appearances.

First, from Politico writer Ben Smith, via a newsletter targeted to policy types:

WALL STREET WARNS WASHINGTON ON MORTGAGES – The financial services industry is growing increasingly concerned as more politicians get behind the idea of a broad moratorium on home foreclosures, which banks and many outside analysts say could be good short-term politics but terrible long-term policy.

One senior Wall Street executive told Morning Money over the weekend: ‘President Obama should be very cautious about aligning himself with Congressional leaders who are playing politics with the foreclosure issue. With foreclosed properties comprising one in every four homes sold in the United States, the spreading moratorium could disrupt real estate deals in progress, slow down the process of clearing the backlog of troubled home loans and [endanger] the economic recovery.’

So we are back to Wall Street calling the shots, the very same Wall Street that invokes the “give us what we demand or we’ll shoot the economy” demand whenever its pet interests are threatened. Here the securitization industry was colossally irresponsible in its conduct, and has created a mess that will be monstrously difficult to remedy….and we’re supposed to plow onward in business as usual mode?

And notice the false dichotomy: the banks who screwed up yet again (and will need to be recapitalized again, trust me, foreclosure moratorium or not, there is a tsunami of litigation on the horizon that will bury servicers and the major trustees on securitizations) versus “Congressional leaders who are playing politics.” Huh? And it FURTHER, and falsely implies that those evil Congressmen are the reason banks have imposed moratoriums. Erm, it has to do with the fact that filing an improper affidavit is a very serious matter, and the banks have to straighten that out (at a bare minimum, as we stress here repeatedly, the affidavits are merely the presenting problem, not the fundamental failing).

And we further get another lie, that it’s the foreclosure freezes imposed by banks, and the prospect of more at the state level, that might affect REO sales. That’s another Big Lie; the most pressing impediment, and it’s not getting better any time soon, is title insurers withdrawing from foreclosure sales from banks that have admitted to having affidavit problems. Other title insurers are reported to be writing qualified policies on foreclosure sales.

The other disturbing but revealing report of the morning is the new Obama administration straw man: that it’s not backing a national foreclosure freeze. First, as bank expert Chris Whalen points out, this is eventually going to happen, but on a state-by-state basis. not nationally. But second, look at the deplorable logic. Per the Washington Post, boldface ours:

The Obama administration does not support a nationwide moratorium on foreclosures at this time, Federal Housing Administration Commissioner David Stevens said Sunday in an e-mail response to questions.

“We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not, is simply not the prudent step to take in this fragile housing market,” he said.

The statement couldn’t be more clear. “Markets” as in bank/corporate interests uber alles, no concern with the rule of law.

Print Friendly, PDF & Email


  1. eh

    The banks, servicers, etc should be strong-armed into agreeing to a short moratorium on foreclosures until this mess can be straightened out enough to proceed.

    Buy anyone who benefits — i.e. gets free housing in the meantime — should be forced to pay restitution later, e.g. have a recourse lien filed against them.

    And absolutely no one should have their principal or interest rate reduced at taxpayer expense (in any way, shape, or form).

    1. F. Beard

      And absolutely no one should have their principal or interest rate reduced at taxpayer expense (in any way, shape, or form). eh

      What if both borrowers and savers could be bailed out at the expense of the banks, eh? Its easy: slap leverage restrictions on the banks to preclude price inflation and then send every American adult a big fat check of new, debt and interest free legal tender fiat.

      Winners? Everyone but the banks and the uber-rich who might suffer in real (not nominal) terms because of a wealth transfer back to the middle class it was stolen from.

    2. Tao Jonesing

      You still don’t get it.

      If the banks and the servicers don’t have the documentation necessary to establish chain of title, they can’t foreclose because the mortgage is unsecured debt that is not secured by the property.

      The reason people have called for a moratorium is because we’ve seen instances of the banks and servicers forging documents to fraudulently establish proper chain of title where there is none, thus “securing” their debt, which is a gating item to foreclosure. This kind of fraud is so crooked it can never be straightened out. Forging documents to fraudulently establish chain of title is a crime.

      Which is worse? Breaching a contract or committing a crime? Is it okay to commit a crime in order to punish somebody who has breached a contract?

      The only remedy available to banks and servicers who can’t properly establish chain of title is to sue for breach of the mortgage contract. There are no “recourse liens” available, but neither is there any free housing.

      1. IFearThis WIll come

        ahhh, you forget something…

        The possibility that “Mortgage Backed Security” actually has no Mortgage to back it with at all !

        The entire last 3-4 years of Bush economy was based completely on fraud. And we are about to find out the ultimate proof. There is no paper to back up all those MBS. It’s all a lie.

        1. Paul Tioxon

          Posted on Tue, Aug. 3, 2010

          Phila. records clerk sentenced for deeds scam

          By Nathan Gorenstein

          Inquirer Staff Writer
          A former Philadelphia Records Department employee was sentenced to two years in prison Monday for taking payments to illegally prepare and file deeds to about 100 residential properties.

          While most of the transactions involved willing sellers and buyers, in a few instances sales were made without the owners’ knowledge, according to federal prosecutors. “They are still fighting to get their properties back” in some cases, Assistant U.S. Attorney Sarah Grieb said.

          Most of the properties are rowhouses, often vacant or abandoned, in North Philadelphia and the lower Northeast.

          The former employee, Ramon Pabon, 63, is a Vietnam War combat veteran who said he suffered from post-traumatic stress disorder. He worked for the city from 1996 through April 2009 and started producing false paperwork in 2003.

          The scheme generated more than $46,000 for Pabon. Pabon has also pleaded guilty to filing false tax returns, said Grieb.

          Pabon pleaded guilty to wire fraud, filing of false tax returns, and honest-services fraud. He was sentenced by U.S. District Judge Joel H. Slomsky. Pabon will also have to pay about $20,000 in back taxes.

          Last week, in an unrelated case, another Records Department employee was charged with defrauding the city of more than $600,000 in fees over four years while pocketing $185,000 in bribes.

          Those documents are alleged to have been accident and emergency medical reports. Records Commissioner Joan Decker said the city was considering steps, including installation of video cameras, to monitor employees.

          Pabon was accused of using genuine deeds and his home computer to create illegal documents recording land transactions that were then filed with the city. The seller or buyer would pay him a fee, typically $200 to $250, for the work. In some instances the fees were $400 or more.

          Pabon’s clients included neighbors and Spanish speakers who needed help dealing with property sales.

          He also helped people purchase properties on which back taxes were owed, in violation of city rules.

          Pabon’s attorney, Marc Neff, said Pabon “suffered a mental breakdown” after federal agents searched his home in April 2009 and spent two weeks hospitalized. As a Records Department clerk, he was paid about $38,000 a year. The city is moving to terminate his pension benefits as a result of his guilty plea, Neff said.

          Contact staff writer Nathan Gorenstein at 215-854-2797 or

    3. S Brennan

      Shorter Eh says:

      If Banks are falsifying documents and other criminal activity, customers should pay for the delay caused by the lenders malfeasance.

      Everyday we slip a little lower thanks to folks like Eh.

  2. killben

    It is always “either you allow us to do what we want or else” As long as wall street gets its way, whatever ranting we do, it will be of no use. That is why for government to take action you need a grass root movement with a leader of the caliber of Martin Luther King who can lead from the front.

    Look at this .. when banks are threatened, immediately they come together and bring this gun to the head .. but homeowners are affected each man to himself. I am not saying that homeowners have a right to the house or anyhting. All I am saying is for the Government to take notice of people you need a strong movement otherwise you can only expect to be ra6$%%^&& like the savers, retirees and tax-payers.

    When government and the policy makers are all aligned in favour of the same guys responsible fr this mess, it is time for people to come together and give them the boot!!

  3. Pixy Dust

    While I agree with the disappointment in the Obama administration, I have to agree that it should be state-by-state foreclosure approach. The foreclosure tsunami does not effect all states to the same degree. In fact the ground zero states carry the majority of underwater loans. And, of course, all states have different judicial procedures regarding foreclosures — in spite of banking and insurance industry’s attempts to “standardize” across states (which would benefit them primarily at the expense of state residents and governments).

    While most other states have foreclosure problems, a one-size-fits-all approach may not be in their individual best interests. A few states don’t have major foreclosure problems so it might do them more harm than good to impose a moratorium on foreclosures. These are established legal procedures that should remain in the judicial jurisdiction of the individual states.

  4. Dave of Maryland

    Right now there’s a full court press coming from the media: VOTE DEMOCRATIC ! OR ELSE !!!

    The thought of it turns my stomach.

    On primary day last month I wanted to cross lines & vote Republican so I could vote against the incumbents. (This is Republican territory.) When I could not do that, I changed parties on the spot. I’m no longer a Democrat, but I’m a Republican – and proud of it – only to the extent I can cause mayhem in primaries.

    Next month I intend to vote 3rd party – whoever they are. I know full well it’s as futile to vote third party as it was to vote anti-Communist in E. Europe after 1989, but it’s the only vote that makes any sense.

    Panicked legislators have until Election Day to make the White House change its mind. I’m not holding my breath.

    1. johanna in MD

      My strategy (if it can be called that) the last 10+ years has been to not vote at all. But I’ve become so angry at being blamed by my so-called liberal friends for causing Bush to be elected, that I’m ready to do the thing they hate the most, too (vote third-party, particularly one that will hurt the Dems). I personally don’t care who “wins”. The Democrats are Republicans anyway so what does it matter, and then again what’s there to win? An apparatus for chewing up powerless people and enriching a small group of bandits? I say let the Repubs have it if they want it. The only way to be in a true opposition party is to stand outside of it and bellow.

      1. i on the ball patriot

        People who vote are the problem. They validate and legitimize the scam system. When you sit down at a known rigged table you are a sucker and you deserve to lose!

        I hope you sent a letter to your supervisor of elections and opted out proactively.

        Deception is the strongest political force on the planet.

      2. voltaic

        I agree completely. In NY I do have an opportunity outside the two entrenched parties and that’s Working Families. The name is much more conservative than the message and at least it places some decent people on the ballot. Anything but the same old games of destroying the middle class and corporate ass kissing. Corpocracy is not a form of government that should be encouraged, but it certainly is the one we are in/heading for. I can see why the Tea Partiers would rather elect an ex-witch, the homophobic, Social Security destroyers and save the wealthy freaks simply because it seems better than the two corporation parties in some twisted way.

        1. Dameocrat

          The working families party is bogus and redundant. In the past it has endorsed Hillary Clinton, and Chuck Shumer. This year they endorsed Andrew Cuomo, who refused because he didn’t need them, dah! The green party is also on the ballot, it has several good candidates and they don’t cross endorse centrists.

  5. we_are_toast

    This is throwing weight behind the banks?! Huh?
    Plenty of reasons to criticize this administration, but this looks like a cheap shot.

    This looks more like stepping aside and letting the banks wallow in the mud they created.

    1. Chris

      I agree. Maybe what the Obama administration thinks about this isn’t the most important thing. The state AG’s are still going forward with investigations, right? Its not a lost cause yet.

    2. Russ

      Yes. Yves, your cognitive bias is showing.

      How else could one conclude “…Wall Street is calling the shots…” from the obvious self-serving bloviation in the Morning Money quote.

      If Wall Street was calling the shots on this issue they wouldn’t have to stoop to such a transparent spin attempt.

      1. Yves Smith Post author

        First, you aren’t hearing what I am hearing from DC.

        Second, the banks DO call the shots with the Administration. The pushback is coming from some courts and state attorneys general. This is a state v. federal issue at work. The banks and their DC allies (the Administration and aligned Congressmen) are trying to win the PR war to gain the upper hand against the discovery of massive fraud that is being discovered via litigation and has caught the attention of the public.

        I don’t see this contradicting what I said about the power of the banks. I have heard both banking industry people and Congressional staffers say, matter of factly, that Congress will pass a law to save the banks’ bacon. The part the banks forgot about is that this has become a multi-front struggle. Their influence in DC is huge, but may not prove sufficient.

        1. Russ

          The power of the banks over some aspects of the Administration and Congress is unquestionable.

          However, “Obama throws weight behind banks” on this issue rings false to me in light of his pocket veto of the Interstate Recognition of Notarizations Act. Do you believe that was a tactical political maneuver driven by the upcoming elections?

          1. Tao Jonesing

            Yes. It was a political move.

            Fraudclosure was happening before the notarization bill was passed, and it will continue whether or not the notarization law is ultimately enacted into law.

            In any event, from my perspective, all the notarization law would have done is increase the rate of fraudclosure attempts. I don’t think it would have incrased the rate of fraudclosure success, and nobody has even tried to explain how it would.

  6. Omitted Kingdom

    For contracts were written while George Bush was president, um, he missed his jobs creation target every month for 8 years. Why would that be Barack Obama’s problem? I called George W Bush a liar every month for 8 years. Where was everybody else in the FIRE economy? That’s what I thought. You can see today Bush is holed up in his Crawford ranch, not out campaigning for Republican and teabagger candidates because Karl Rove knows he’s poison.

    If Republicans take over Congress in November, what exactly do you think Republicans will do differently?

    1. Doug Terpstra

      A Republican supermajority would bring down an unsustainably corrupt system much faster —a merciful coup de grâce versus a slow, lingering death by torture. Only a significant collapse will permit a transformational reset.

      1. Omitted Kingdom

        Doubt it. When Hank Paulson approached Bush about the bailout, Bush wanted to give the banks all the money in retirement funds (IIRC), until the British were bewildered by it and objected.

        All Republican senators voted with George Bush. Between Barack Obama and the states attorneys general are the state representatives to the US Congress. Put a microphone in front of them, especially if they served while Bush was president, and let us hear what Sarah Palin and Christine O’Donnell have to say about the topic.

        1. Doug Terpstra

          That’s the point. Bush was right in fall ’08, “this sucker’s goin’ down”. All they did was buy time and extend the leveraged fraud and looting, with this admin keeping it aloft longer on more leverageand false hope. Now, put Sarah Palin, Christine O’Donnell, and Rand Paul in office, and without restraints, this casino will fold much faster of its own excess. In theory, there’s less organic damage in that scenario.

          Anyway, I prefer the naked wolf to one wearing wool.

    2. F. Beard

      If Republicans take over Congress in November, what exactly do you think Republicans will do differently? Omitted Kingdom

      That should terrorize any voter. The Democrats are unprincipled but the Repuglicans have the wrong principles (“bankers uber alles”).

      1. Omitted Kingdom

        I see the teabagger move to privatize Medicare, blah blah blah. Golden opportunity. Put ALL of the Gulf Oil spill health care problems on BP’s tab. ALL of them. Set up a card table and folding chair in every emergency room on the Gulf Coast. Exempt people already on Medicare the day before the Gulf Oil spill. Include the first newborn on the day of. The teabaggers either start health care privatization with BP or get called on their bullsh*t.

  7. johanna in MD

    The moral outrage at the deadbeat homeowners falls flat when it’s not met by an at least equal outrage against the parasitic middle-men in this mess (not pointing a finger at anyone here, just a general observation based on comments elsewhere). Ultimately, the value is supposed to flow to the investors (at least that’s my admittedly poor understanding here) — that was the whole point of the mortgage securitization adventure. Or maybe the rhetoric, anyway. What if we just cut out those parasites, prosecute them where it’s relevant, allow them to be sued when it’s relevant according to established laws/practices, and let the investors sort it out with the homeowners. I doubt that this would result in some undeserved windfall for the homeowners in the end, and at least none of the true wealth involved (if there is any really) wouldn’t get sucked into the fraudsters’ void. It wouldn’t surprise me if given the upper hand, the investors wouldn’t agree to some kind of re-financing based on a re-valuation of the these properties rather than foreclose. I would have thought the purpose of those investments was to provide a steady income (and that was the expectation), not that they’d be in the business of buying/selling homes under the worst possible market conditions.

    But I’m seeing in some quarters such an outrage that the homeowner might get anything resembling a “break” that it’s more important to spare the fraudster class, criminal activity notwithstanding, just to stick it to the homeowner. Them poor ole middle-men …

  8. Bill

    The banks and bankers are CLEARLY economic terrorists . No different than the parties shorting the airlines that carried the doom of the Twin Towers . They should be rounded up by Homeland Security and imprisoned without legal defense or recourse. The institution of banking has failed. It is high time to prosecute . Of course the banks are screaming, dark deeds hate the light of day , thats why congress and the senate passed 3038 in the dark (voice vote) . Enough is enough !!! Can we take back our country in November ? If not we NEVER WILL . Prosecute the terrorists – Prosecute the Bankers

  9. Jim Haygood

    ‘An excessively high dollar is the explanation for the simultaneous existence of a sizable current account deficit and excessive unemployment.’ — Tim Duy

    This is the result one would expect from the US dollar being the predominant reserve currency — there’s more global demand for it than there otherwise would be. And, more seriously, the ability to exchange pieces of paper for valuable stuff is an obvious moral hazard which the US has exploited to the max. Why work and produce, when you can effortlessly acquire the necessities of life by printing peach-and-green IOUs on impressively crinkly cotton-rag microfiber paper?

    A bizarre standoff results: even as the dollar’s fundamentals become structurally unsuited for a reserve currency (namely the chronic trade and current account deficits which require a fire hose of external funding), the rest of world attempts to keep the dollar propped so they can keep exporting to what remains the world’s largest reservoir of consumer spending.

    As Tim Duy says, Bretton Woods II is erected on such an anachronistic foundation of shifting quicksand that it is likely to collapse quickly and chaotically.

    If rumors are correct of a $1 trillion QE2 program, then the Federal Reserve will be monetizing nearly the entire cash deficit of the federal government. Certainly this is going to undermine faith in the dollar. But it is also already creating Bubble conditions in Treasuries, as the market front-runs anticipated Fed buying.

    Thus, the chaotic event which releases the wrecking ball on Bretton Woods II could be a Treasury market panic early next year, as prices start to slide from the bond market equivalent of ‘Nasdaq 5000.’ Then it will be noticed that the Federal Reserve has accumulated a vast $3.25 trillion off balance sheet custody account, which could experience liquidity problems during a market panic. If you can’t sell Treasuries in quantity, what do you sell? Dollars! By the truckload!

    QE II, if it happens, will be the first time since John Law’s ill-fated monetary experiment in 1720 France that a government deliberately set out to create a Bubble. Like other historic Bubbles, its destructive force will derive both from near-universal participation (corporates, municipals, junk, and foreign sovereigns all being affected) and from prices being so far out of line with fundamentals, leading to crippling capital losses.

    Banzai Ben Bernanke is a mad pied piper, marching headlong toward a cliff as a vast retinue of lost lemmings (some of them waving colorful ‘Kiss me, I’m an MMTer!’ banners) squeak and titter in his wake. Down on the rocky coast below, surprised tourists will shout, ‘EEK! It’s raining rodents!’

    1. Jeff65


      OT, but I’ve noticed your picking at “MMTers” in a couple of posts. If you think “MMTers” support Ben Bernanke or the efficacy of QE in the slightest way, you have absolutely no idea what you’re talking about.

  10. attempter

    It’s terrorism by most definitions: Threatening destructive acts in order to terrorize the populace for a political goal.

    Isn’t this also treason in what they keep saying is a time of war? (I’ve never understood how attacks against other economies aren’t acts of terrorism and war, and how attacks on your own economy isn’t treason. They clearly are those things.)

    We should certainly treat them accordingly, by either and both measures.

    Needless to say, the political campaign has been all on one side, and extremely aggressive. The feeble pushback against it barely risen to the level of the political thus far. I sure want it to.

    What the people need to do is clear.

    Whereas the banks intentionally destroyed the economy and have stolen trillions of dollars and intend to steal the rest;

    whereas the banks intentionally destroyed millions of real jobs and intend to destroy the rest and relegate us to permanent mass unemployment;

    whereas the banks were never legitimately productive property owners in the first place;

    whereas according even to their own rigged law the banks have abdicated ownership of the land;

    we the people should stay on the land, stay in our homes, but refuse to pay one cent further to these criminal organizations.

  11. Father of Reds

    Some of you that are still harping Bush/Repubs blah blah democrat blah blah are dense as a box of rocks. Open you mind to the fact that fed gov is bogus, both “sides”. You are too stupid to know you are being played like a banjo. Father of Reds

  12. Paul Tioxon

    Yves, the emptiest statement in journalism is describing politicians by the area of specialization they fulfill in the social order, politics. Accusing the president or congress of playing politics or being political is like accusing bankers of playing with money. It is always about politics with Washington, but in whose service are they? Of course, when there might be the slightest advantage to a homeowner, back room Chicago style wheeling and dealing is going on. By that narrative, Obama plays politics as usual, thinking only of votes during the midterm, while a fragile economy holds its breath and waits for the prudent and wise businesspeople to get on with the hard work of being the engine of economic growth.

    Never mind that the banks started the economic crisis, pay no attention to the money given them by society to survive and most of all, forget 20 million unemployed, who couldn’t buy a house if you sent in a nation building army headed by 4 Star General Petreus to assist in their transition back to normalcy. Maybe we should review the economic policies of the Chinese Communist Party for helpful hints on double digit growth. The fact is, that the banks, can only seem to profit to the levels they deem necessary to survive on their terms, requires breaking the law, something that President Bill Clinton was impeached for, lying to the courts. Only pay attention to the failure of Obama to play ball, and thereby jeopardize economic recovery. President Obama is characterized as either destroying the chances of millions of people to get a job or is destroying the chances of real change and reform by being in the vest pocket of the banks.

    I believe that operating the federal bureaucracy is impossible. It is too big to manage. Hammering on it with this site is of some use, especially if you can gain critical mass to influence it along with the others who are pushing in the same direction you are. The illegal foreclosing process is part and parcel of a fraudulent banking system that generated all of our current troubles. This story in and of itself would deserve attention. But because it is demonstrating the end to end corruption, the totalitarian characteristics of institutionalized predatory peonage and the power to nullify the sovereignty of the USA for a special, private and very limited interest, it is a critically important story.

    The anti democratic PR push back is standard operating procedure for the media. It would seem that you are staking out ground that is not supported by almost any regular reporting about business by businesspeople. This crisis demands some kind of response from real sources of self determination of the people, by the people and for the people. I am glad that you are lending yourself to the task.

  13. pebird

    There are two ways to deal with the fraud involved with the financial crisis:

    1) investigate and prosecute

    2) pass laws establishing the fraudulent activities as legal

    We can safely assume which approach Obama plans to use.

  14. Ron

    Here in Calif we have vast tracts of urban housing the 3bd/2b with a back yard which once was productive farming land or interesting rural landscapes. These tract homes are filled with white flight chasing the so called American Dream of owning an over sized poorly constructed home horribly overprice. Calif is overflowing with these homes as is most of the sand states and other sunny area’s that were ripe for over development. The attempts to try and save this expensive poorly thought out housing policy which has been the basis for much of the middle class wealth creation over the past 40 years is a losing cause. Along with these housing tracts are endless shopping malls from very ugly strip malls to super size malls all facing certain death due to declining sales and commercial foreclosure.
    The residential foreclosure crisis is larger then over indebted homeowners rather its the unraveling of the post world war two American suburban built out which is proving to be a costly expensive habit to maintain.

    1. Paul Tioxon

      Ron, you are providing the color commentary to the one dimensional point of view that investors and tax payers are going to get hurt by banks actually following the law during the foreclosure process. Especially in the Inland Empire region of CA, as white folks get out of New Hispaniola, aka LA and the desert destinations doomed to failure due to lack of water for being developed in the middle of a desert. They would be Las Vegas and Phoenix and the lesser population centers that not only are bad financial bets, but are simply not going to exist at all in less than 100 years. Gotta have water folks, even more than capital, even more than labor. But why point out the multiple variables that guarantee failure, in addition to the doomed capitalist in name only financial system. Wall St thinks it can buy its way out of anything. Well, the planet is definitely not on the take. Peak oil, exceeding the environmental carrying capacity for said population (humans in cities in deserts)and the competition for the fundamental elemental ores for industrial production, will drive the economic consequences, not Wall St. The Fall of the Berlin Wall due to economic inadequacy is being replicated in the American Containment Social System. Our Imperial Overreach is stressing to the breaking point, with no real attempt to get at fundamental structural reform. Obama is making weak moves in that direction and strong moves symbolically in that direction, but reaction is anything but informed.

  15. Hans Lindenbaum

    I wonder why nobody says it outright : There is no such thing as ” Free Market ” , just as there never was , and is , ” Real Democracy ” ( Also in Athens there was not a real democracy ! ) You should have read Toffler ( the third wave ) It is just a bullying around by the US so its “Industry” can buy up everything in site and and indebt others ( factually the whole world-save China)to it , but at the same time moves it Industry to that same China , and now complains China is not playing by the rules !

  16. bokun59

    Sigh, people like ‘eh’ drive me nuts: a mortgage is a contract, a BUSINESS deal- not a MORAL deal. Both parties have rights, duties, and legal restrictions/obligations. If one side fails the other can invoke remedies. When invoking said remedies, the contract and/or the law must be adhered to by the party invoking its remedies. I use ‘contract and/or law’ because there are times when a clause in a contract violates a law and/or public policy and is thus void/voidable.

    And again I will state that this affects anyone who has his/her note securitized. I would dare to remark that the notes were not transferred properly; thus creating a myriad of problems.

    In any event, anyone who is being foreclosed on or has been foreclosed on should invoke his/her right to have the note produced. And anyone who has had his/her note securitized should find out who owns the note.

  17. Jason Rines

    Lots of good comments on this series at the issue and detail level. Bigger picture, I think of a couple of facts and what is likely to happen with economies:

    1) Evolving into 4D toward assymetric information. Bigger supply chain participation,
    rTios but liwer net margin

  18. Hugh

    Seems like some of us were warning about this legal meltdown for a while. The potential for it was inherent in the bubble, but fraud became a big issue pushed by people like Bill Black and Yves around the bank stress tests in early 2009. Then again a year or more ago as people like Cynthia Kouril brought it up with regard to MERS.

    Like so much of the economic disasters we are experiencing, this one was eminently predictable, and predicted. We have been saying since 2008 that the banks are insolvent and run by crooks. It is what Bill Black calls a criminogenic environment. If the banks came clean on what they were really worth, they would be in bankruptcy and their directors in jail. Their response was to use their paid minions in government to bail them out and sanction them cooking their books. I think this is tied to current developments. You see the government through changing the FASB rules told them it was OK to publicly lie, i.e. commit perjury and fraud, about the state of their balance sheets. It told the banksters we will not investigate you.

    In such a permissive atmosphere, why should the banks not think they could get away with continuing and extending these frauds and perjuries through the foreclosure process? And why would they not think that government would be there for them again? Let’s face it government was there for them again. HR 3808 would never have gotten passed without the tacit approval and complicit silence of every member of Congress. Nor would Obama officials and advisers be scurrying around now downplaying some of the most massive frauds in the history of the planet, qualifying them as paperwork problems, and making it sound like throwing people out of their homes is a good thing.

  19. Jason Rines

    2) The Golden Calf and centralization effect. Those with the gold will be dragged kicking and screaming into the new paradigm but not simply because of what alternative news does in using a stick to oppose corruption but there own desire for renewed growth. Srry for mispelling. Current tech for digital news not made well for mobile devices.

  20. Armand Eddon

    Bank-hate is warping perspective and judgment, to the great detriment of this great blog.

    I’m missing the old Naked Capitalism – the one that provided so much information and insight, prior to its present obsession with ‘foreclosuregate,’ which ultimately means no more than documentation reviews need to be beefed up. It’s not like 99% of the properties really shouldn’t be foreclosed on. It’s just blind bank-hate at the expense of more meaningful info/insight.

    1. F. Beard

      It’s just blind bank-hate at the expense of more meaningful info/insight. Armand Eddon

      Yea, what’s to hate about a government backed counterfeiting cartel that recurrently wrecks the economy?

      The hatred isn’t blind. It is based on everything from the Ten Commandments, history, the GD, the deaths of millions in WWII alone and our current mess.

    2. Dave of Maryland

      It may be that 99% of properties do not have a clear title.

      Debt is the short-term problem. Title is the major issue.

    3. Give Sympathize Control

      “It’s not like 99% of the properties really shouldn’t be foreclosed on.”

      And it’s not like 99% of the banks shouldn’t be in FDIC receivership.

      Look, the banks and the mortgage servicers forged documents. They created paperwork out of thin air in order to convince the courts they had the legal right to foreclose on properties. Maybe they really did have the right to foreclose or maybe they didn’t. Maybe the paperwork is just misfiled and a more diligent search will produce it or maybe it’s truly destroyed. But forging documents is not the proper solution, and it should not be tolerated. If the legal system consents to that and/or if legislation is passed to make that legal, then no property in the USA is safe. What would stop them from creating whatever documents they need to “prove” they own or are owed money for any property, even ones that do not have mortgages? Their innate sense of fair play? Their concern for their fellow man? Their unfailing ability to self-regulate?

      1. Dave of Maryland

        Exactly. Why am I being a good egg & paying my mortgage? If the servicer can’t give me a clean title at the end of it, then I’m paying the wrong guys.

        In business if you want something done, you grab ’em by the short hairs. Titles need to be fixed. It won’t be done unless it’s forced, which may mean an extended “mortgage holiday” until the servicers come up with the goods. They won’t do that unless they’re forced, and if they can’t, then they’re stealing our money.

        This is A-B-C of simple business. You pay the guy who has the note. What we have now is 3-card monte for suckers.

  21. Jim

    As this crisis(financial, economic, political and cultural) continues to deepen what kind of politics is the way out?

    Is an analysis of the structure of power which sees us as simply exploited, maniupulated or repressed subjects struggling to free ourselves from the collusive actions of both the market and state, adequate to the task?

    If we ourselves–our own knowledge, desires and goals–are
    also produced in this specific sea of power, how do we move to a different society?

    Does there still exist a realm of freedom which will allow us to change not only our country but ourselves?

    1. F. Beard

      If we ourselves–our own knowledge, desires and goals–are
      also produced in this specific sea of power, how do we move to a different society?

      Does there still exist a realm of freedom which will allow us to change not only our country but ourselves? Jim

      Proverbs 8

      If we had listened to the Old Testament (Deuteronomy 23:19-20) we would not be in this mess. Even so, debt-forgiveness, (Deuteronomy 15, Leviticus 25) could get US out of the current mess only let’s bailout the entire population instead since savers were cheated too.

  22. John Ryskamp

    Yves, you still don’t get what is going on here. Everything from HAMP denials to robosigning is designed to do one thing and one thing only:


    It has nothing to do with trying to get some return on a bad debt. Why not? Because, as Reggie Middleton points out, the U.S. has already discounted mortgage debt to ZERO. The return/chargeoffs are, quite simply, 0.

    There is no financial incentive to foreclose. However, there is every incentive to hide bad debt on bank books.

    Wait til you learn that U.S. officials ordered both HAMP denials and robosigning. Then you’ll see what is really going on.

    The Administration is not simply “pro-bank.” That is naive, and let’s them off the hook. They are co-conspirators.

    And by the way, this extends to commercial real estate too. MERS was right in there, a criminal participant acting on orders of the U.S. government to do one thing and one thing only:


    1. Still Above Water

      “There is no financial incentive to foreclose.”

      As Yves has pointed out numerous times, the mortgage servicers _do_ have financial incentive to foreclose, in the form of higher fees. It doesn’t matter that they’re not the mortgagee; they initiate foreclosure anyway because it’s to their benefit.

  23. Edwardo

    Attempter and Ryskamp are on target.

    To wit:

    “The Administration is not simply “pro-bank.” That is naive, and let’s them off the hook. They are co-conspirators.”


    Indeed they are, just as The Administration and BP were/are co-conspirators. Both of those entities, the banks and The Executive, are, without recourse to any tortured reasoning, enemies of the state, but, the state, which is comprised of the citizenry, not government, not quasi government institutions, and certainly not private corporations, or the Federal Legislature, or the SCOTUS, need to be junked because they riddled with corruption. That process could begin tomorrow if the citizenry, in even modest numbers, mobilized to do so.

  24. Chris

    Too bad whomever recorded Whalen’s talk didn’t know how to adjust the volume of the recording.

    We had a room full of people who were interested in hearing it walk out in disgust because they just couldn’t.
    A metaphor for the AEI?

  25. recaldo

    banks just need to wait a month. if the republicans control congress they will void these foreclosure mistakes.

    1. Lyle

      That will never happen as it has hardly happened in the history of the US. Recall Shays rebellion was about the evil Ma court system and debtors, it got put down. There was the Kentucky Old Court New Court issue where the debtors tried to change the system. You had the Yazoo Lands controversy. The various attempts to throttle the SP in Ca, etc etc etc. The law has always been for the elite and always will be all a revolution does is to replace one elite with another that may not be as good.
      Even Rhode Island refused to ratify the Constitution because it was seen as to creditor friendly until Washington gave them an Ultimatum. So this sort of issue has happened a lot in the past and will happen in the future, the debtors versus the creditors, and the creditors win in the end.

  26. Gary Anderson

    Well, once the courts lean in favor of the unrepresented, and good judges should always have the interests of the unrepresented at heart, then maybe it will be out of the President’s hands.

    As an aside, Yves, but on the same subject, Ellen Brown wrote this at SA:

    If you have time, would you look at the comment section of that article and address the claims of a bank advocate or lobbyist or whatever he is, named Pier0188? He makes the case that there is a way to reconstruct these IOU’s but I think he is blowing smoke.

  27. Cthulhu

    Just one thought: I do not think that Obama has a choice regarding the refusal to endorse a moratorium on foreclosures.

    A mortgage (at least in most states) gives its holder a single right to collect on a debt — namely, the right to foreclose. If the mortgage holder cannot foreclose, then the debt is uncollectable (ie, worthless).

    As I understand the accounting rules, an asset is supposed to be valued according to its fair market value. The fair market value of a mortgage note which cannot be foreclosed upon is zero. Thus, if Obama issued a moratoriam on foreclosures, would he, in effect, be stating that the mortgage assets of various banks would be worthless? Wouldn’t the effect of such a federal moratorium be to simply at a stroke render these various banks insolvent as a matter of law?

    Assuming that my analysis is correct, then Obama does not have a choice — unless he wants to declare the banks insolvent, he must resist a federal moratorium on foreclosure. Of course, the state-by-state moratorium will amount to the same thing — but it looks to me that many banks appear to be taking the position that they are “voluntarily” participating in the moratorium — which means, technically, that the underlying mortgages still have value (because the banks have not given up on their right to foreclose, they are just not moving forward with it at the present time).

    Is my analysis wrong?

    1. jeffrey gordong

      anyone stop to consider another player in this drama that has yet to see the bag of doodoo show up at their front door?

      The investors and servicers typically have PMI and SMI mortgage insurance coverage to offset losses they take on their loans. Payouts on these policies dont occur until the properties have been sold and the final losses determined.

      Any changes made in each individual mortgage require the prior written approval of the MI company or void the coverage.

      Just another reason to not do modifications.

      but the bigger question is, are any of the MI companies strong enough to payout claims when 20+% of the portfolio is repo’d and nets 40-60% of the loan value?

      The Feds are going to end up owning all the large banks, and their servicing companies, along with the title and MI companies before this is done, let alone the largest holder of REO’s in the world.

  28. dladow

    What is the end game of the massive defaults on securitized residential mortgages, and how long will it take to play out? It appears that a substantial number of securitized residential loans, perhaps as much as 20%, are bad, meaning that the borrower has (or shortly will) stop making payments. If flaws in the lending, securitization or foreclosure process nullify the security, the lender is left with an unsecured loan, and the prospects for recovery are near zero. But even if the security interest is upheld, and through foreclosure the lender succeeds to ownership of the home in satisfaction of the obligation, the lender is left with an illiquid, non-income producing asset that costs money to own. The scale of the foreclosures insures that it will be years before this REO inventory can be liquidated at any price.

    One would think that the specter of this massive tsunami of non-income producing, expensive to hold, and impossible to sell assets descending on the lender would provide sufficient incentive to mitigate the losses as much as possible through refinancing or loan modification before foreclosing. By all accounts, the opposite seems to be happening. The servicers, through their nominees such as MERS, have been accelerating the pace of foreclosures while refusing to engage in meaningful mitigation. The bondholders, who own these securities and are the ultimate beneficiaries of whatever is recovered, seem to be strangely silent. MERS I can understand — it is a mere service provider and has no skin in the game. One of its jobs is to seize the collateral on defaulted loans, and that is what it is doing, as efficiently and quickly as possible. But where do the servicers, the TBTF banks, stand in all this? What is their skin in the game? Are they responsible for managing and maintaining the REO pool of houses until they are liquidated? If so, is Mr. Whalen correct that this will destroy their cash flow in three to six months? When must these massive losses be recognized — at the foreclosure, or only upon ultimate sale of the REO house? And I suppose the biggest question is will the U.S. taxpayer indemnify the TBTF banks and bondholders against these massive losses?

  29. Texas Reader

    dladow – remember that when we speak of “bondholders” we are lumping together groups with different incentives. the owners of the highest rated bonds (who accepted lower interest rates on their bonds) are most likely to get paid so they want the foreclosure process to proceed quickly. The holders of the lowest rated bonds have known from day one that their higher interest rate on their bonds was a result of those bonds being the “first loss” ones – when payments from all the homeowners are insufficient to pay all the bondpayments, the holders of the lowest rated bonds get nothing. So it’s clear that different bondholders have different motivations. I don’t have any servicing experience (and haven’t read the relevant portions of any of the pooling and servicing agreements) so I don’t know how the servicers handle this, but I’m guessing that the senior noteholders’ goals prevail in servicing defaulted loans.

    I don’t think the courts and/or congress are going to allow all these REMICS (the trusts that were created to issue the bonds and hold the mortgages as security)to be unwound. Congress may very well pass a law (AFTER) the election to override trust and tax law so that clean up can get done to get all those documents properly transferred into those REMICS/trusts. I think they’ll also do something to force courts to accept MERS in some role related to foreclosures.

  30. Texas Reader

    Yes, the servicers have to manage and sell off the foreclosed houses. I would guess that the servicers hire companies that will both manage/maintain AND market these houses for them. These houses are selling – check out Hudson & Marshall’s website. They are one of the companies that auction off homes. Some of the buyers are investors who plan to rent the homes out until prices increase, and some are individuals looking for a good price on a house.

    1. Gary Anderson

      Then clearly people need to boycott housing if the law is overwritten by a what amounts to legislative crime. If you think banks weren’t trusted before, then you have seen nothing. I would walk away just to protest any tampering like that. These banks failed to transfer the IOU because they were hiding something. The need to be criminally prosecuted. They hid the real knowledge of how bad these loans were to the investors in the CDO’s.

      We need to know that the big banks and government are essentially a criminal enterprise against mainstreet and against investors worldwide.

    2. Gary Anderson

      One more thing, the good judges, who seek to protect the unrepresented, as is the responsibility of good judges, should refuse to allow any foreclosures to proceed through their courts if any law like you are talking about passes.

  31. BAJ

    I don’t think Wall Street lawyers are stupid. How is it that they failed to get the notes into the trust at the beginning? Knowing that if they then sold the MBS’s without the notes, they would be liable? Can someone enlighten me?

    1. Gary Anderson

      BAJ, Denninger says it was because had the notes been delevered, the investors would have seen how bad the loans were and would have stopped purchasing these investments much sooner, nipping the bubble in the bud.

  32. Jmd

    Wall Street lawyers are not always stupid but they are lemming-like. For example, a firm like A&O/Sidley/Weil will tell Goldman/Lehman/etc. that it’s not necessary for the trust to hold the note, that the path to foreclosure can immediately be created on need. That is what happened in thousands of cases. Unfortunately, the servicers were manned by your usual array of [r.e.] bull-market geniuses who neglected to collect all of the necessary instruments to ‘recreate’ the ownership trail and show proof that the note exists to a court in the event of a default. They also relied on the courts being on the side of the lenders in the event of any ‘uncertainty’ with respect to the paper trail. Furthermore, I’m not sure what you mean about the lawyers being liable…malpractice maybe? They would be sure to point out that all the lemmings were doing the same thing.

  33. Karen1p

    Mr. President:
    Just want to tell you HOUSING MARKET IS DEAD. Period. Done. Over.

    With what is being uncovered, you can expect that this real estate industry will be dead for the next decade. With what is coming out, that the loans didn’t even made it to the MBS before the cut-off date, we can now add SECURITIES FRAUD to the list of frauds the banks have committed. Why don’t you line up the execs and start measuring them for their wardrobe for the next 100 years… a nice shade of orange.

  34. 10 commandments

    I am so glad you said it. The issue is the rule of law not what may or may not be prudent at the moment in the opinion of someone with little track record of economic successes. I believe the law, at least in my state is that if a lender commits fraud then they lose their lender rights, for example the right to foreclose. This draconian penalty is a protection we have from fraud committed by banks who are far too large to fight with.
    Lawyers who knowing brought false documents into court should lose their licenses as the rules in many states prescribe.
    Banks that knowingly produced false documents should lose their charters.
    The issue of bearing false witness is Biblical violating far more basic laws than ours.

  35. Frank H

    Ok, let’s take it down a notch or two. All you hyper bloggers – go get a cold water from the fridge. I’m not here to defend delinquent mortgagors, banks, servicers, mortgage investors, MERS, US Congress or Obama spokespersons. Here are cold facts: many mortgagors are delinquent on their mortgage payments and could face foreclosure, many mortgagees have not staffed up to handle the huge increase in foreclosures (they have taken shortcuts – outsourcing, etc., they are back office dweebs with zero political astutes and have been totally blind-sided by the media firestorm on this issue.)

    Ok, so let’s extract a pound of flesh from the mortgagees/servicers – make them pay for their sloppiness. It is good and fair punishment. They should follow the regs, the law, exactly as it says.

    Please NC, state clearly, what exactly is the “fraud” you allege that has been perpetrated by mortgagees on mortgagors? For example, are you suggesting that mortgagors who have been making their regular monthly mortgage payments per the contract are being illegaly foreclosed upon? Are you suggesting that delinquent mortgagors are being hit with outrageous “piling on” fees by mortgagees/servicers? Which is it?

    It is easy to fan the flames of this populist issue by being imprecise. It is also irresponsible.

    1. bokun59

      Fraud is collecting a debt you have no right to collect. Please note the following:

      1- throughout the history of the invention of who owns things, real property has been treated specially; it has had a sacrosanct spot in the annals of ownership; for example the Statue of Frauds mandates that all contracts involving real property be in writing; Registry of Deeds were created in all counties in the land in order to process this necessity of writing and as a means of making sure that real property was handled properly- in writing; there are countless other examples;

      2- adherence to contract law and the rule of contract is vital to the free flow of property (real and personal) in our society; the creation of the Uniform Commercial Code is an example of the recognition that contracts need be adhered to and executed properly;

      3- a mortgage is a real contract about real property (yes, I know obvious, but needs stating) and the reason mortgage contracts are so long and contain so many clauses is to specify the rights of all parties under all existing law; it binds BOTH parties- the lender and the lendee;

      4- in order to ensure that only the true holder of the note can kick a person off their real property, a paper trail is specified and required; everyone needs to know who owns the debt so that some other entity cannot claim ownership of the debt;

      5- when the ownership trail of the true holder of the note is broken, chaos ensues because ONLY the holder of the note can exercise his/her foreclosure rights; so if no one know who owns the note, NO ONE has the legal right to foreclose to re-claim the real property

      6- THAT is the true problem here; if these notes are not done properly or lost or not transferred properly vis-a-vis NY law (I use NY laws because most of the trusts wherein the notes were to be allegedly transferred stated NY law governs), then poof- the right to re-claim is- well, you can figure out what that means….

      7- it may seem ‘unfair’ that the banks lose the right to foreclose when the mortgagor cannot/does not pay but that is the risk inherent in creating a contract; you have to play by the rules or really, the meaning of contract is gone-poof… ; who would make a contract if only one party had to play by the rules? If I screw up and don’t pay my mortgage or something happens, the banks will foreclose. But if the banks do not follow the law/rules and cannot foreclose- whose fault is that?

      A final note is that it is my guess that unless ones mortgage stayed with the group that made the loan, the transfer of the note was never done properly and any foreclosure done was illegal. It amazes me that any title company would certify title on a recently foreclosed property.

      That means even if you are current on your mortgage there can be problems with the title due to the mistakes made in transferring the note. And you may be paying to someone who doesn’t own the note. I believe any one who had a mortgage taken out this century should discover who the note holder is- or purports to be.

      There is no way to fix this without abrogating millions of contracts.

  36. Logician

    Too bad to see Obama’s capitulation, but I can’t say it’s a surprise. This is very much in line with his capitulation to the right wing on the stimulus, to the banks on the bonuses, and to the insurance lobby on the health care issue. You’d have thought he’d have studied Jimmy Carter’s mistakes, but apparently not.

  37. Jennifer Hill

    Amazing that nothing is happening except more PR by the Govt and the Banks. What most of the upper middle class and upper class don’t get is that most folks losing their homes are not just moving to someplace cheaper. They are likely to be losing their entire lives. Most working poor and lower middle class folks are losing their enfranchisement to the mainstream because they have always been precariously hanging on – and until the jobs crisis is fixed we will continue to lose homes, services, quality of life in the hard hit areas. If 3.6 million Americans can fall into poverty in one year and one in seven children live in poverty then there is a problem. We have institutionalized poverty and the banks are attacking even the few resources of the poor through payday lending and other predatory business that they own.
    Last week I was celebrating with friends from GRO Grassroots Organizing. We do leadership and advocacy empowerment for poor and low income folks. People are going without health care and dental care – one members church is supporting her cancer treatments at the mayo clinic – but why should the church pay for that when everyone should have access to a mayo clinic?
    These legal issues are a symptom of the moralization of the accumulation of wealth. After all that is our highest value in this society. You are considered a more valuable human being if you are interested in and able to accumulate huge wealth. We tell stories all the time of how great Bill Gates is but what about my friend Robin who helps people all day everyday? Who goes to the welfare office with the single mom? Who helps her if her child is abused.
    Believe me if any of these folks break a law they get the book thrown at them. Why are so many women in prison? Economic crimes – they steal to live. But we are still too scared of the banks to act. This is a shameful disgusting situation – what can we do?

Comments are closed.