DC Puts Its Bankster-Friendly Solution for Foreclosure Fraud on the Table

We’ll analyze a proposal to fix the foreclosure mess put out by a DC think tank known as Third Way. Normally this blog steers clear of delving into random policy documents. In this case, though, it is likely that Third Way is speaking for the administration.

Third Way is an influential think tank whose board is composed of a special Wall Street-type – the Rubin Democrat. These people sit at the nexus of politics and finance, and are conduits for big bank friendly information flow into the administration and Congress. The President of the think tank, Jonathan Cowan, was the Chief of Staff for Andrew Cuomo at HUD in the 1990s, and Third Way is well known in policy circles for delivering ‘politically safe’ and well-packaged conventional wisdom. Oh, and one more thing – the new White House Chief of Staff Bill Daley, who just left the most senior operating committee of JP Morgan, was on their Board of Directors.

So by looking at this proposal, we are looking at the state of play among high level policy makers in DC, particularly of the New Dem bent. This is how the administration will probably try to play foreclosure-gate.

Their proposal, not surprisingly, is yet another bailout.

The big difference between the original and the new, improved version of the bailout model is that the payouts to the banks were at least in part visible the first time around. This is an effort yet again to spare the banks any pain, not only at the cost of the rule of law but also of investor rights.

This proposal guts state control of their own real estate law when the Supreme Court has repeatedly found that “dirt law” is not a Federal matter. It strips homeowners of their right to their day in court to preserve their contractual rights, namely, that only the proven mortgagee, and not a gangster, or in this case, bankster, can take possession of their home.

This sort of protection is fundamental to the operation of capitalism, so it’s astonishing to see neoliberals so willing to throw it under the bus to preserve the balance sheets of the TBTF banks. Readers may recall how we came to have this sort of legal protection in the first place. England learned the hard way in the 17th century what happens with low documentation requirements: abuse of court procedures, perjury and corruption become the norm. Parliament enacted the 1677 Statute of Fraudsto establish higher standards for contracts, such as witnessing by a third party, to stop the widespread theft of property that was underway.

The memo completely ignores the harm to investors from the bank mistakes and lacks any provisions for damage to investors to be remedied. Moreover, denying borrower rights removes their leverage to obtain deep principal mortgage modifications, which for viable borrowers produces lower losses than costly foreclosures and sales of distressed property. Thus this shredding of contractual protections in mortgages not only hurts borrowers but also harms investors.

So to save the banks from their own, colossal abuses of contracts that they devised, the Third Way document advocates Congressional intervention into well established, well functioning state law. This is a case where these matters can and should be left to the courts and ultimately state AGs to coordinate the template of a more broadbased solution.

But this proposal is this memo is a direct result of the banks losing in court and the fear that they will continue to lose. The Massachusetts Supreme Judicial Court Ibanez decision is clearly the trigger for the release of this plan. The SJC said its decision was merely articulating well established law. Consistent application of these principles will mean more losses for the banks. This memo is clearly an attempt to stop this as soon as possible. The real message of this document is clear: we can’t permit justice to prevail if it will hurt bank profits and balance sheets.

Let’s parse key sections of the document. Predictably, it chooses to divert attention away from the real issue, that of the greed and errors made by securitization industry participants, and the huge costs already imposed on innocent bystanders by the financial crisis.

Start with the first page:

While consumer advocates are hailing the decision as a victory for borrowers, homeowners are more likely to suffer the downsides—not the benefits—from the Massachusetts ruling. This case is certain to set off a massive wave of litigation by borrowers and lawyers eager to challenge a pending foreclosure. This in turn will create tremendous uncertainty in the still-wobbly housing market: Will homebuyers who bought a home out of foreclosure worry that their purchase will be invalidated? Will prospective homebuyers get too nervous to come off the sidelines, thereby driving up inventory and driving down home values? Will some homeowners be encouraged to “strategically default” in the hopes of winning a “free house” from technically faulty paperwork?

This is scare-mongering, pure and simple. It isn’t credible that a decision in one state with some idiosyncrasies in its real estate law will trigger a “massive wave of litigation”, particularly since anti-foreclosure lawyers often have trouble getting paid. Broke clients do not make for a great target market.

As to the “tremendous uncertainty” claim, where exactly has Third Way been? If they are only waking up now to the magnitude of the foreclosure mess, that alone disqualifies them from being competent to opine on this topic (note that this seems to reflect the advanced state of denial we’ve seen among securitization industry types; the result has been that parties further removed have been slow to wake up to the seriousness of this problem, despite ample evidence in local courts all over the US).

The homebuyer worry about foreclosure sales being invalidated argument is spurious; as we’ve remarked before, foreclosure sales are final. I can’t recall an instance of a public policy measure being implemented to pander to the neuroses of uninformed consumers.

Possible REO buyers sitting on the sidelines? That’s already true, and it’s due to doubts over validity of title thanks to MERS, not Mass., as well as the concern that housing has not bottomed in many markets. Since Third Way appears remarkably uninformed about housing market conditions outside the Beltway, namely, that there’s a huge inventory of homes yet to be foreclosed upon, largely due to servicers keeping borrowers in homes. That’s partly the result of a fee-maximizing “sweatbox” strategy, partly to save the costs of property maintenance and real estate taxes since they already have more real estate than they can unload in many local markets, and partly due court backlogs.

Third Way manages to accomplish the neat rhetorical trick of linking the urban-legend of “strategic defaults” (see Mike Konczal for details) with the jealousy-inciting “get a free house” meme.

Let’s get this straight: not a single lawyer I’ve come across want his client to get a free house. They fight foreclosures to get a mod. So when you see banks losing these cases, it’s because everyone involved on the servicer side has incentives to foreclose, not to modify loans.

In addition, vIrtually no decision, including Ibanez, have been “with prejudice”. That means the banks can foreclose if they get their act in gear. But the dirty secret is that the party that probably can foreclose is not the securitization trust, but an entity earlier in the securitization chain. Having someone other than the trust foreclose is a disaster for the securitization industry. There is no way to get the sale proceeds into the trust. The end result of having someone other than the securitization trust foreclose is to expose, as Georgetown Law professor has put it, that some if not most RMBS might actually be “non-mortgage-backed securities.”

We’ll largely skip over a heated and heavily spun section on the paper trail; it of course focuses on robosigning and overlooks numerous other abuses such as failure to convey notes properly and all too common document fabrications. However, we must note it too often gets the background and law wrong, again raising questions of basic competence. For instance:

Under the UCC, physical possession of the note and the mortgage are not required to enforce the loan.

This is embarrassing. The UCC is not relevant to this issue. As we have argued, the UCC (Article 1) specifically allows parties to contract out of the UCC and enter into more restrictive arrangements, which means the terms of the pooling and servicing agreement govern. But the UCC has nothing to do with the legal requirements for foreclosure; that’s governed by state-based real estate law, not the UCC. And in lien theory states, it means that the party foreclosing can be any of 1) “holder” of the note (meaning have possession AND be the proper party (or an agent of the proper party), 2) produce a lost note affidavit, 3) be subrogated to a holder or 4) be a purchaser from a holder who doesn’t yet have the note. Effectively, the foreclosing party either has to have the note or prove that it bought it from someone who actually has the note. That generally means you’ve got to produce the note.

The next section, on remedies, again contains distortions. For instance:

….if a foreclosure proceeding is otherwise justified (i.e. the borrower isn’t paying the loan), documentary failures don’t nullify a lender’s underlying right to a remedy.

Calling these “documentary failures” greatly understates the magnitude of the bank recklessness. A note is a negotiable instrument, like a check. Losing track of notes, each worth on average hundreds of thousands of dollars, is so deficient that that alone ought to justify all the major banks being seized and put through operational audits.

And despite this level of incompetence (or malfeasance), the banks have not been denied the ability to foreclose. Unless banks make repeated misrepresentations to the judge, the cases are dismissed without prejudice. The plaintiffs are free to come back and try again once they sort matters out. But they seldom bother. And again, it’s often because if they do find the note, it’s likely to be outside the trust, which as discussed above, creates a heap of other problems.

Next, in typical think tank style, the paper summarizes goals, then later offers remedies organized around those points; we’ll address both shortly.

The first goal is “Protecting injured homeowners“.

The discussion in the summary takes the view that the only “injured” homeowners that get any consideration are those “genuinely damaged by paperwork failures”. Thus the only problems that are addressed are screw-ups in the mod/short sale process and wrongful foreclosures. We see nary a mention of origination fraud or servicing abuses and errors. Yet foreclosure defense attorneys have said in 50% to 70% of the cases they represent, the borrower got in serious arrears as a result of servicing errors and compounding fees; a single late or misapplied payment can quickly compound into a multi thousand dollar deficiency before the borrower even finds out something is amiss.

Now let’s turn to the summary of section 2, “Keeping the housing market moving“:

The Massachusetts decision shouldn’t justify the creation of a cottage legal
industry aimed at stalling inevitable foreclosures. Creating a limited safe harbor from
paperwork-related litigation for pending foreclosures on abandoned or severely
delinquent properties would provide more certainty to the housing market and help
triage potentially successful modifications from inevitable foreclosures. In addition, a
one-year statute of limitations on paperwork-related lawsuits would ensure litigation
doesn’t drag on for years.

This is a doozy. “Cottage legal industry”? This is a more sophisticated, drive by version of the tactic used in a widely deplored first page Wall Street Journalstory which demonized foreclosure defense lawyers for being competent at court procedure.

Is there any other instance where an entire set of parties to a broad class of contract have gotten a free waiver for their own enormous, costly, and purely elective errors? The normal arrangement is that to obtain a waiver or a change in contract terms that has economic value, consideration must be paid. Remember the JP Morgan purchase of Bear: the reason the price went from $2 per share to $10 was that JPM had made a drafting error that left it exposed to more risk than it had bargained for and it needed to reopen the deal.

But I see no proposal here to have borrowers receive compensation from servicers and trustees for having their rights compromised. Aha, that’s the reason for all the expatiating about the Ibanez decision being bad for borrowers. They should give a major concession for free because it’s really good for them! Stockholm syndrome in action!

If the Third Way types were truly concerned about protecting homeowners rather than banks, they’d at the very least give homeowners something in return for the rights they are being asked to sacrifice, such as allowing courts to write down mortgages to current market value in bankruptcy (a well established practice for virtually every other type of secured lending).

Per the Third Way logic, the new reality of contracts is not the libertarian model of an agreement between equals, but of raw might makes right. A contract is treated as an ironclad, rigid arrangement if you are a small guy, but compliance is optional if you are powerful and well connected. Rubinites clearly benefit from promoting this world view.

And standing is NOT a matter of “paperwork”. This is a bedrock legal principle. Abandon the concept of legal standing, which is what this document calls for, and anyone can show up in court and say he has a right to your house once the statute of limitations has expired. Given that the initial foreclosure notice often lead to payment catch-up plans, combined with servicer incentives to keep borrowers in a delinquency “sweat box”, it isn’t hard to see servicers gaming a one-year statute of limitations (look how good a job they did of gaming the far more complicated HAMP).

In the detailed remedies section later in the document, Third Way picks up on a Shiela Bair proposal, that of a safe harbor against lawsuits if the house is vacant or the servicer has offered a deep payment mod, at least 25%. The vacancy provision looks like a red herring. How many cases are there where the house has been vacated, yet the borrower is suing? The only one I know of is not one that does not hew to the proposal’s assumptions about the motives of borrowers who do vacate property yet sue to get it back. The borrower left because she had previously been wrongly evicted from a rental, and everything in her apartment was dumped on the curb. By the time she got home from work, all her possessions, including her baby’s crib, had been stolen or hopelessly damaged. Economically and emotionally she could not afford to go through that again and moved out when the foreclosure became final (her attorney later filed a wrongful foreclosure suit).

More broadly, this element of the proposal appears unnecessary, and may give banks too much latitude in defining what is subject to this safe harbor.

As for Bair’s proposal for payment mods, the problem is that research shows again and again that what is called for is deep principal mods. Why should a borrower work to keep a deeply negative equity home only to face a shortfall upon sale?

Note that these provisions would also presumably have the effect of sheltering servicers and trustees from litigation, when the trustees made multiple certifications that they had all the loans and everything was in order. Remember, if the trustees had done what they repeatedly said in writing, in SEC filings, that they had done, none of this would be an issue.

Thus the Third Way plan also destroys contractual agreements without approval of the parties. Investors were entitled to get collateral with good title and, in the absence of that, to put back defective collateral to the seller. This would undo such contractual provisions for the sole benefit of one side, those on the originating/servicing end of the deal.

The next section, “Preventing future failures“, is motherhood and apple pie. The work is fobbed off to the Consumer Financial Protection Bureau, which in turn has to get approval from the members of the Financial Stability Oversight Council. Effectively, all the document calls for is for the CFPB to make sure banks live up to their contractual commitments. What a concept!

An ironic aspect of this proposal is that it is depicted as a way to reduce uncertainty. In fact, any Congressional intervention into well-settled state based real estate law is very likely to generate Constitutional challenges, particularly since Federal bank regulators have acknowledged that state law still applies to securitization assets. That in turn will increase, not reduce, uncertainty, and put the real estate market in an greater pall than it is now.

Finally, yet more “appease the banks” is a politically fraught strategy. The Administration seems unable to learn the real lesson of the midterm elections and is redoubling its efforts to pursue a failed course of action. Bank-friendly Blue Dog Democrats lost, progressives for the most part stayed in place, and Tea Partiers became a Congressional force for the first time. The unifying element is that this was a “vote out the corporatist incumbents” move above all else.

Establishment Republicans would also be wise to give this proposal a wide berth. If you want to recruit for the Tea Party, you could hardly find a better tool that to have the Federal government interfere with local courts on a matter as important to most Americans as their homes.

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  1. mannfm11

    These people have no concern for the rule of law. They should be identified and followed so the public knows where they are in government. I knew the crook was in when the JPM guy was made WH press sec. The last one was a big enough liar. This one is clearly a red handed thief. The validity of deeds is one of the most important things in an economy and the total disregard for a chain of title by the bankers involved in a process that has been done a specific way for a reason for 100 years or more shows moral decay, especially when the government itself, set up to protect the people and their property, rig the game for the tortfeasors.

    1. AJ


      Sorry, but for all the truth present in this article (and on this website in general), this is not an example of “naked capitalism,” i.e., capitalism pure and undefiled, but of precisely the opposite. Daley’s initiatives are nothing other than manipulated capitalism, a rigged game of privilege, graft and abuse perpetrated BY the powerful to the ADVANTAGE of the powerful.

      Our enemy is is not capitalism, but the corrupt swindlers who creep into offices of authority and abuse the power of law to pillage the citizenry of their wealth and fruit of their labor.

      Fight the real enemy. Return the power to the people under constiutional, representative, repbulican (small R) government.

  2. Knighttwice

    Stunningly ridiculous. The underlying truth that the banks and their paid-for politicians in DC will not admit to the people is that the industry is insolvent on a MTM basis. They can’t admit it because it would beg difficult questions like why was the industry permitted to exit TARP prematurely. This was the worst decision of the Admin to date and it was motivated by all the wrong reasons – the Admin wanted a political “victory” and the banks wanted bonuses. Every idiotic decision stems from this simple truth. The banks have no capital. Were this not true, the Admin could easily force the banks to eat their own cooking, and the lessons learned would last for generations. That would be healthy to a capitalist system in the long run. Instead, we will destroy the rule of law to protect the banks AND the current crop of temporary politicians. Disgusting really. As a conservative, I truly hope this is one issue – perhaps the only issue – where the left and the Tea Party can unite to fight for the people and the rule of law. I wonder if they will find each other.

    1. AR

      Karl Denninger, a Tea Party founder (before its takeover by Koch-funded elements of the GOP), has repudiated it in a post titled To The Tea Party: Go Screw Yourself, for the very reason that it no longer makes “Any mention of why I and others led people to mail tea bags to Congress and our President in the first place: rampant theft of over taxpayer money propping up FAILED private businesses.”


      1. dogismyth

        Denninger is no leader. He is the one who speaks about freedom of speech and losing that right, yet he refuses to allow certain conversations (e.g., 9-11) on his site. In fact, you will be banned for making statements contrary to his. If you mentioned buying gold as it was beginning to erupt a few years back, he would ban you unless your speech was compartmentalized in a specific forum. He has expelled much more worthy individuals from the site in order for him to reign over his lackeys. His exile of NoTHING is the perfect example.

        Yes, he is some advocate of free speech. It seems to me that he only cares about his own personal status quo so as to preserve his status and wealth. Thus, he responds accordingly for his self, and not others. As an investment board/chat room, improper advice is always given. He was telling everyone bond yields were going through the roof 1.5 years ago. LOL….look where they went. He told folks not to buy gold…too risky…lol…look where that went. His quasi fear of the economy has dispelled hundreds from investing in the market while it has risen.

        Who does he work for is my question???

        That is what I see. He is no orchestrator of anything IMO.

    2. Howard T. Lewis III

      I expect with 4 SCOTUS members loyal to control from ‘the top of the pyramid’ on the dollar bill instead of U.S. Constitutional law and the remaining 5 SCOTUS members loyal to the Vatican, loyal Americans’ hands are being called.
      How anyone could make such a contractual deal with a bank and pay so much interest indicates self-destructive urges on their part. And even if they lose their equity and homes, they won’t work to remedy the system, maybe only a brief spasm of activity to assuage any feelings of ‘pain of failure’. Priests often tell people to stay stupid and lost. What do we do to relieve the land of this scourge ? Vote in Ron Paul maybe and protect him with our lives? Seems like a fair trade recently.

  3. killben

    America is slowly but surely becoming a banana republic! America’s forefathers would be turning in their graves!!

  4. attempter

    Thus the only problems that are addressed are screw-ups in the mod/short sale process and wrongful foreclosures. We see nary a mention of origination fraud or servicing abuses and errors.

    Then there’s the broader fact that pretty much all mortgages were fraudulently induced in the sense that the same banks who promised America that housing prices would permanently increase and that everyone would be getting richer and richer were at that same moment planning to destroy all decent American jobs and eventually destroy the real economy itself.

    We’re now entering that intentonally engineered permanent depression and condition of permanent mass joblessness. So by definition any mortgage sold under the aegis of “American dream” and “ownership society” propaganda (the federal government and MSM were also part of this criminal conspiracy) was fraudulently sold.

    While it’s good to shred this thing, I hope people won’t try to come up with counterproposals, “compromises”. There’s absolutely zero reason to change a single comma or period of the existing recordation system. No one but criminals and their enablers would want any change whatsoever.

    Instead we should demand that the full logic of existing law be allowed to work itself out. Judges must do their jobs, and the federal government must respect the constitution and the rule of law.

    That should be the entirety of what any citizen demands, not one bit more or less, and we should absolutely refuse to negotiate.

  5. hermanas

    “tremendous uncertainty in the still-wobbly housing market”
    That’s rich. It’s this quality of governance that’s creating uncertainty not just in the housing market but the entire economy. A stable equitable economy will establish values, not these games. Do these people answer your challenges or just issue assertions?
    Congrats and keep the heat on.

  6. Richard Kline

    What a Devil’s Handcuffs securitization has proven to be: the money comes in and never comes out. Through four years of watching this epochal crack-up, the completely catastrophic ooblek of these trusts confounds me ever more in its totality. And this end result is not, in my view, for reason of incompetence, though that’s been in ample supply, nor simple malfeasance. Instead, we’re seeing a fraud so good, so vast, so through-shot in its self that its designers didn’t even realize they were on the inside of these arson-for-profit rig-ups without a door untils their socks caught on fire. To me, the purpose of securitization from 1998 on was to send the money one way, the risk another, and the liability yet another. Of course no one would touch that with a forty-foot pole let alone their money so the thimblerig had to be obsured by as many moving parts and title shifts as possible: that opaqueness and paper-‘fail’ of it all was a FEATURE not a bug. The point was to make it all such a muck up that ‘just trust me, I’m a pro at this’ was the only way for investers-cum-suckers to go forward. There are, really, no paperwork deficiancies since those putting these deals together just didn’t give a tinker’s damn if the paperwork got done, nobody was ever supposed to even _look_ for the actual paperwork. —And we see what happens when that kind of fakery becomes the operative mode: even the fraud didn’t work in the end. As far as I’m concerned, everyone holding an MBS should lose their stake period.

    But on a larger level, I’m put in mind reading this awful proposal for the effective abrogation of 400 years of real estate case law of a different conundrum. America has become a society of lies. I was reading an article the other day on what a bad deal law school is for most in the US now when this point really hit me front and center. The law schools lied about placement rates and salaries for their grads, about their standing, about their certification, and quite a lot else. The ABA lied. The student loan lenders were a festering mass of lies. The applicants lied to themselves about the probability of their careers and the reality of their debts even thought the facts were in their face. And much else. Everybody lied. By no means all of these lies and their liars were sociopathic or delusional in so many words. There were many pressures, many hopes, just a three-finger pinch of actual success enough to give the certainty of lies a patina of validity. A steaming horse-turd pie of lies that everyone in the process ate. And that is what everything in public policy in the USA has become. Lies on oligarchy. Lies on benefits. Lies on wars. Lies on self-interest. Lies on beliefs. Anything. I can’t read a newspaper anymore for the tissue of lies is to thick the seed of truth falls out on the ground and I can’t see it.

    And I’m not used to this reality because ‘back in the day’ it wasn’t like that. There were always lies on all these things of course; public policy and the official line is always more false than true, that’s a given. But there was a regular strain of _fact_ which is in fact more important than ‘truth.’ And arguments would, with some regularity, orient to those facts and what they might mean. But we’ve left the dimension of facts behind, folks, and I find that disturbing as a scholar and a citizen. I don’t know whether it was twenty-four years ago, or seventeen, or twelve, or nine, or three. But we crossed the event horizon of the Total Lie. Not the Big Lie anymore: that became the touchstone of political power a generation ago, with each head of the Pinocchio Party trying on bigger whoppers as time went by to get the Four-Year Cupcake with their preferred frosting. But facts; they’re inconvenient things. They went from being neglected, to distorted, to optional, to ejected. And we now have the Society of the Total Lie.

    In that context, this Third Way (to Lie) proposal is not a conundrum but the perfect example of the status quo. Facts? Citizens? Laws? Process? Nothing matters if you own the Lie Machine. Enserf the pitiful little people, all it takes is the sweep of a pen in an office behind nine layeers of private security, and the money keeps flowing to the Lie. And the hired politicos add their layer of lies to it. And the media picks up this lie or that lie in it to hold attention between adverts. And the meme that floats is a rumor molded on a lie encasing a fraud.

    I can think of historical societies where the lie has reached the level we see now, from the normal scale of biases to the total invention of a phoney ‘reality’—and none of those instances have remotely good outcomes. Like ‘hitting the wall doing 110 mph’ kind of outcomes, because when reality appears to become optional sanity vanishes in the rearview mirror. We’re barreling into that kind of future with shills like the Third Way perps leaning on the accelerator ’cause they think they’re in the getaway car with a carpetbag of bills on the seat beside them. Open the bag and it’s bare but for moths of lies.

    And neoliberals have _never_ been remotely interested in capitalism. They talk about it, but they hate it. Markets are too . . . too random. They are oligopolists. The whole function of neoliberal practice is to remove any impediments to large pools of wealth forcing all economic activity under their chokehold. But that’s another day’s screed.

    1. craazyman

      So true, Mr. Kline, so true. I’m on eHarmony now trying to hook up with a hot woman with a nice bod and intelligent face and a really good brain, and most of the hot ones are all-money-Cinderellas with the glass shoe.

      They’re all floating on that big flat sea of kleptocratic money shit that levitates New York like a Big Turd — lawyers, finance pros, real estate this, securities that — and if you channel them all you see the ache of a cold bewildered delusional dream looking for a pyramid to ensure it’s immortality, the hysteria of the planted smile, the tenacious and defiant clinging to the Weltanschauung that floats them to the top of the transient phenomenazation that we call “the world” like urine bubbles in the toilet after a piss.

      Some seem to believe the bullsh—t of their world, like the pyschopaths in chains in an 19th century Insane Asylum who think they’re Jesus or Napolean. But I think at some level some are sane enough to sense the tectonic crush of reality, to see the Slaves who manicure their nails, the Slaves who deliver their Chinese food, the Slaves who drive their cars. The Slaves and the Lies. Slaves and Lies. Slaves and Lies. And Mindless-Conscienceless-UnRegulated-Bestial-Lawless Money lubricating it all like oil lubricates a gun barrel.

      It would be amusing if one of these types and I got together. I’m a gentleman, but I suspect it wouldn’t last too long. Bowahahahahahahahaha

      Actually, you’d never know by looking at me. I look very proper in a suit and tie.

      Good screed Mr. Kline.

    2. Rex

      Wow, Richard, what an exposition. Great observations and writing.

      I think, maybe, now I’ll go find an entertainment blog or a place that will lie to me that all we need to do is kill Social Security (or whatever).

      Too much truth about the lies is a little painful to digest.

    3. Antipodeus

      Thank you, Mr. Richard Kline, for a most succinct, humane & eloquent summation of the situation.

      Since 2008 I’ve been reading & digging, trying to wrap my head around the enormity & complexity of the whole Mortgage-Gate scenario. It looms over everything like some Medusa-like presence. Once you’ve almost pinned it down, up pops ANOTHER snake!

      Having watched the promise & apparent disappointment of President Obama, the failures to regulate or re-regulate, the failures investigate or legislate or prosecute … short of civil unrest if not conflict, it seems to this writer that your only realistic, peaceful solution to all the various civil grievances arising from M-G is to use THE LAW, which so far does not appear to be COMPLETELY compromised. Use their own LAW against them – ‘they’ wouldn’t hesitate, not for a heartbeat.

    4. AR

      MinnItMan wrote: it doesn’t look like they had been sold out of REO yet so there wasn’t the problem of new owners yet.

      Marie McDonnell, in her amicus brief to the MA SJC: On December 15, 2008, Appellant U.S. Bank sold the [Ibanez] property to Blue Spruce Entities LLC for $0.00; in a simultaneous transaction, Blue Spruce Entities LLC sold the property to HomeSolutions Properties LLC for $5,500.00.


      I did an internet search for Blue Spruce and it showed up all over the place, taking properties off Fannie & Freddie’s hands for under $10,000 each; and internet listings to sell their acquisitions cheap. I don’t think they record title either. Are these entities fences?

      1. AR

        Oops. This reply was meant for MinnItMan below.

        But, as long as I’m here, I must commend Richard Kline for his excellent rant that mirrors my own thoughts.

        BTW: go to attempter’s blog (http://attempter.wordpress.com/) and read his post from January 11: ‘Mortgages and Pensions, Federalism and Class War’ for another fantastic concise dose of cold reality, diagnosis of the banksters. It bites. Hard.

      2. Howard T. Lewis III

        Conspiracy. Just like a football game where your life depends on it and no one warned you what greedy back-stabbers did for a living. Thank you for the info Mr. AR.

    5. Biff McFly

      What beautiful, powerful words Mr. Kline. Thank you for taking the time to write them. The truth has a way of searing through the brain and settles at the heart. Your words did that.

    6. Joe

      Thank you Mr. Kline, very moving comment. The only thing that might top this is if you spoke these lines in a youtube video. I think it would go viral.

    7. Howard T. Lewis III

      There is no rationalization for paying so much interest to buy a house over a 10 to 20 year period. The builders earned their pay and did not need bankers if not for banks’ choke-hold on financial omnipresense. It has been peaceful so far. Somebody has their hand stuck in the cookie-jar and I am not so fast to point at builders or their customers.

    8. Charles Fitzsimmons

      Wow. What a piece of writing. Proof that human beings are often at their best when things are at their worst. As sick-making as our current situation is, a comment like this makes me feel a tiny bit hopeful. Well done.

  7. Jack Rip

    It is once again the arsonists dressed up as firefighters. The Third Way, yet another incarnation of a group of visionless, unreasonable, pseudo-Republican Democrats living off the media fiction and propaganda, is formed on the right of the Democratic Party. It is simply disgusting to hear echoes of Obama’s baseless approach.

    The Third Way is the parallel of the Neocons within the Democrats. Instead of the Iraq bloodshed with thousands of young American sacrifice, the Third Way sacrifices homeowners in order to feed vision of bank nobility that must always win.

  8. John

    In other words, the banks, after screwing the pooch in a serious way sideways, have found the right politicos to talk to, crying through their soup and getting a promise of “everything will be alright, we’ll work this out”.

    I guess the permanent answer to “how corrupt are these people?” is “more corrupt than you can imagine.”

    The banks deserve to die a horrible, festering death. The banks involved were fundamentally incompetent, broke the law, defrauded customers and investors, and now are pretending that it’s not their fault.

    What a legacy this will leave.

  9. aletheia33

    exactly how would the suggested new rules be enacted in defiance of the will of the states such that state property law is overridden? i doubt that e.g. vermont or massachusetts would readily allow their hoary property law to be made a hash of.

    and what about the inability of congress i’ve read of to make new legislation apply retroactively?

    hope someone here can provide enlightenment on these questions.

  10. Context Please

    By the way – what the f%^k is wrong with a “free” house?
    There isn’t a goddamn thing free about the hell, and loss of BIG AMOUNTS of money by people who are facing foreclosure.
    How much “free” have the Gangsters received on behalf of the taxpayers?
    Foreclosures sales are not “final” the borrower can go back after the lender.

    Third Way is here in DC:

    1025 Connecticut Ave. NW, Suite 501
    Washington, DC 20036

    (202) 384 1700

    (202) 775 0430 (fax)

    add a “1” “2” “4” to the 1700 to get a real voice and ask them politely to shut down their operation and go to hell.

  11. vlade

    Isn’t there a typo? It shouldn’t be “Third Way”, but “(Welcome to)Third World” methinks…

  12. Rob134

    James K. Galbrieth put it better than most:

    “Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle-class utopia. Instead, predation has become the dominant feature — a system wherein the rich have come to feast on decaying systems built for the middle class. The predatory class is not the whole of the wealthy; it may be opposed by many others of similar wealth. But it is the defining feature, the leading force. And its agents are in full control of the government under which we live.”

    I want to repeat the last sentence, because that is the crux of the problem, and why there will be no solution…at least not a non-violent solution.

    “And its agents are in full control of the government under which we live.”

    1. Richard Kline

      so Rob134, that’s a splendid quote, and I will add ‘predation’ to my metaphorical quiver. Do you have a date for that quote, as JKG didn’t live to witness our present daze of infamy?

    2. -

      but a ‘violent solution’ would lead to unpredictable results.
      reminding me of…
      I’ve wondered about cycles of success from a genetic inheritance pov. in times of less-elaborate technological and social systems, more people simply died if they ‘couldn’t keep up’ (although family could afford some ‘unproductive load’, but only so much. eg, one physically damaged elder could provide child-care and do some chores.)
      (… and there are too many other branches of this “thought experiment”).
      the types of biological misfortune that (if highly heritable) would most ‘weaken’ a population are those that strike younger persons.

      so while I don’t want to seem to promote inhumane ‘solutions’ (‘eugenics’ or whatever), eventually mother nature imposes inhumane ‘solutions’.

      when mother nature does her ‘solution’, does the population actually shed ‘useless’ govt/business bureaucracy/parasites (gbbp)? or do gbbp only scale down their activities, while still exposing the worker-bees to life’s risks? i suspect gbbp *do* continue to do well, by their charm and gift-of-the-gab.

      btw, “teaparty” protesters (and voters) seem a mix of worker-bees and middle managers (half parasites).

  13. MinnItMan

    Iyves is right about the cottage legal industry of foreclosure defense being non-lucrative for lawyers. The legal process is expensive, and these types of cases have so many variations of fact patterns, that the upfront investigation alone is usually more than most people can afford – even if they could afford a reasonable monthly payment on a principal-modified loan – and frequently, they have already been bled out by servicers, loan mod companies and others whose business it is to provide foreclosure “help.” Furthermore, IMO, these make terrible contigency fee cases because damages are extremely difficult to determine up front.

    That said, the the TWers concern about the cottage industry suggests either a total misreading of Ibanez decision, or an all-too adequate understanding. I’m not sure yet.

    First of all, the consolidated appeal makes it clear that the two lenders lost uncontested cases. It wasn’t borrower lawyers who won for the borrowers in the Land Court, it was the Court itself calling BS on the lenders in their respective quiet title actions where they hadn’t joined the last legal assignee of the security instrument. In addition, they had to have done this prior to foreclosing, and gotten a court to award the legal assignment, if necessary. I don’t know much about the Land Court and it’s rules or limits on its jurisdiction, but I don’t see a reason why a claiming an equitable assignee’s interest against the legal assignee wouldn’t have gotten them in. It is a real estate interest. It just had to be established as a legal right prior to foreclosure per the Mass foreclosure by advertisement statute.

    The Land Court bent over backwards to allow the lenders to make their cases, essentially saying “give us something that shows that prior to foreclosure you had the legal right to foreclose.” This is the case everywhere for constitutional Due Process reasons. Foreclosures by Advertisement are usually describes as legal “procedures” as opposed to legal “actions,” that is, actual law suits. They allow for a nearly “self-help” remedy that divests property rights, but the process has to be followed. In other words, it allows parties with essentially “indisputable” claims as to default on the debt, ownership of the security and proper notice to affected parties to avoid court, and probably more importantly, court scheduling. I put “indisputable” in quotes because the process generally requires sworn statements as to each element, and once that’s done, the burden of challenging it shifts entirely to the borrowers and requires them to start an action. In these cases, I disagree with Iyves that the foreclosure sales were final, since they were found to be void. Furthermore, it doesn’t look like they had been sold out of REO yet so there wasn’t the problem of new owners yet. In fact, that’s why the lender were doing the quiet title actions. (Unless, there was some title indemnity.)

    I’ve said before, the was not a controversial decision (this is why I don’t think there was a title indemnity, but I haven’t heard that confirmed yet), unless you think that lenders (security interest holders) should always win, regardless of their legal position.

    In my opinion, assuming that there isn’t a bankruptcy trustee standing in for the last legal assignee, lenders could solve this problem fairly inexpensively (relative to the cost of this appeal, at least). But, they continue to be pound-foolish.

    The Third Way-ers’ proposal, IMO, will just add another layer of litigation, and worse, another layer of courts – the federal courts – into this mess, although I do think the Due Process claim is likely to be decided decisively against allowing parties who can’t prove their legal claim to ownership of the security. Maybe it’s a back-door partial moratorium, but that doubtful. It will make a new claim available to some borrowers.

    1. f247

      MinnItMan, can you point me to anything that would explain what happens with a default/REO title policy if the court decides a foreclosure is no good? Or even a decent overview of the REO title process? Thanks.

    2. AR

      MinnItMan, I meant to leave a reply here, but accidentally posted it above, about the Ibanez home having been sold after FC.

  14. f247

    “denying borrower rights removes their leverage to obtain deep principal mortgage modifications”

    Great post. Keep pushing, Yves. If the states throw in the towel before they use their position to get broad principal mods, it will be a damn shame.

  15. Jackrabbit

    I don’t think they fear the Supreme Court. In fact, the story on the front cover of the latest issue of Fortune magazine is that the Roberts Court is the most pro-business court in history.

  16. Schofield

    Hey. Fraudulent capitalism has always been the American way life because everybody has forgotten the need to regularly push the sociopaths off the ice.

  17. kharris

    Just a thought on politics. As Yves notes, willingness to go the extra mile for corporatists has not been a winning political strategy in the latest mid-term. However, Clinton’s success was built partly on the DLC, and the DLC is the home of corporatism in the Democratic Party. The “big lesson” in the past generation for Democrats is that peeling away corporate support from the GOP, taking on entitlements (“ending welfare as we know it”) and regulating with your eyes closed is the way to power. It must be very hard to turn away from that lesson.

  18. JP Warchild

    Banksters must move quickly, as their power and support base is eroding. They will have less support after the next election.

  19. Rebel Cole

    One issue that isn’t getting near enough attention is the fact that the servicers are really stealing from the lenders in cases where the property is underwater. All of their fees come “off the top” before any money goes to RMBS investor, so the longer a property stays in the foreclosure process (LPS reports that the average duration is now up to 499 days!), the more money the servicers make and the more money the investors lose from ultimate recovery after a sheriff’s sale. It is long past time for investors to remove the Big 4 servicers, who also are conflicted by their $400+ billion in second liens, and replace them with special servicers under an arrangement that aligns the interests of investors and servicers. As Lew Ranieri has said, no lender wants to foreclose; a workout is almost always in both parties best interests.

  20. Anon

    So this is what Giddens come to in the end.

    No wonder that fraudulent sack of shit Tony Bliar endorsed it.

    Third Way = do as we say, not as we do.

  21. Anon

    It’s an extension of the Leona Hemsley play, viz. laws are now only for the little people.

    Too big to fail, too big to care.

  22. Eric

    Let’s segregate those loans on which foreclosure actions have been started to be treated under existing laws. But for loans on which no foreclosure action has been taken, if the states can create legislation that allows serious and even intentional errors to be rectified in the transfer of notes, in what way are the borrowers harmed? They agreed to a loan that gave the lender a transferable lien: that the lien ends up being enforceable after a period of “legal neglect” doesn’t sound like the end of the world. Likewise, should an investor buy a bond that for some time did not have the right of foreclosure backing one or more of the constituent mortgages, how are they harmed if that right is restored? I’m not sure if such legislation can be written and passed, but why all the bristling when people suggest looking for it?

  23. Virginia

    I sent this to my Congressional representatives in the US House and Senate:

    My vision would be instituting state housing agencies in each county that take the securitized foreclosure loans (primarily from 2003 – 2008) away from the banks (servicers, trustees – who have already gotten paid – sometimes more than once from TARP and insurance) and reconstruct loans with individual homeowners. It would create jobs – probably run like a DMV or County Water department. It would have to be part of a state settlement proposition with the banks – they pay fines for their recordation and tax evasion and deceptive business practices and turn over the foreclosure properties/bad loans and REO properties to the state.

    You’d need to request a study of the number of loans that all the banks have that were securitized or that ran through MERS and REOs – these are our clouded title issues. NO exceptions – all the banks participate or the fines are dramatically increased. You’ll actually be doing the banks a favor by taking the toxic assets off their hands – and eliminating the lawsuits that could drag on for 10+ years.

    Let’s take an average as example (for the sake of argument): 20,000 Hawaii foreclosures last year might have been saved if allowed to modify the loans. The initial cost to take the application, value the property, construct the new mortgage, set up the account (just like property taxes and water bills) will be the biggest expense.

    20,000 homes X $900+/- mo. payment (low average w/ 2% interest – DO NOT GET GREEDY) = $18,000,000.00 A MONTH. You may be able to get initial funding through our Congressional contingency to start up – as this would make more sense than the Federal gov’t pouring more money into banks that have to pay off attorneys.

    When the banks turn over these properties to the state – they’d have to turn over the original mortgage and note loan documents and paperwork and all of the trust information. Of course, there would need to be agreements of how much of these monthly funds would go to investor trusts – but many of them have gotten little to nothing for several years – and are headed into getting nothing at all – ever. If every state did this – we could stabilize the economy. Hawaii would have 15 – 30 years of jobs and extra income for both state and counties – and our property ownership back in Hawaii.

    With all of this said – I’m not totally convinced that the investors and/or their “agents” bought into these trusts expecting a 30 year mortgage. Maybe they were “told” that there was virtually no risk because there was plenty of insurance “when” the borrower failed.

    1. Bill

      Virginia, I like your suggestion. I suggest steep principal mods for homeowners. The investors could begin recieving payments. The treasury could rectify any short fall these investors face by issuing a bond paying a good return that is only available to these investors.

  24. readerOfTeaLeaves

    And standing is NOT a matter of “paperwork”. This is a bedrock legal principle. Abandon the concept of legal standing, which is what this document calls for, and anyone can show up in court and say he has a right to your house once the statute of limitations has expired.

    This is a public policy disaster.
    This is like telling John Wayne that he can’t ever touch, nor ride, a horse. And that it’s his tough luck if some banksters in NY or Dubai decide to call in the loan on the ranch; he has no rights whatsoever and he is supposed to ‘just move on’.
    This is in direct conflict with generations of American mythology.

    Stupid beyond belief.

  25. ChrisTiburon

    “This sort of protection is fundamental to the operation of capitalism, so it’s astonishing to see neoliberals so willing to throw it under the bus to preserve the balance sheets of the TBTF banks…”

    Perhaps the PTB know that this is the ultimate round and they are willing to sacrifice it all for the last opportunity to feed before it all falls apart.

    1. Sufferin' Succotash

      “this is the ultimate round”

      So, what happens next? Early 80s Ridley Scott/John Carpenter Urban Hell(shattered blocks of concrete with water dripping from the reinforcing rods, etc.)?

      1. ChrisTiburon

        Naah..that’s too neat.
        More like The USSA without the public transit, free health care, government housing and subsidized food. I think I’ll go look at some cute animals to get back to the only thing that matters, our place in nature.

  26. mmckinl

    Yves … “Establishment Republicans would also be wise to give this proposal a wide berth. If you want to recruit for the Tea Party, you could hardly find a better tool that to have the Federal government interfere with local courts on a matter as important to most Americans as their homes.”

    Unfortunately the propaganda machine will characterize foreclosed citizens as low lifes and ner do wells that crashed the system. The Tea Party proletariat will swallow this deception.

    The original Tea Party was anti-bankster in rhetoric but was purposely morphed into a plutocratic tool. The transition is complete … It will only be a small sliver of libertarians that protest.

    Congratulations on your Blog rating !!! Speaking for myself I have not found a more complete and comprehensive … and most importantly honest Blog anywhere. You have educated me throughout this financial debacle and I thank YOU for your efforts …

  27. davidgmills

    Sometimes I get tired of seeing these posts by misinformed people claiming to know law.

    The notion that the UCC does not apply to mortgages is utter BS. In fact numerous courts have relied upon the UCC to render MERS mortgages invalid. Do you guys not read the cases? The Maine Supreme Court case decided last August is the latest prime example.

    And as I have stated many times on this board, the real problem with these mortgages is the liens. MERS is a strawman lienholder and a strawman lienholder threatens the recordation systems of every single state. I expect courts to continue to hold these liens invalid because they jeopardize the state recording systems. In fact, these liens almost make the state recording systems moot, and in the process convert a public, transparent system into a private, secretive one. The more courts realize this, the more they will be inclined to hold these liens invalid.

    I don’t know how Congress writes a law that protects the banks, while simultaneously protecting the recordation systems of every state in the country. So any federal law will likely continue the harm to state recording systems. And the state courts will do everything to make decisions to get around the effects of any federal law that decimates state recording systems. A federal law will not stop the cases from coming.

    The only thing that stops the flood of cases is that lawyers can’t find a way to get paid.

    1. Yves Smith Post author

      This post was reviewed by three lawyers, all of whom know securitization contracts, the UCC, and local real estate law cold. The discussion of the UCC is correct. The only way the UCC is germane is that Article 1 allows parties to contract out of it (provided certain standards are met) and that is what the PSA does. Judges have tended to rely on the UCC out of habit and the lack of relevance of the PSA to most of these cases (meaning borrower attorneys seldom bring it up, but the Mass judges nevertheless looked for a proper conveyance chain, which is what the PSA obligates the parties to adhere to). You are the one who is trying to pull a union card rather than reading the text and dealing with the argument.

  28. Swemson

    Anyone doubting that this is very much part of the progressive’s plan, should be made aware of the fact that one clerly hidden part of the Cap & Trade bill gives the government the authority to prevent you from legally selling your home unless you’ve upgraded all of your windows, heating & cooling system, & all of your appliances (including everything that uses small electric motors like your blender) to the ones that are regime approved…

    It’s called the home labeling program. You can read more about it here:



  29. Matt

    Isn’t the “Third Way” how fascism was described by its founders? I probably would have picked a different name for my think tank…

    But in all seriousness, this post hits the core problem dead on. It is truly depressing to watch the Obama Admin continue to completely fail to understand the results of the midterms. Even more depressing, as a progressive, is the near certainty that at this point, the historic opportunity of 2008 has been lost. America in 2010 is just like America in 2007, except when the next crash hits, we’ll be starting off with a worse economy.

  30. Tom Hickey

    Administrations of both parties have shown over and over that when the ruling elite is threatened in any way that they will just change the rules. Hey, if war crimes and torture are no problem, then habeas corpus and sanctity of contracts don’t amount to a hill of beans.

  31. Milton Arbogast

    Now you know why the various banker trade groups are saying, “Up is down, black is white”.

    They have been given the tip that the fix is near, very near. All they need to do is contradict reality at every turn until the fix is in.

  32. Paul Repstock

    Remember folks..Be as outraged as you like, it is certainly warranted.
    But these are not politicians in the normal sense. I suppose you could call it a NGO or perhaps unregulated branch of the civil service. I prefer to view these “Think Tanks” as houses of ill repute, and the occupants nothing more than low level (though highly paid) Prostitutes. They continuously launch trial ballons so the government can guage the level of response to it without ever being exposed as having antisocial views.

  33. Random Blowhard

    The Rule of Law only applies to the “small people”. Anyone who dares question the edicts of their TBTF overlords shall be fed feet first through a woodchipper as pennance for their blasphemy.

  34. Michael S. Levinson

    We used to say, what’s good for General Motors was good for America. But today, as America goes, so might go the biodiverse health of our planet. Everything on good ship mother urf is interrelated. We need to refresh our cap id a list structures, and renew our entrepreneurial spirit.

    I am an independent write-in candidate for president. My program calls for the purchase of every mortgage in the country. We, the people, through our government, should purchase every mortgage in the whole USA; the good, the bad, and the ugly. Ugly are mortgages known as tock sick.

    These residential mortgages can be purchased by virtue of this presidential candidate’s innovative conception: Mortgage Savings Bonds, an original financial instrument, knot inflationary cold cash, hot off the presses, which we don’t have, but Obama’s administration insists on printing.

    Old Cheyenne-easy say: “Cash fusion make hot pocket. Burn hole,” like the banksters remodeling of their office bathrooms with silver trash buckets and gold plate toilet seats for their visiting associates.

    These Mortgage Savings Bonds cannot be cashed until the mortgages are paid, but they certainly could be sold or traded by their holders on the open market. Savings Bonds are backed by the good faith of the American people; in this case, real properties on which these proposed innovative instruments, Mortgage Savings Bonds, will be written.

    We pay 90 cents on the dollar for the good, 85 cents for the bad, and 60 cents for the ugly; millions of mortgages, all refinanced with thirty-year fixed rates, the in tryst spread, according to the credit worthiness of the mortgagee, running from 3% for triple A, to 7% for sub-prime, late pay tock sick holders with deadbeat cred.

    Rather than more public bailouts, or government intervention, banks can work with we, the people or sink in their own holes. We are purchasing all the home mortgages, good, bad, or troubled, regardless what the banks want, with Mortgage Savings Bonds backed by the good faith of the American people. We, the people are entitled to repurchase the resulting fruits of our labor, the sale, by Obama Executive Order, or upon election of someone committed to this program. (hint: the author, whose name appears below).

    This proposed buyout is a reasonable, yes we can do, beneficial refinance program!

    Retooling these millions of mortgages, a giant job, can be accomplished with a fail-safe do-it-your self, online program. Those without computer literacy can get their numbers entered by income tax preparers, their fee, Uncle Sam guaranteed.

    Every homeowner benefits from a restructured fixed 30 years mortgage. The world’s e con oh me will settle into non-inflationary growth from this mortgage solution, the stage set for cleaning the planet.

    We can tack a non-interest bearing 2nd mortgage on sub-prime homes that swapped and sold for twice their value, toxic still, after a 60 percent whack, so people can remain in their sub-prime dream, pay down their debt, and eventually, as prices inch up, their mortgage drawn down, see their liens paid off fair and square, with their equity left intact. This is a healthy way to stabilize sub-prime neighborhoods. A foreclosed house devalues the street.

    After our Louisiana styled repurchase, the mortgages on every house in America will be divided amongst bank branches in the same zip codes, for servicing. The ex-mortgage holder banks are compensated for collecting our mortgage payments, on behalf of we, the people, the Mortgage Savings Bond backers.

    We let the banks hold ‘our’ money, twelve payments worth, before they have to begin handing over our ducats to Washington. With a year of mortgage money, banks at the branch level will be flush with liquidity for loans, replacing money central management blew on swap speculations, now available in the neighborhood branches where the money is collected; where the jobs are created.

    Branches can provide capital to all the capital hungry businesses in their zip codes the old fashioned way, after a visit to the business’ premisis. There will be in tryst on the Mortgage Savings Bonds with which all the home mortgages were purchased. Jobs will be created.

    There will be in tryst on ‘our’ money, which we are allowing the banks to borrow from us expressly to loan out to all the businesses in their neighborhoods that require capital, so interest we accrue from our trillion-dollar mortgage purchase is washed.

    Or, our mortgage payments could be freely loaned money we loan shaky banks to turn around for profit. Banks ought to like that, or we could let the shaky banks fold their tents and quadruple our federal credit unions as instant bank replacements.

    One aspect of our federal credit union system worth noting: the shareowners are the depositors. What’s wrong with a capitalist enterprise funded, owned and run by users, like our socialist-tickle Medicare?

    A couple years ago Treasury Secretary Geithner stated on This Week, With George Stephanopoulos, “A core part of our plan involves making sure banks have enough capital to provide the lending we are going [slur] need to get recovery back on track.

    But the banks used our bailout money to purchase other banks instead of loaning the money, bringing to the foreground a universal concept: cheaters always lose!

    Now to the interest on these millions of mortgages: The interest goes to Washington every month! The monthly interest on all the home mortgages in USA, could total 300 billion dollars. All the income tax collected from taxpayers, their taxable earnings up to 125 grand’s worth, might also total 300 billion dollars per month.

    The interest on all our home mortgages can replace our income tax, up to the first 125 thousand dollars worth of taxable income! The rich are still paying some tax, after the 125 thousand deductable, while someone who rents has their income tax dollars in their own pocket to do with as they please, pay down credit card debt, save up for a house, a car, the kid’s tuition, pizza.

    Keeping your money is a politic concept all the people can endorse as long as the government is able to operate and deliver services.

    “The day is here /machines kin run / in do the whirr kin / No tax on my hands brother / Tax machines instead.”

    A working homeowner is freed from paying income tax. The interest on his mortgage goes for our public works, replacing the tax on his hands. Washington, DC has operating capital. We keep what is ours.

    Apply this same principal to commercial mortgages. The mortgages are seized, not the property. Mortgage Savings Bonds are a great rock solid investment. This buyout is fabulous for commercial mortgage holders because so many are facing default.

    The advantage for commercial mortgagees: their property is purchased, the mortgage in the Government’s hands, via Mortgage Savings Bonds, letting the owners off the hook, their option, retain property management, which earns money. The principal goes toward retiring the Mortgage Saving Bonds, the interest to cover the rising cost of living, example Medicare, so life is good for all.

    The above program provides permanent income tax relief for our citizenry, toxic asset relief for bogus banks, and effective capital replenishment for the government. With this mortgage innovation in place, other countries will be lining up to invest in America.

    At the end of the This Week segment, after replaying the Saturday Night Live spoof of Treasury Secretary Geithner that aired the night before, Secretary Geithner remarked, “People have a lot of ideas.” . . . “We listen to everybody.” . . . The only test that matters is, is it going to work. Is it going to get credit flowing again.”

    Were Geitner’s, “We listen to everybody,” statement only true.

    180 million taxpayers will vote for these recession stuffing relief measures in a heartbeat because every taxpayer benefits. President Obama should read this essay. His approach feeds the bureaucracies that fed his campaign by printing trillions of dollars in future debt, Obama’s risk: a stick of chewing gum will cost our gum chewing electorate one dollar plus tax before the next election, so he will be turned out after one term.

    This innovative program bypasses bureaucracies, the only ego inflated creatures on planet earth that both feed on themselves, and multiply. Can you suck on your toe and create two of you? Bureaucracies can and do. Bureaucracies are rigid, appearing unsinkable, but they must be sliminated for planet health.

    Michael Stephen Levinson, upon election to the office of president will begin to rearrange how governments generate money so the funds are available to cleanly reenergize our good ship Mother Urf.

  35. MinnItMan

    Title indemnities, as a general rule, are only kosher for nominal problems – that is, true paperwork problems, where the defective documentary record can be supplemented by widely-accepted alternative information as described below. The issuer is a certain as it can be that it would be entitled to a dismissal, let alone to prevail in litigation.

    In the Ibanez cases, the lenders knew, or should have known, that they had a gap that they could only fill by raising a novel theory (not widely-accepted) of what constitutes an assignment of mortgage.

    Here’s an example of a common title indemnity: B refinanced a mortgage in 2003, but no release/reconveyance of security was ever recorded for that prior mortgage, and that document was lost. B has a copy of it, but copies are unrecordable. In the photoshop era, the title company should not rely on the copy. It will ask for B’s credit report showing the that loan account’s opening date [closely] matches the recorded security (a January 15, 2001 loan date will often show as an account opened Feb 1, 2001), that the loan amount closely matches the recorded instrument ($103,567.89 will show as $103,567 even) and that the account’s closing date closing matches when the refi happened (Again, let’s say the refi happened June 15, 2003, so the account aclosing date will probably be July 1, 2003). It will also ask for a settlement statement from the title company that paid off the prior mortgage so it can then get a hold/harmless/letter of indemnity from that title insurer in the event there is a problem (although these are illegal in some states – Iowa and Oklahoma come to mind). In Illinois, this is a significant operational expense for the title insurers, and is a kind of duct tape and bailing wire part of the title business there.

    This is a paperwork problem, but one where the risk of and need for litigation is minimal. Ibanez is different. Both the necessity and risk of litigation was pretty obvious.

    The on-going problem with these takes a long time to go away, IIRC, 20 years after the maturity of the mortgage in Illinois. As I said, it’s duct tape and bailing wire. And as I said in other posts, it’s one reason title people [used to] like MERS, as it was mostly intended by the title insurance sponsors to eventually solve this problem.

    While most states impose some penalty on mortgagees for failure to discharge security interests, it usually not enough to make a lawsuit worthwhile. Furthermore, back in the day, mortgagees frequently did send the discharge to borrowers for them to record themselves (and can prove it). The borrowers would then lose or destroy it. Not knowing whether this was the case, title companies were reluctant to pursue the penalty fearing sanctions for wrongly claiming failure to discharge.

    I apologize for the choppy post. Several sittings with interruptions.

  36. GeorgeNYC

    A great post as always.

    I am certainly not a Tea Party fanatic. I generally believe that an expanded Commerce Clause has had laudable consequences in allowing Federal control over all sorts of issues.

    However, I cannot think of any area of the law where a State’s interests are absolutely paramount then in the determination of property rights within the State.

    While Federal law is normally supreme, I simply fail to see how any Federal statute that attempts to tell the Massachusetts Supreme Judicial Court(or any other State Court) how to decide a property dispute entirely within its borders could ever be Constitutional even if the “Federal” interest has to do with banking regulation. This is not “banking” regulation this is simply enforcement of state property law that was ignored by the banks

  37. LarryE

    So let me see if I can sum up the whole discussion.

    If you screw up, you’ve got a problem.

    On the other hand, if the bank screws up, you’ve got a problem.

Comments are closed.