MSM Distancing Itself From Bank Party Line on Foreclosure Crisis

We’ll see next week whether two articles, one in the Wall Street Journal, the other in the New York Times, are a sign of a sea change in the media posture towards the banking industry’s spin efforts, at least as far as the securitization mess is concerned. Let’s face it, the banks have lied so often, so badly, that journalists might finally be prepared to take their remarks with a fistful of salt.

Or these articles may merely be a weekend outburst of “objectivity” which will be beaten back when the financial services industry flack crank up their efforts next week.

The most interesting change in posture was at the Wall Street Journal, which heretofore has been staunchly falling in with the industry party line. Apparently two days of battering of bank stock prices have persuaded the Journal’s writers that the critics’ case might have some validity. The article, “Mortgage Damage Spreads” focuses clearly on the main issue, as its subtitle telegraphs: “Big Bank Stocks Hit Again as Modern Finance Collides With the Legal System.”

Now of course, the Journal is not yet ready to point out what ought to be the logical conclusion: if you compromise legal processes to bail out a miscreant industry, you’ve made a bargain with the Devil. Who will ever trust contracts in the US if a powerful enough party can violate them in a wanton, widespread manner, and not be held to account? And it also tilts the story more in favor of the “deadbeat borrower” meme than is warranted. But given the Journal’s track record on this story, this is a meaningful change in posture:

In essence, fast-paced modern finance is colliding with the much slower machinery of the U.S. legal system. While finance aims for efficiency and maximized profits, the courts demand due process. And that’s becoming a growing issue as lenders come under attack for taking short cuts to oust homeowners who haven’t mailed in a mortgage check for months…..

Banks argue that these problems will be repaired swiftly, and they’ll soon be running the foreclosure machinery at full speed again. But analysts say the problems could expand into a legal crisis if banks can’t prove that they are following standard property-law procedures…

Industry executives note that few, if any, borrowers in the foreclosure process dispute the fact that they’re not paying their mortgages. “We’re not evicting people who deserve to stay in their house,” James Dimon, J.P. Morgan chief executive, told analysts Wednesday.

But the banks’ “reassurance is not reassuring,” says Susan Wachter, a professor of real estate at the University of Pennsylvania’s Wharton School, because it doesn’t deal with how easily they can prove ownership of the underlying mortgages…

There are two different problems. The first resulted after lawyers for troubled borrowers discovered that banks were using “robo-signers,” or back-office employees who approved hundreds of foreclosure documents daily without reviewing them, in states where repossessions must be approved in court.

Banks had no choice but to suspend foreclosures in those states because submitting false witness testimony meant they hadn’t properly proved ownership of the loans in foreclosure.

The second, and perhaps thornier, issue is that banks could have trouble proving they have standing to foreclose as they go back to correct errors…

“This is back-office work. This is not all going to resolve itself immediately, and we’re going to have to be patient,” says Richard Dorfman of the Securities Industry and Financial Markets Association’s securitization group.

Real-estate law requires the physical transfer of paperwork whenever mortgages trade hands, and analysts are raising questions about how often that happened during the housing boom. One concern is that banks may have lost, or didn’t ever have, mortgage certificates. If that happened, banks will have to pause foreclosures for months as they track down certificates and refile paperwork…

Under a far gloomier scenario, the problems created by using robo-signers may be irrelevant if, instead of being lost, mortgage documents weren’t ever properly transferred during each step of the securitization process, says Adam Levitin, a professor of law at Georgetown University. If that happens, “the whole system comes to a halt,” he says. Investors could argue in court that they never owned the mortgages backing their money-losing securities.

Yves here. I believe this is the first time a major media outlet has discussed the issue of the failure to convey notes (the borrower’s IOU) through the conveyance chain (usually four parties in total, although it can be more) as described in the contract governing these deals, the pooling and servicing agreement.

The Times has a completely different sort of account, with a headline that is remarkably blunt: “Avoid Foreclosure Market Until the Dust Settles.” This is the sort of article that gives industry lobbyists nightmares. And with good reason. It contains a horror story that is enough to scare lots of people who are thinking of buying properties out of foreclosure.

Just as the account of a man who had his house foreclosed upon when he has no mortgage persuade a lot of people that there could be real problems with foreclosures, this one illustrates how title has become a mess.

Todd Phelps and Paul Whitehead bought at a foreclosure auction. It turns out the lender who had seized the house was the second mortgage-holder; unbeknownst to them, the property had a large first mortgage outstanding, which meant it was now their obligation.

The buyers had asked their broker to check the records to make sure the title was clear; he appears not to have done so. The auction company would not refund their payment.

But the really nasty bit here is…both loans on the house were from the same bank, Wachovia, now part of Wells Fargo. The Times story does not draw out the implication: first, that the bank foreclosed on a second, rather than a first (is that a weird way to provide a data point to justify not writing all seconds down to zero? And the fact that the buyers were saddled with the first says, in effect, that Wells defrauded the first mortgage holders, presuming, as is likely, that the first mortgage was part of a securitization, as opposed to on Wells’ books. The proceeds of the foreclosure sale should have gone to the first lien holder, not the second.

The hapless buyers did get out whole; the inquiries of the reporter led Wells to reverse the deal. But anyone in that situation who didn’t get a big media outlet shining a bright light on the transaction would have been stuck. Caveat emptor indeed.

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  1. Scorpio69er

    I’m wondering what is going to stop anyone from squatting in an empty McMansion where there is no clear title? Who is going to be able, legally, to kick them out?

    1. F. Beard

      Should those McMansions be allowed to rot with no one in them?

      I rent but will consider house sitting a McMansion for a large fee.

    2. ella

      The answer to the squatter issue depends on the jurisdiction where the squatting occurs. In some jurisdictions, you will frequently see news stories where the squatters are evicted, arrested, and faced with criminal charges, such as theft, criminal trespass, or burglary.

      Locally, many REO or foreclosure properties are posted with no trespassing notices.

      1. Scorpio69er

        re: “many REO or foreclosure properties are posted with no trespassing notices”

        That presumes that there is clear title, as these notices are posted by the supposed legal “owner”, a.k.a. the bank. If the bank does not in fact own them, they have no legal standing to either foreclose, as we are now seeing, or evict anyone.

  2. Eric

    Yves, just curious about a potential development. Leave aside those that have been pulled into foreclosure based on what is effectively perjury. Now consider the rest of mortgage borrowers whose loans were handled badly in securitization, but agree that they do have a debt and agree that they entered into a contract giving the mortgage holder the rights of foreclosure in the event of default on the note, provided that the mortgage holder holds the note. Are these borrowers harmed if someone – or 50 someones – were to find a magic wand and reconnect the note and mortgage in the trust without touching all the intermediary bases? I just don’t see where the harm comes in reconnecting the notes since it certainly appears to be the result that all parties intended. Criminal prosecution for fraudulent foreclosures, but for the rest an urgent effort to get the notes in the right hands as soon as possible. And if that means accepting electronic versions of the notes, well that makes a heck of a lot of sense compared with throwing hundreds of billions of more unsecured debt into the housing market at this time.

    1. ella

      Sanctity of contract for the bank but not for anyone else?

      Contract law as well as trust law requires certain legal process to protect the rights of the parties. If the notes/mortgages were not properly transferred into the trust, then the securization thereof was flawed. The flawed securities were sold to investors nationally and internationally. The investors bought the securities on the premise that they were valid, if they were flawed and failed to comply with real property law, trust law and the security agreements then they have little value. If they have little value then the investors did not get the “benefit of the bargain”. In others words did investors spend their money buying “snake oil”?

      The reason that America was a safe place for investment was because of our laws and regulations. If we no longer abide by our law, who will invest? Why should they invest? Who can you trust?

      1. fresno dan

        I think your exactly right.
        The second part is that it appears the bank knowingly (or more accurately, purposefully chose not to know) about the creditworthiness of the buyers, the integrity of the mortgage originators, the credit raters (either deceiving them or gaming them), assessors, etcetera, in the process of buying and selling houses.
        The big banks caused the problem – they should take the loses, go bankrupt, and we can have more prudent and honest bankers. They are out their – its just that their is this bizarre thinking that we have to save the stupidest and most venal bankers.

  3. Pwelder


    “The United States Treasury Has Been Brilliant”

    That’s the headline on an FT link today to an interview with Bruce Berkowitz of Fairholme Capital. Mr. Berkowitz, who says he’s a large holder of AIG and other financial majors, is full of praise for the maturity, professionalism, and all-around good sense shown by the government in its handling of the crisis.

    If you’re keeping a “You Can’t Make This Stuff Up” file, you need this link for your collection:

  4. Moebius

    Maybe Jamie Dimon needs to be asked if he thinks he deserves due process when his freedom is on the line for those SarBox attestations he made in the 10K’s.

  5. Kevin de Bruxelles

    There is a very good chance the foreclosure scandal will soon be turning a lot of losing congresspeople into huge winners in the private sector.

    I’ve been puzzled by the timing of the scandal in comparison to the 2008 version. Back then the problem and solution was agreed by both parties BEFORE the election. Here we have the scandal breaking but it is clear that the solution will have to wait until after the election. This is a throw-the-bums-out election cycle and paradoxically, the more bums that get thrown out, the more “free” votes the next bailout will get during the lame duck sessions that are coming up.

    In the days after the election, all those “losing” congresspeople will be busy touching up their CV’s. And what better achievement to put at the top of their resumes than a big fat YES vote on TRAP 2 or whatever they end up calling the bill. These losers will be more than happy to help form a majority with their colleagues in safe seats to save the bankers. It’s not like even in normal times our representatives have much of a problem plunging a dagger into the backs of the people with amazing regularity. But this time, the only people these “deadbeat” congresspeople will have to explain their votes to will be the hiring committees of big banks and lobbying firms.

    So instead of fruitlessly sending letters and phone calls to these deadbeat congresspeople, the best way for underwater Americans to express dissatisfaction will be to stop paying their mortgages, as many people have been pointing out lately. After all if the French people can get out in force to shut down gasoline refineries to attempt to kill a hike in retirement age, then Americans can at least get up the nerve to not send out that next mortgage payment in order to try to save the rule of law in the US.

  6. Mongoose

    Well, your coverage on this issue, not to mention the commentators thus far on this post, shows what the dance is: Moral turpitude on the part of deadbeats–borrowers gaming the system.

    Seriously, do you contend that the borrowers in these cases do not deserve to have foreclosure actions taken against them? Did they fail to make payments or not? Is the all of this on the bank’s side to be considered sinister or criminal if it is in the main these are merely procedural issues? Do the cases where there was dishonorable intent somehow overshadow the cases where it was merely prodedural, and if so, why?

    What about the fact that MERS was made a requirement by Fannie and Freddie? Why do the filling procedures of 23 states outweigh those of the remaining States? How is this all not ultimately caused by leftist intrusion into the real estate market aimed at redistribution goals, crashing the system, servicing political cronies and other clients, and enabling real and quasi governmental institutions, bureaucrats and functionaries to go about feathering their own nests at the taxpayers expense? How is it not to be laid at the feet of the dishonest, dishonorable and toxic mix of Marxism, fascism and opportunism that modern “liberalism” has descended to under the immortal machinations of the Democrat Party and the support their equal immoral RINO enablers across the aisle? Can you honestly say that there is no chance that the Democrats did not allow this all to percolate so that they might crash the capitalist system they so loathe.

    Seems to me tha there is more fire than light hereabouts. Seems to me that our leftist politiciaian are using this for their own ideological and electioneering aims. Seems to me that our native communists are using this to indict the whole notion of private property, capiltaism and individual repsonisbility. Seems to me our author here is up on his usual leftist hobby horse and personal neurosis.

    Are we to have a capitalism, propertty right, honorablenss and rule of law, or are we to allow left wing agendas to crash the system once and for all? If the later, what then for us?

    It is absurd to hear leftist here “defend” the property rights of borrowers and abuses of capitalism when they actually destest such things and cheer on their political masters as those same master go about destroy in fundamental basis of the system and plundering the wealth of the Middle Classes. Again, I put it to you: do these people deserve to have foreclosures brought against them in the first place? Did they somehow make payments and this fact has eluded authorities or not?

    Some poeple here need to stop confusing the nation, its economic life and its actors with neurotic inner psycho dramas. The “Bankers” are not your Daddy, and in any event, Daddy was probably right in the first place. Neither they or he was “evil”, and even if they were this does not allow others to engage in immorality, dishonor, the politics of envy or lawlessness.

    This all fundamentally is about people not paying their mortgages, and I challenge you to prove otherwise.

    1. Kevin de Bruxelles

      I can only speak for myself but I say hell yes people who cannot pay their mortgages should get the boot, just like renters who can’t make that rent check get treated. I would qualify this though that these deadbeats should get this boot within the framework of the law which was and is well known to all players. So we see that the reason these people are not getting the boot is not because of some bleeding hearts want to protect them; it is because the bankers themselves fucked up so badly that they are not able to meet the legal requirements to actually get these folks booted.

      So the question really is do the ends justify the means?

      Does the desired end of giving these deadbeats the boot really justify the only means available to reach that goal so far in the current situation, which is to abandon the rule of law?

      1. Anonymous Jones

        [This comment is not really in response to KdB, but here seemed as good a place as any to put it…]

        It is so difficult to talk to people who are *so sure* they know the law but clearly don’t know anything about the law.

        First of all, most of the trouble here is whether the note is secured or unsecured. It is not a question of whether the borrower owes the money. It is a question of whether foreclosure is allowed or whether there has to be judicial enforcement of an unsecured debt. I’m sorry, but if you run up other unsecured debt like a credit card, the bank just can’t post a notice on your door and take your house (or any other assets). It has to go through a process of securing a judgment on the unsecured debt and then try to attach your assets or garnish your wages to enforce the judgment.

        It is preposterous to claim that the banks should be able to treat this debt as secured if it did not comply with property law rules. Do you seriously suggest that if I lent $500k to my friend so that he could buy a house but I forgot to record the deed of trust (or recorded it in an improper way), I should still be able to foreclose? That’s daft (and unfair to all the other creditors of my friend).

        It is similarly preposterous to claim that the banks or trusts should be able to treat this note as theirs if they can’t prove who holds the note. If I lose a $100 bill (an IOU from the Federal Reserve), it’s gone. If you can’t prove you own the note, who’s the say you own the note? Maybe someone else owns the note. Are you seriously suggesting I should pay you just because you tell me that you own the note? Do you live in this world? Do you realize that people lie and people make mistakes? You’re suggesting that we adopt a legal system that just takes your word for it even though you have no proof? Should we eliminate the statute of frauds? Hundreds of years of common law? What exactly is being proposed here?

        It is f*cking crazy what people on this site say. It has nothing whatsoever to do with the law or reality. Is it really such a grand concept to not lecture people on stuff you clearly know nothing about? People are so f*cking stupid (and simultaneously full of hubris) that it makes me sick.

        1. Dan Duncan

          The recording laws are “for the rest of the world”. They concern themselves with concepts like “race-notice”, “notice” or just “race”. They are actually quite irrelevant for a situation that exists between just the buyer and the seller, or between just borrower and creditor.

          So when you write:

          “Do you seriously suggest that if I lent $500k to my friend so that he could buy a house but I forgot to record the deed of trust (or recorded it in an improper way), I should still be able to foreclose?”

          The answer is Yes, you would be able to foreclose. Of course, if other creditors existed, you’d be relegated to inferior status.

          It’s funny isn’t it, that you’d be wrong in a comment which you conclude with:

          “It is f*cking crazy what people on this site say. It has nothing whatsoever to do with the law or reality. Is it really such a grand concept to not lecture people on stuff you clearly know nothing about? People are so f*cking stupid (and simultaneously full of hubris) that it makes me sick.”

    2. RueTheDay

      “This all fundamentally is about people not paying their mortgages, and I challenge you to prove otherwise.”

      Really? The guy who bought his house for cash and then had it foreclosed on due to a bank mistake and the other guy who had paid his mortgage off and also had a foreclosure due to bank error were about “people not paying their mortgages”?

      Is the revisionist history starting so soon? I mean, it took awhile for those on the right to cook up the absurd idea that the financial crisis was caused by the government forcing banks to loan money to minorities with no means of payment. They seem to be moving a lot faster with this one. I guess they’re hoping that no one will bother to ask how exactly the big, bad government forced private mortgage originators to be sloppy with their paperwork.

      1. Mongoose

        That is a complete red herring that case was cleared up due to a purely procedural error.

        This is a straw man and it is intellectually dishonest of you to present it were you aware of the actual facts.

        You seem to think that in real estate mistakes like this are wildly uncommon, They are ot.

        This just proves my point that leftist (whether they call themselves Liberals or Democrats) use this situation to push a political agenda and to game the system.

        1. libarbarian

          This is not about right vs. left. How small minded do you have to be to see this transcends all of that shit. This is about whether all people have to obey the law or only some people.

          Besides, when the banks were going bankrupt in 2008 due to contracts (the ones that said they had to pony up more collateral due to their credit downgrades) no one suggested avoiding catastrophe by nullifying the contracts. Now they are. Why?

        2. Yves Smith Post author


          Your comments here are intellectually dishonest, and if you have been following this topic at all, you know that. So you are either engaging in deliberate distortions or self deluded re your degree of knowledge of the facts and legal issues.

          I have been digging into this since March. There is WIDESPREAD evidence of abuses. Since you haven’t bothered looking, a bank in West Virginia sold notes as many as ten times. One woman had four different banks try to foreclose on her (and before you go on that she was a deadbeat, she was ADVISED to not pay her mortgage so as to qualify for one of the early mod programs, and on day 91, when she became seriously delinquent, as she was told to do, foreclosure proceedings began). She wrote the OCC asking how four banks could show up to try to foreclose on her house. The OCC said JPM owned her note. It was US Bank that foreclosed on her. So that means JPM can pursue a deficiency judgment against her for the entire value of her mortgage.

          Another person had to file bankruptcy to avoid losing his house over a disputed $75 late fee. I’ve spoken directly to the attorney, I can give you all the gory details of that one.

          There are plenty of accounts like this. This goes well beyond the story of the fellow who was foreclosed upon with no mortgage. This sort of thing should NEVER NEVER happen, this historically was a fault intolerant process by design, real property is too important to treat with anything other than great care. But you are happy to blow off cavalier treatment of the single most important foundation of a capitalist society.

          As per your comment re these matters being merely “procedural” that is also rubbish. From MinnitMan, a real estate lawyer, on another post:

          Whatever else is going on, the lenders’ agents have admitted that they have used affidavits which fail the basic test of admissibility of evidence, that the statements sworn to in the affidavit were not based upon personal knowledge.

          Nonetheless, these affidavits and the copies of documents supported by them were admitted, the cases moved forward, and judgement was enterred by various courts. While “personal knowledge” is a technical requirement of admissibility, “automated” or “assembly line” processes that systematically undercut that requirement are not “errors” or “technical errors” or “techincalities” under any oridinary meaning. I would expect to be disbarred if I made a sworn statement saying I had personal knowledge that the documents submitted as exhibits referred to in a complaint were true and correct copies of the originals, when I had no such knowledge, didn’t care about such knowledge and as a matter of systematic practice, would never have such knowledge.

          I just don’t see where the “error” is here, other than they thought it “wouldn’t be a problem.” Oops. It’s even plausible that the affiants (the affidavit makers) thought they had peronal knowledge because they were told to do things this way, that is, an “error” on the affiants’ part and maybe even an “error” on their employers’ part. But it still isn’t enough to substantiate what was actually said in those affidavits in light of statements specifically denying the personal knowledge component.

          Legislatures can and do frequently legislate rules of evidence relating to how substantive requirements of a law may be met. DWI laws are an example. The legislature defines a certain blood alcohol level as presumptively “intoxicated” or “impaired” regardless of whether the person charged was actually intoxicated or impaired. The charged person is prevented from rebutting that presumption, that is, he can’t say, “while most people may be intoxicated at.08 BAC, I am not.” This example is important because the prosecutor must still provide foundation for admissibility of those test results. The charging officer must state he has personal knowledge of the time, location, that the charged was in fact tested, the method of the test, the controls for accuracy of the test, that the test results were handled in such-and-such a way, etc. before the test results are admissible.

          It is the foundation part that the lenders’ agents fabricated. Ordinarily, after getting caught bearing false witness (biblical reference intentional), the party seeking damage control has to get through the “if you were lying then, how do we know your not lying now” moment. This is not a pain-free (at the very least, legal time is not cheap) experience.

          It’s unclear how legislators and attorneys’ general are going to come up with a global fix that allows lenders a pass here, one that isn’t subject to judicial challenge for encroachment on the various judiciaries’ turf. I will venture to say this: I am hard-pressed to think of a single more important “rule of law” than the requirement of personal knowledge in backing up sworn statements and/or testimony. To think that this matter is settled before state supreme courts and the US Supreme court rule on this is about as great a gamble as anyone could make. Needless to say, this is what underwriting counsel at title insurers are going to think, even if their companies do decide to eat this risk.

    3. Gorge Vasquez

      “This all fundamentally is about people not paying their mortgages, and I challenge you to prove otherwise.”

      There is no way for you to have read anything about the systemic fraud, from inception to close, and maintain this deeply flawed opinion.

      If the “fundamentally all about” is actually what you are after try; the falsehood that an economy the size of the U.S. can be based on debt instead of manufacturing.

      Your teaparty screed about the evils of all kinds of ‘isms does absolutely nothing to address any of the real and massive criminality explained recently on this and many other blogs.

      1. John Ockels

        DownSouth –

        How absolutely hilarious! Great post.

        I’ve often wondered what all the boys and girls in Galt’s Gulch would have done when Francisco d’Anconia’s great new copper mine polluted the community drinking water supply. Since there would be no EPA or Colorado officials to call (God forbid there would be regulators to constrain anyone’s egoism), I guess all they could have done was lynch the s.o.b.!

      2. Mongoose

        You bave thoroughly side stepp my points–in fact you have evidently not even read what i wrote. You are just up on a Leftist hobby horse.

        Beside, where is your proof that across the board there was “systemic fraud”? How is it not merely a procedural issue in the majority of cases?

        Nor do you have any notion of “how i follow events”, by which, of course you really mean”agree with your narrative of events”.
        Please stop imagining g that your interpretation is a anything other than that. I would wager that should this manage to get cleared up without government sticking their noses in it that it is indeed purely a procedural error in the vast majority of cases. What about you argument in this case?

        You ae just sloganeering and engaging in straw man and ad hominem fallacies. How Democrat of you.

        You are not addressing my points and, by your rhetoric merely supporting mine. Imagine my surprise.

        1. Yves Smith Post author

          You are the one engaging in straw man and ad hominem. You take the case of the individual who had his house foreclosed upon when he had no mortgage and falsely suggest that that is the ONLY example, as oppose to the most extreme and egregious of many.

    4. DownSouth

      Oh, I get it!

      All we have to do is replace the Old and New Testaments of the Bible with The Fountainhead and Atlas Shrugged, go out and vote Republican en masse and everything will be just peachy.

      Why didn’t I think of that?

    5. number2son

      What a confused and contradictory outlook you have. Your left-baiting nonsense is ludicrous.

      How’s this for an idea, nimrod: both borrowers and lenders should abide by the law. And that as citizens of a nation of laws, we are compelled, regardless of political persuasion, to support the idea that laws must be followed.

      Simple, isn’t it? And something I should hope even a reptilian, right-wing radio trained mind could grok.

      1. Sufferin' Succotash

        You don’t understand. “The rule of law” is for Democratic Presidents who get caught lying about fellatio. It’s obviously not for those whom God in His infinite wisdom has put in control of the financial system in this country.
        BTW, my primitive conception of the ROL includes the notion that accusation does not equal proof. The heart of this current mess is that lenders or servicers are failing, because of slipshod paperwork and/or fraudulent intent, to provide adequate evidence in foreclosure proceedings.
        Hey, but what the hell do I know? Maybe the Kings of the Universe really are right all the time.

    6. Geo

      I have a mortgage that originated with a local mortgage company. My mortgage was sold to another company that eventually went belly up. My mortgage was then bought by a third company. I have always paid my mortgage. Right now the last company that purchased my mortgage has been telling me for over a year that I am one month in arrears. I think what happened is the second company never paid the third company my final payment to them. I have the cancelled check and all documentation relating to my payment. The current lender does not accept this as me having paid the last payment to the second mortgage holder. Frankly, my position is that they bought the mortgage so they are responsible for collecting the money for the deal they made. That’s not my problem. It seems evident that the current mortgage holder wants me to clear up their bad deal. As far as I’m concerned this is an example of the bad faith that we who have mortgages now have to address. Explain to me how I owe another payment when I have all the cancelled checks.

      1. Robert

        I have a very similar situation with a loan that eventually ended up with BAC via Countrywide. Apparently Countrywide didn’t receive the full payment when they purchased my loan. BAC has not demanded the money directly (e.g. my monthly payment has remained the same), but they’ve placed the missing money as a “Corporate Advance” which has prevented me from refinancing to a lower rate as they are demanding this “missing” money in the loan payoff statement.

        And as my existing 15 year fixed is at 5.25% the delta in rate doesn’t quite justify paying this money a second time. Of course, now BAC gets to keep an above market rate asset on their books for 5 more years until it’s paid off.

        1. Geo

          I am getting late charges, phone calls, and letters telling me I now have to speak with the home retention department. I have done this and sent all documentation more than once, still nothing. So I am now in the process of initiating civil litigation. What other recourse do I have?

    7. Francois T

      If you STILL believe it is about giving a free pass to dead beats, you are totally HOPELESS and not worth my time to discuss anything further.

      Jesus Christ! You remind me of the typical climate denialist! In my book, this is on par with defrauders of elderly, and GOP operatives.

    8. Francois T

      A strong article in the Washington Post makes it so clear that even a CNN anchor can understand it: A huge portion of the Fraudclosure mess was by design.

      WaPo stuff:

      So Mango-who’s-been-goosed! Will you stoop lower than a CNN anchor? Would’ya prefer to go down so low that a CNBC anchor would be your equal among the insignificants?

      No, right? Self respect shall save you from self-destruction I gather.

      Thus, read the links above and join the reality-based community.

    9. rd

      My understanding is that there are three levels to this issue, none of which have anything to do with whether or not people should be foreclosed but are fundamental to the overall system working equitabally and fairly with constitutional rights for all.

      1. Over-worked bank employees are perjuring themselves in affadvits and forging documents (or arranging to have them forged), including forging signatures, in order to have paperwork to put in front of a judge. This can greatly increase the error rate of foreclosures since it is hard to check the accuracy of a forged document and the people themselves are not checking the documents as required in their affadavits.

      2. The servicing entities trying to execute the foreclosure may not have the legal right to because they do not own or possess the mortgage note. So the entity foreclosing can make an error on where the proceeds go and still leave the foreclosed homeowner with the liability, especially in a recourse state as well as having potential title issues for new owners of the property.

      3. The MBS securities themselves may not have had the mortgages legally transferred into it, possibly meaning that they own an empty briefcase that they thought was full of money. That has huge potential ramifications for the financial system. Property transfers are generally a state issue under the Constitution, so the feds have a lot of work to do to have Fannie and Freedy rules trump states’ rights.

  7. Mongoose

    Kevin, a voter being “underwater” on a mortgage should not be the business of one’s congressman. The fact that people like you are irresponsible enough to think that it is their business and to vote politicians in that make it their business is why we are here at this juncture in the first place. The government is not your Daddy and the rest of us are not members of your family.

    Because someone made an imprudent decision or the market does not support their dreams are no justifications for anyone not to honor their debts, nor should these conditions morally permit one to elect politicians in order to wipe away those debts. This quickly descends into lawlessness and collectivist tyranny.

    As I said above, this is nothing but moral turpitude.

    The solution to the problem of congressman going through the revolving door is, of course, to prosecute them, but since the Left has so corrupted the legal system, particular as the law obtains to Democrat insiders, there is a fat chance of this happening.

    The ultimate solution, of course, is to get government out of the economy altogether and allow capitalism, private initiative and free enterprise to rebuild the wealth squandered these last 50 years by statist and socialist politicians, parties, sections and their clients.

    Real estate has been artificially pumped up for decades and it has been a waste of capital. It has been primarily government that has propped up this zombie industries. It is a the sign of a decedent nation that it chooses not to pursue manly and productive labor but instead engages in propping up bubbles and gaming the system in order to grab a quick buck. If we are to survive and restore American greatness (yes that is right, American greatness) we have to abandon such things both in our personal lives and in our broader national political life.

    Your suggesting that people are morally justified to stiff the banks just because their mortgage is underwater and it just so happens that some politicians are immoral is in itself immoral. It is also shameful.

    I hope that you say such things because you have not thought through the implication of what you suggest, but somehow I doubt that this is true.

    1. RueTheDay

      “The ultimate solution, of course, is to get government out of the economy altogether ”

      How, pray tell, do you propose doing that?

      Without government there is no capitalism, no free market. If we got rid of the police, the military, the court system, etc. we would have chaos, warlords, gangsters, and a general Hobbesian state of all against all, not some silly libertarian utopia of freedom and volunteerism.

      “Government is a necessary institution, the means to make the social system of cooperation work smoothly without being disturbed by violent acts on the part of gangsters whether of domestic or of foreign origin. Government is not, as some people like to say, a necessary evil; it is not an evil, but a means, the only means available to make peaceful human coexistence possible.”
      –Ludwig von Mises, Liberty and Property, 1958

      1. Liberal Fascist

        We also would have to get rid of limited liability, since that’s another government “intrusion.”

      2. Kevin de Bruxelles

        Good points but I think you might have even been a little optimistic there!

        What Libertarians never recognize is that the state exists because it is a powerful way to organize people and resources. If there ever were to be some utopian Libertarian paradise in the middle of Somewhere, as soon as these hardy farmers started accumulating wealth, if random bandits didn’t so them in first, their stately neighbours would quickly invade and crush their pathetic little militias. They would kill all the men and older women, take the younger women with the appropriate fertility cues as trophy wives, and as for the fate of the Libertarian’s younger children there would be a lively debate among the victorious stately types about whether they should be killed, enslaved, or allowed to be incorporated into the society.

    2. Skippy

      Neoliberalism put the razor blade in the apple ie: deregulation, fantasy accounting, synthetic investing instruments, leveraging ratios an uneducated 3rd world dirt farmer could tell you would break its leaver whence force was applied to it, deceptive sales practices praying on the uninformed, usage of low payed unskilled employees preforming paralegal duties, shell companies etc etc etc..

      Now instead of waiting for the trick or treatrs…cough investors, home buyers, state-federal-union pensions,
      municipalities etc etc etc to come to their door like in the tooth and claw days…they like (rainbow vacuum cleaner) sales men went door to door…at first making wild promises about how it would change their lives…increase wealth, always increase in value…for a small down payment…until they gave it away free in the end…cough trust stuffer…et al…and the every_one_bit_down_hard_into its promises delusions..only to cut their mouth wide open…blood running…American blood…and yet in the face of this deed[s its authors claim immunity nay they want the Popsicle stick back…with interest and penalty[?] or worse yet declare it a National Holiday. The neoliberal candy apple w/a razor blade inside 24/7/365 wasn’t our fault parade. Hell that should pass the legislature about as fast as the HRfixitretroactive did.

      This isn’t even about Mortgages any more, yet many try to frame it as such. Its about established law, your know the one that frames CAPITALISM its self…property rights…its conveyance, the chain of responsibility by all parties involved, to meet your true counter party in court, plus many other areas crucial to its function.

      Skippy…the term deadbeat is an emotional imaginative or have your visited every home door to door and have personal observations to such…um.

    3. Kevin de Bruxelles

      Look, it’s real simple; if banks didn’t want strategic defaulting, they shouldn’t have been giving people non-recourse loans.

      Underwater home owners with non-recourse loans, have every legal right in the world to stop making payments. I am in no way suggesting that Congress bail out underwater home owners – far from it, as that would only keep housing prices inflated. I would instead urge all underwater home owners with non-recourse loans to simply walk away from their over-priced homes, rent for a couple years, and then buy later when prices have tumbled even further.

      After all this is exactly what the Mortgage Bankers Association along with many other corporations did and so surely it must be the morally correct thing to do. Or it this more of a case of do as I say not as I do?

      So the connection to Congress is that the threat of voters cutting off payments on their mortgages may be a more effective way to deter Congress from bailing out the BANKS again.

      Being a Social Democrat, I can only tell you that I pray night and day that people like you will actually get into power and drastically cut government spending in the US (did you really mean cutting all military spending?? That is government spending after all). Because it will only be in the aftermath of such moves, when U3 unemployment gets to something like 35%, that the people of the US will start to get a clue. Just societies often rise from the ruins of economic disasters, but there are no guarantees of course.

      Sadly the powers that be also realize this so they will let you guys talk a lot but the US will continue to limp along on its present course.

      I agree about the waste that real estate has been for the past few decades. There are three easy solutions, a 10% stamp tax on every real estate sale; down payment requirements of 20%, and recourse loans.

    4. DownSouth


      Is this the face of the new Puritanism, the new fundamentalist stealth religion the New Atheists cooked up to replace the religious fundamentalisms of old?

      One thing’s for sure. Whether we’re talking the old fundamentalism or the new, there’s no shortage of self-righteous piety.

    5. Jackrabbit

      Because someone made an imprudent decision or the market does not support their dreams are no justifications for anyone not to honor their debts, nor should these conditions morally permit one to elect politicians in order to wipe away those debts. This quickly descends into lawlessness and collectivist tyranny.

      By all accounts, the lawlessness and tyranny is coming from the banks, not the homeowners.

      The banks have done EXACTLY what you rail against! They made “imprudent decision[s]” but they EXPECTED the government to “support their dreams” via bailouts (TARP and various “back door bailouts” adding up to trillions of dollars) – from politicians they helped to elect (spending billions, over the years, on donations and lobbyists). Now you (and the banks) are miffed because the little guy simply demands that banks abide by the law.

      1. Mongoose

        By all accounts? Preposterous. That is just the point. People her are suggesting that the rel or imagined perfidy of banks somehow allow for themselves to engage in immoral behavior. Not only can you not parse what I write, you cannot parse what you and your co-coreligionists write.

        I have asserted that this is moral turpitude. I see no valid counter arguments. All is see if the usual vilification of Class Enemies(TM), sloganeering, hysteria, red herrings, straw men and ad hominem attacks that one get from Marxists.

        Get a clue: No, one being “underwater” do not grant some valid moral sanction for not paying one’s debts.

        It is a simple matter. You are just pushing up hysterical (and Marxist) hand waving to distract from the actual facts on the ground and the ultimate the roots of the matter. Hoe Democrat of you.

        (BTW, I am not a libertarian, and my position is not particularly libertarian. You would know that if you were over 50 years old and lived in this country before Marxism held such sway.)

        1. Jackrabbit

          Property rights is Marxist?

          I tried to point out how your position creates a double standard. I guess fairness is Marxist too.

          No one is disputing that the homeowner has a debt and that they SHOULD pay that back. The important questions are: Which party, if any, has the legal right to foreclose, and how can homeowners/homebuyers be sure that they get clear title.

          The banks, in their greed, have created a mess. How big a mess is yet to be determined.

          If you’re over 50 then you should be well aware of how Gen. McCarthy’s name calling turned out. He’s used “communist” instead of “marxist” but with the same intended effect: to intimidate, obfuscate, and harass.

    6. Chris

      Getting government out of the economy is just an open invitation for criminals to operate in the open. That’s the real reason why this apologia is being issue. It’s all about rich people behaving badly — very badly. As Marx has said, you’re digging your own graves.

      1. Mongoose

        Nonsense, with govenemnt in the loop you most precisely have “criminals running rampant”, and the master cruiminals are the politicians, party hacks, career government functionaries, government unions and the clients and cronies if all of these vipers in the so-called “private sector” It is call fascism in its corporatist form and Communism in its collectivist political form.

        This whole mess was created by government, not business.

        And how typically Mrxist of you: The State is good, but private initiative is bad. Government is moral but the individual perusing his own interest is not.

        One need not look any father than Fannie, Freddie or the SEC to see how ludicrously preposterous you assertion is, but should actually look farther all one need do is have agander at the USSR, the PRC or Venzuala to see the truth of the matter.

        Above and beyond that, you position is specious and intellectually dishonest. No one is talking about abandoning the enforcement of law, we are talking about governments screwing up markets with socialist regulation. My whole point was moral turpitude and the rule of law.

        Again, you miss the point and proffer straw men–and in this case a straw man right out of the 1930’s (and straight out of COMINTERN agi-prop too, I might add).

        Again, you sidestep the point and engage in intellectual dishonesty. You perfectly well know what i meant about getting the government out of the economy, and you perfectly well know that have in the Feds control housing as they do now in this nation is an historical anomaly in our history. To imagine that the FED’s mucking about in this industry is is somehow a requirement for “fair markets” is as absurd as it is foolish. Events have just pointed this out if you would bother to pay attention.

        Stop putting words in my mouth, put Das Kapital back on the bookshelf and rationally address my points.

    7. Jake

      This is not about morality or some intrinsic right of a squatter to live payment free. This about the fundamentals of whether or not the lenders continue to be secured creditors after having destroyed the initial documentation and obscure the chain of title to hide the fact that they did not do due diligence and were in fact deliberately issuing bad loans. The lenders are now forging documentation (large scale fraud) to cover up for their initial malfeasance. Without a legitimate chain of title they likely do not have a valid lien and are in fact unsecured creditors much like the credit card companies. This would mean that they are limited to the means of recourse available to the credit card companies. The borrowers do not get “a free house”. They simply have stronger footing with respect to their creditors.

      There is an additional issue that I have not seen raised. Given the extensive malfeasance, do the banks in fact have unclean hands? Are they still entitled to an equitable remedy after having acted unethically and in bad faith? This is an important equitable defense that I would like to see explored.

    8. Glen

      “…this is nothing but moral turpitude.”

      I agree, we’re all starting to act like Wall St bankers.

      Believe me, if a small business found out the bank had screwed up the contract, and they did not have to pay, then THEY would be morally wrong not to use that opportunity to further the financial gain of the business.

      It’s just business. Morals got nothing to do with it.

    9. Glen

      Face it. The banks screwed up. They made crap loans that people now walk away from or worse yet, they’re going to start all going to court and getting the debts dismissed because the banks screwed up the trusts. And they sold AAA rated crap derivatives that the buyers are all going to go get their money back from the banks again because the banks screwed up the trusts.

      Capitalism shouldn’t support screw ups, and the banks screwed up big time.

      Pretty soon the politicians will latch on to it because everybody hates the banks and it will be good politics to back the people especially as the banks go down the tubes.

    10. libarbarian

      Because someone made an imprudent decision or the market does not support their dreams are no justifications for anyone not to honor their debts, nor should these conditions morally permit one to elect politicians in order to wipe away those debts. This quickly descends into lawlessness and collectivist tyranny.

      Which is why the banks should be held to their contracts – the ones they didn’t just sign but WROTE as well – and have to buy back every faulty mortgage that didn’t meet the standards laid out in the PSA.

      You’re inability to see that this isn’t about liberals or right-vs-left politics, is just sad. I really hope that you are in the minority, but I am afraid that many Movement Conservatives are like you and simply don’t understand that there are problems in this world that cannot be blamed on “leftists”.

  8. killben


    “This is a throw-the-bums-out election cycle and paradoxically, the more bums that get thrown out, the more “free” votes the next bailout will get during the lame duck sessions that are coming up.”

    This is a real problem. Because the new bums have nothing to worry and can also be sure by the time they are up for re-election, public would have forgotten they have voted for “TARP 2”, assuming you need TARP 2 when you have Fed with the money spigot wide open

  9. DownSouth

    From the Wall Street Journal article: “While finance aims for efficiency and maximized profits, the courts demand due process.”

    You gotta love the way the authors frame the debate, as if it were efficiency vs. due process, and as if lawlessness and immorality were “efficient.” As Robert H. Nelson wrote in Economics as Religion:

    If people behave in a more honest and trustworthy fashion, and otherwise behave more ethically, it can greatly reduce the “transaction costs” to an economy. Hence, as is an increasingly common observation, religion can be practically useful—-it can be “efficient”—-in even a narrowly economic sense.

    The authors are unabashed disciples of John Bascom, one of the seminal figures in the creation of “the gospel of efficiency” and Bascom’s view that, as William Schambra observes,

    that traditional, local civic institutions—-as he put it, “rambling, halting voluntaryism”—-based on traditional moral principles could only obstruct and delay the creation of a new, sleek, streamlined, rational centralized order.

  10. MinnItMan

    A few months ago, I reviewed a case where Wells/Wach had essentially the same position, owning the security interest in both a 1st and 2nd mortgage, but the 1st was done several months before the 2nd. The property had been owned jointly by a husband and wife, but only the husband executed the first mortgage, leaving the wife’s undivided half interest free of the lien. Then, the wife was awarded the property in a divorce, free and clear of the ex’s interest, except for a marital lien in his favor, and subject to the mortgage which only the ex had signed. At that point, she took out a second with Wells/Wach to pay off the ex’s marital lien.

    When the first went into default, Wells/Wach initiated foreclosure. Unfortunately for the wife, her prior attorney rather helpfully pointed out to the foreclosure law firm that if the foreclosure went through, they would end up owning only a one-half interest in the property, since the wife didn’t give a security interest on her half.

    Also unfortunately, she let the second go into default, giving Wells/Wach a way out. If W/W foreclosed on the first, title was going to be a mess, and the wife would end up a 50/50 partner in owning the property. Furthermore, the foreclosure would extinguish its second position (or at least half of it – I didn’t get paid to think this all the way through and it’s not clear to me whether there would be 50 or 100% wipeout of the 2nd).

    In any case, W/W abandoned its foreclosure on the first, and instead foreclosed on the defaulted second, where the security interest covered 100% of all interests (at this point the wife owned 100%).

    The are a lot of interesting morals to this particular story, but I raise it because common ownership of 1sts and 2nds can give the lender an advantage when title is impaired on the first. There are other situations where 2nds are foreclosed as well for not altogether obvious reasons.

    Finally, the buyers here were incredibly foolish. Having a realtor do/not do the title search, is only slightly better than thinking you don’t need one at all (see the scenario above). While discounted foreclosure sales are common, they are even more common where a lender is trying to get rid of a defective title. When buyers get defective title out of a sheriff’s/trustee’s foreclosure sale, more often than not, it’s too bad, so sad.

  11. imcurrent

    Perhaps I have missed it — but so far I don’t think I’ve seen a discussion of the potential problems non-transferred notes represent for NON-DEADBEAT borrowers. So, the “shame on the freeloaders” meme might to be adjusted.

    When a loan is paid off, you are supposed to get a reconveyance of the trust deed or a release of the mortgage. If no one knows who holds the promissory note, then who requests the reconveyance or releases the mortgage? If you do in fact receive a reconveyance or release, but it was not requested/authorized by the true holder of the promissory note, what is the condition of your title?

    Add to that the risk that there is potentially more than one claimant to the promissory note if it has inadvertently been pledged to more than one trust. You may have paid in full, but there may be a purported note holder out there who claims it has never been paid at all. If your servicer was not holding a valid contract to service your note — which could be the case if it was not doing business with the actual note holder — you may have just spent 30 years paying the wrong party. And, you probably never even asked to see proof from the servicer that it was legally entitled to collect from you.

    Or at least that applies to me. My home loan is/was from a lending institution that no longer exists. My servicer has continued collecting from me for years without informing me as to who allegedly holds the actual note, or whether it continues to have a valid legal agreement to act as servicer for the current holder. Am I now worried? Yes.

    The class action suits by borrowers who are indeed entirely “current” on their obligations are going to be substantially more robust than those by “deadbeat borrowers” — and without the moral ambiguity.

    1. Justicia

      You are so right.

      The next shock to the system will come when homeowners, like yourself, who are current or who have paid their mortgages in full find that they can’t sell their properties (drum roll) because they went through MERS the private mortgage recording system created by the banks. As I noted in a previous post:

      MERS has created havoc with the real property records in this country since 60% of residential mortgages are recorded in MERS’ name. To quote Prof. Peterson: “For the first time in the nation’s history, there is no longer an authoritative, public record of who owns land in each county.”

      To fully understand why, read Prof. Peterson’s paper:

      Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory

      1. Stemp

        I paid off my 2002 Countrywide mortgage in 2009. I received a release of lien from ReconTrust, a company I had no dealings with during the lifetime of my loan. I of course did not receive my note back. I believe my title is now thoroughly clouded, and it makes me hopping mad.

        I am contemplating a quiet title action. Once that is taken care of, I would gladly join a class action.

        1. liberal

          Hmmm…I bought my house in 2008. Refied in 2009 and 2010. After the first refi, I got the note back. After the 2nd, I got a release.

          Web seemed to indicate that getting a release instead of the note is very common and there’s nothing wrong with it, but this sh*t makes me nervous.

        2. rd

          We have a 2003 Counrywide mortgage. With kids still in college, we are still just paying the regular payment. However, in about 3 or 4 years we should be able to start to pay it off rapidly – houses didn’t go up or down much here, so the mortgage can be paid off with a couple years effort after shifting college payments to it.

          The current issues with the servicers is making me nervous as well. I figure we have some time to see what gets discovered and sorted out but I suspect the banks are in deeper doo-doo than they care to admit and it will take a lot of King’s horses and men to put Humpty Dumpty back together.

  12. WKJ

    Yves–Eric’s comment touches on an issue that puzzles me, the continued processing of routine loan payoffs and lien releases, despite the mortgage foreclosure crisis, and the implications of that continued processing.

    In any mortgage pool there will be a significant number of routine payoffs each year. (Millions per year in the country as a whole.)

    Virtually all of these payoffs will be the result of a sale or refinancing that is funded by a new loan. In such cases, the new lender will insist on a first mortgage to secure the new loan. Obviously, the new lender can only get a first mortgage if all prior mortgage liens are released. That means, of course, that the lender receiving the payoff must deliver a satisfactory lien release for recording in the local land records.

    I have not read anything that suggests or even hints that there have been any serious glitches in the processing of these routine loan payoffs. (If there were such problems, that fact would be certainly be newsworthy since the story would be about borrowers who had met all of their debts, but were still being prevented from selling or refinancing because of mortgage lender screw ups.)

    If, as appears to be the case, routine loan payoffs are being regularly processed, even with respect to mortgage loans issued during the bubble, that means to me that one of two things must be true. The first (and to me the most likely) possibility is that mortgage lenders (including bubble lenders) must have good loan documentation so that they can provide lien releases that are acceptable to new lenders, real estate settlement attorneys and title insurance companies. (This is a fairly stringent test as the state of the title will have been reviewed as a part of the settlement process.) If that is the case then the foreclosure problem we are reading so much about would appear to be centered in the foreclosure process and not in the mortgage documentation process.

    The other possibility is that mortgage lenders do not have good loan documentation, but somehow they still produce lien releases and that those (improper) releases are still being accepted by new lenders, settlement attorneys. I do not know for sure, but I find it hard to believe that all new lenders, all participating title companies and all participating settlement attorneys, would buy-in to such a sloppy practice.

    To me, the absence of any reported problems with respect to the processing of routine mortgage loan payoffs in connections with home sales and refinancings strongly suggests that the problem the banks face is mainly a foreclosure processing problem. This is bad enough, of course, but much less serious than a widespread mortgage documentation problem. On the other hand, if we start hearing about the inability of bubble lenders to produce acceptable lien releases, we will know that things are very bad.

    1. Justicia

      WKJ: “To me, the absence of any reported problems with respect to the processing of routine mortgage loan payoffs in connections with home sales and refinancings strongly suggests that the problem the banks face is mainly a foreclosure processing problem. ”

      I have to disagree, WKJ. Many courts and the title insurers routinely accepted the (bogus) documentation that the foreclosure mills were presenting — until lawyers for the homeowners fighting foreclosures started proving that the MERS documents were fraudulent. Then the title insurers began to pull back and the media finally started to publicize what was going on (even though bloggers like Yves and others had been writing about it for some time).

      I would bet that as purchasers adopt ‘caveat emptor’ in their approach to real estate purchases and demand to see proper documentation of lien releases, the problems with sales of homes that are not in foreclosure will become headline news.

    2. Mindrayge

      Actually, part of the Florida action taken on October 13th by the Attorney General – subpoena – also involves Satisfaction of mortgage and lien releases.

      If, for example, MBS 2005-MTG PASS THRU 11 doesn’t in fact own the note it can’t very well be the entity that releases the lien or records the satisfaction of mortgages.

      This is the crux of the issue because an assignment is effectively a release and a bindery in one go. Your lien is released with respect to the transferring party and attached to the receiver. This is why any release, including assignments, can be problematic in this environment.

  13. Crazy Horse

    Every time a cynical optimist like me starts believing that the latest outrage will actually provide the stake that we can drive thorough the heart of the Beast, I have a memory attack.

    Remember how Goldman’s million dollar investment in our President paid off when it came time to send Goldman’s CDO’s to the front of the line in the AIG bailout and reimburse them at 100% of face value?

  14. MinnItMan

    I don’t have cable/sat, so I rarely watch CNBC. But I did two nights ago, and I was surprised to see that Kudlow did seem to get what the real problems are, whatever his guests might think. There seemed to be genuine moments when the permabullscat persona completely disappeared, and was replaced the “I know a ‘cluster-copulation’ when I see it” real person.

    Kudlow is a flamboyant loudmouth, but he is a very smart and well-connected flamboyant loudmouth. For example, I did not know this:

    “In 1970 , when he was still a Democrat he worked on the U.S. Senate campaign of Joseph Duffey along with Bill Clinton, John Podesta, and Michael Medved, another future conservative, and in 1976 he worked on the U.S. Senate campaign of Daniel Patrick Moynihan along with Tim Russert against Conservative Party incumbent James L. Buckley, brother of William F. Buckley, Jr.”

    It is interesting that AG Tom Miller is the lead on this. On the one hand, Wells Fargo is a huge Des Moines employer at 1 HOME CAMPUS, DES MOINES, IA 50328-0001 (FKA 1 Wells Fargo Campus, IIRC). One the other hand, Iowa is the one state where title insurance is ILLEGAL.* Title is “insured” in Iowa by the state-run Title Guaranty Fund.

    *Iowa is the only state in the United States where the sale of title insurance is prohibited. Although it cannot be purchased in Iowa , there is title insurance being purchased daily from out of state companies for consumers and property in Iowa.” See Iowa Realtors Assoc. (surely unbiased since they can’t receive kickbacks from the ITGF, LOL) –

  15. leslie

    In May 2005 we deposited and invested $200,000 in Real Property, where we recently found out that $118,800 was embezzled out of our property from Mortgage Lenders and Trust Brokerage Companies, namely Goldman Sachs through an escrow Transaction. The $118,800 in funds was paid to these embezzlers from the Investors unbeknownst that the securitization happened by encumbering our property and making up a fraudulent fake Promissory Note and Deed of Trust.

    See the link for further information:

  16. Pascal Blacque

    Am sure most of you remember, back in the fall ‘08, one of Bill Gross’s monthly letters titled “Where’s Waldo?” … and we’re still searching today… although the Fed owns a lot of it, poor us!

    Anyway … I could imagine another such letter titled “Where’s Notee”… for it seems to me like if we could find the original notes, a lot of the current issues could be resolved. Yes there will be a lot of wrist slapping, fines, disbarment, maybe jail time, etc. for all the illegal foreclosures and frauds on the court to date.

    But without the notes –to go beyond the foreclosure issues– the problem metastasizes to include all borrowers that are current on their payments and all real estate transactions that include a mortgage/financing.

    In other words, am I wrong in believing that:

    1) All performing borrowers have the right to demand evidence of note ownership before paying another penny to the lender – you can appreciate what that will do to MBS investors and to the mortgage financing market.

    2) All past, current and future real estate transactions involving a mortgage are at risk if the title chain is/has been clouded – Why buy an property if you cannot be certain your Title will free and clear? But simply getting all the docs in a row … ;) … might cause so much delay as to push us over the brink …

    If the above 2 issues are relevant, what do you envisage as a possible fix? Will the rule of law be bent by those tasked to make it (Congress) and uphold it (Courts) in the name of the collective good? Or has the train left the station…?

  17. LJR

    We must keep our eyes on the shell with the pea and remember that the guy moving the shells is a crook. The shyster wants to redirect our attention to the deadbeat borrowers. But that’s a red herring.

    The primary issue is rule of law. We individually all know what happens if we violate some clause in the “fine print” of a credit card agreement. We get hung out to dry. What’s good for the goose must be good for the gander here. There are very specific rules governing the assignment of mortgage IOUs and if they were not followed then the consequences must be dictated by law, not the “TBTF” size of the non-complying party.

    This whole fiasco is, at root, very simple. No tickee, no laundly. I can appreciate the difficulties that come when trying to reconcile an electronic system with the need to move and archive actual paper. In fact, I can understand this whole situation without recourse to criminal intentions. Criminality is a side issue. What matters is WHO OWNS WHAT!!!! The evicted owners are, by and large, not the problem. They have no clout and can be chased off the properties with a stick and a gun, one by one. The investors in RMBS are entirely a different matter – and they are powerful interests with deep pockets. They will be delighted to cram the bad securitizations right back to the issuing banks. And if the banks cannot demonstrate proper conveyance to the RMBS then they are going to be quite properly crucified.

    So what’s going to happen? The banks are going to go into another crisis and the government will do its best to bail them out. This time it just may precipitate a political crisis as well. QE2 will be devoted to keeping the banks afloat and the result will be sterilization of any effect on the economy since the banks will be using the funds to buy back bad RMBS securities. The investors who are cramming the RMBS back will become the primary beneficiaries of QE2. This will include pension funds and the like. What they do with the money is anyone’s guess. But, and this is important, the money won’t be clawed back without a legal fight and that takes time. In the meantime bank stocks will fall and the chances that banks will be willing or able to loan into the economy are nil.

    And we need to realize that a lot of the bad RMBS are probably being held by the government – taken as collateral during the bailout. What happens when a billion buck RMBS has investors clamoring for a refund? Clue. It’s not the kind of mark to market the government is gonna like. The government has already given the bank a billion bucks of spendable money and is holding the RMBS as collateral. Now the bank needs money to refund to the investors who bought the crap initially.

    I’m not a financial wizard – as anyone reading this can see – but it seems to me that what is happening here is that a stock is being turned into a CD. Investors in the original RMBS were taking a risk of 100% loss – like a stock. But misrepresentation turns that stock into a CD. The investors now have the right to reclaim 100% of their original investment.

    If the government intervenes on behalf of the banks to “streamline” the process of making their legal claims legitimate it will be very interesting to watch the reaction of our “owners” (as George Carlin would say). On the one hand they would applaud the move since it protects the interests of the banks. On the other hand it makes their life more difficult because it clearly reveals the kleptocracy in action. These kinds of matters are best handled in darkness.

    The banks are probably crapping in their diapers right now. They have to recognize that this is a fundamental credibility issue. If they are shown to have issued RMBS without proper conveyance of the IOU’s, they will either have to accept the bad RMBS back or face a bleak future. Who will do business with them if they fail to honor their agreements? A bank’s main asset is trust.

    Unlike the BP fiasco – which was equivalent to someone taking a leak in an olympic sized swimming pool – this could become the financial oil spill of a lifetime because it poisons faith in our large financial institutions. Gold and silver will clearly benefit. Commodities will spike. The economy will suffer.

    I find this situation genuinely interesting – and I don’t find much of the crap that’s been going on interesting at all. This is a conundrum that creates great tension within the “owner” class. Many of them are presumably investors in the RMBS that are now worthless. The ability to get their money back is very, very appealing. And yet they are strongly allied with the banks and don’t want the banks to fail. They also have to recognize that another bank bailout like TARP will cause political grief. This is one of those truly rare historical moments when the “owners” are not united. I’ll bet even Rupert Murdoch doesn’t have a strong idea about what to do. And that’s unusual.

    Why interesting? Because we now have a problem without a solution. We’re in a pickle. And seeing how it plays out is going to be very, very entertaining. There is even the remote possibility that something good can come of it.

    Thank you, Yves, for your very great efforts. You are a hero.

    1. Crazy Horse

      LJR, you hit the nail squarely on the head. What makes this train wreck interesting is that it involves two trains loaded with members of the ruling class going in opposite directions on the same track. Will they brake to a stop, drink champagne together and devise a way to throw the remains of the middle class under the wheels, or will they collide and provide meals for the legal sharks circling about?

      The moral vision of the American ruling class rarely extends beyond short term greed. Billionaire investors who were sold worthless securities are hardly likely to ignore an opportunity to cram them back into the hands of the issuers. On the other hand, perpetuating the financial casino is vital to their future livelihood. Investing in businesses that actually produce goods and employ people offers nowhere near the profit potential of trading Ponzi securities or raiding the Treasury.

      This potential collision of ruling class interests plays out on an interesting political landscape. Every indication points toward Congress reverting to the Repugnant Party, that bastion of self-serving Neanderthal greed-heads, with a new crop of the certifiably insane thrown in to spice up the stew pot. The result will be total paralysis of the system in place of nothing useful being accomplished.

      Obama/Geithner’s actions are not so easy to predict. They have adequately demonstrated that their first and only priority is the preservation of the system of bankster capitalism that financed their political careers. The logical conclusion is that if it comes down to sacrificing the rule of law or the Too-Big-to-Fail banks the legal system will be cast aside whatever the consequences. However there is a wild card that nobody seems to be paying attention to. Geithner’s primary loyalty (and likely Obama’s as well) lies with his patron Goldman Sacks. And Goldman’s goal is to cut the throats of its competitors, never mind the consequences for the rabble that might starve as a consequence. Goldman has adeptly used bets about the downfall of its own securities in the past to climb toward the top of the pyramid. Has it insured itself against liability in the coming mortgage fraud crisis and taken large bets against its competitors? What better way to send Warren Buffet’s Wells Fargo to the bottom of the ocean than to let it drown in its own malfeasance. The pre-paid ability to dictate Obama/Geithner’s tactics would certainly be a valuable asset in that kind of a power struggle!

      1. PQS

        You and LJR have some powerful insights.

        I wonder, though, about the makeup of this traincar of billionaires. Surely a few wealthy Westerners can make peace amongst themselves, if only to keep the party rolling along. What I will find interesting will be the political fallout WRT all those “other” investors that must be out there, also very very curious about the value of their paper – the Chinese, various foreign governments and sovereign wealth groups, etc., etc. They may not play as nicely as the Harvard Men’s Club or Skull and Bones, and may in fact resort to some very difficult and public demands to get their satisfaction.

  18. MERS at Fannnie

    I’m guessing the borrowers in the example may have been able to hold onto their home?
    If the 2nd is in question, in lien position 2, how was Wells able to foreclose? The borrowers could have filed Chapter 7 for any judgement or to wipe clean the 2nd:

    “But the really nasty bit here is…both loans on the house were from the same bank, Wachovia, now part of Wells Fargo. The Times story does not draw out the implication: first, that the bank foreclosed on a second, rather than a first “

  19. Who said," the law is an ass"?

    Welcome To The Machine….

    I believe there is a further story here, in that all the “robosigning”, “HAMP”ing and other attempts to roll people’s paper in some form or fashion is an intentional act designed to cover the original deficiencies. The simple fact is that nobody cares if the paperwork sucks so long as the loan continues to roll, as nobody ever looks at it. It is only when one wants to enforce the terms of a contract that we get to the meat of the matter – did the contract ever really exist up and down the line, or did someone get duped or worse, blatantly ripped off?….

    1. Who'd ever guess?

      Friday, October 15, 2010
      Congressional Oversight Panel Report – HAMP Program and Conflicts of Interest

      “Discussion of Conflicts of Interest”

      The report notes actual or potential financial conflicts of interest of Fannie Mae and Freddie Mac with their duties owed to Treasury under HAMP. The Panel’s prior report noted that the dual role – as “doers” of mortgage mortgage modifications for loans they own or guarantee and “overseers” of Treasury’s mortgage modification program – “may present competing interests or diminish the overall effectiveness of Fannie Mae’s and Freddie Mac’s ability to modify mortgages, engage in HAMP administration or oversight, or both.”

      The report discusses the argument that this structural conflict is an “immitigable conflict because the interests are not aligned.” [page 85].

  20. Francois T

    “Who will ever trust contracts in the US if a powerful enough party can violate them in a wanton, widespread manner, and not be held to account?”

    Isn’t this the core issue that trump’em all? Isn’t this what Obama, Geithner et al. should focus on like a laser beam? Who the hell should even care about a deadbeat or two or a hundred thousand if the US acquire the reputation of being a place where contract may not be worth the paper they’re written on?

    Does Obummer wanna go down in history as the president who exchanged the good name of this country for a fistful of rice even if it is the Condeleeza strain? (sorry, couldn’t resist.)

    These clowns in DC had better start looking at the REALLY big picture and pronto.

  21. Sufferin' Succotash

    Rather like Moliere’s bourgeois who spoke prose all his life and didn’t know it, this country’s been Marxist for the past 200+ years and hasn’t known it.
    I mean honestly, all those county recorders of deeds actually charging fees to keep track of who owned what property! People being required to register property ownership with their local government!
    If that isn’t a totalitarian antheap I don’t know what is.

    1. Justicia

      My irony detector may be off kilter. I assume you intend the above as a joke, SS.

      Reliable, PUBLIC, real property recording systems are fundamental to all economic growth and development. See Hernando de Soto (the economist).

      1. Sufferin' Succotash

        Some things I never kid about.
        Of course property records are basic to capitalism.
        Like, um, no shit Shakespeare.
        But then Marx’s comment that under capitalism “all that is solid melts into air” seems appropriate to the current shambles; capitalism succeeds in dissolving everything in the end, including the private property rights that helped enable capitalism in the first place.
        Oh well, just so long as there’s butter to go on the popcorn…

        1. Skippy

          “all that is solid melts into air”

          Is *Economic Efficiency* the ion beam energy weapon directed_now_at the very citizens that constitute the very foundations of our Republic?

          Skippy…Highlander…There can only be ONE…fk lol…wealth singularity incoming!!!

  22. F. Beard

    A shrinking pie will bring out the ugliness in many. It would be best if the bankers lobbied for a bailout of their victims (both borrowers and savers).

    However, I can’t say I don’t enjoy the fireworks. There is satisfaction in seeing a fundamentally dishonest money system implode. May God have mercy on the innocents, though.

  23. Sunny

    I knew things have scre*ed up and never thought F**ED up this bad!


    “..Two hands without a brain, not even aware of the reasons they had to be bailed out. This was best highlighted by an event that generated plenty of late-night chuckles last fall, when Wells Fargo sued … Wells Fargo.Wells Fargo wanted to foreclose on a condo unit which had multiple mortgages attached to it. Wells Fargo also owned one of those second mortgages. So Wells Fargo spent money to hire a law firm and file suit against the irresponsible lenders at Wells Fargo. Then, Wells Fargo spent money to hire a different law firm in an understandable effort to defend Wells Fargo from the vicious legal attack coming from Wells Fargo. The second law firm even prepared a legal statement for Wells Fargo which called into question the dubious claims being made by Wells Fargo. Sadly, Wells Fargo won the case,crushing the hopes of Wells Fargo.

    As business reporter Al Lewis wrote at the time, “You can’t expect a bank that is dumb enough to sue itself to know why it is suing itself.” So goes the unprecedented wave of foreclosures that has swept across the country since the housing bubble popped. Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so…”

  24. Sunny

    I knew things have scre*ed up and never thought F**ED up this bad!



    “..Two hands without a brain, not even aware of the reasons they had to be bailed out. This was best highlighted by an event that generated plenty of late-night chuckles last fall, when Wells Fargo sued … Wells Fargo.Wells Fargo wanted to foreclose on a condo unit which had multiple mortgages attached to it. Wells Fargo also owned one of those second mortgages. So Wells Fargo spent money to hire a law firm and file suit against the irresponsible lenders at Wells Fargo. Then, Wells Fargo spent money to hire a different law firm in an understandable effort to defend Wells Fargo from the vicious legal attack coming from Wells Fargo. The second law firm even prepared a legal statement for Wells Fargo which called into question the dubious claims being made by Wells Fargo. Sadly, Wells Fargo won the case,crushing the hopes of Wells Fargo.

    As business reporter Al Lewis wrote at the time, “You can’t expect a bank that is dumb enough to sue itself to know why it is suing itself.” So goes the unprecedented wave of foreclosures that has swept across the country since the housing bubble popped. Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so…”

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