Category Archives: Credit markets

The New York Fed Working to Bend Real Estate Law to Suit Needs of Banks

I suppose the fact that the New York Fed hosted a meeting last week with a group of solons is a sign that it is finally taking mortgage documentation and resulting foreclosure issues seriously. But the Fed’s spin diverges from the reading I got from attorneys who have a vantage on the process. Per Housing Wire:

But the New York Fed said solutions are on the way. The Uniform Law Commission and the American Law Institute, which facilitated the recent meetings, seek to clarify and update federal and state laws governing the securitization process.

I suppose the fact that the New York Fed hosted a meeting last week with some solons is a sign that it is finally taking mortgage documentation and resulting foreclosure issues seriously. But the Fed’s spin is diverges from the reading I got from attorneys who have a vantage on the process. Per Housing Wire:

But the New York Fed said solutions are on the way. The Uniform Law Commission and the American Law Institute, which facilitated the recent meetings, seek to clarify and update federal and state laws governing the securitization process.

I’m bothered by the dishonest presentation, which a close reading of the related NY Fed document confirms. Let’s start with its opening paragraph:

US Trustee Estimates Servicing “Errors” at 10x Level Claimed by Banks (and Parroted by Federal Regulators)

Gretchen Morgenson has an important piece tonight which describes how US Trustee Program, which is the arm of the Department of Justice which oversees bankruptcy courts, has found ongoing servicing abuses in bankruptcy courts which are an order of magnitude worse than claimed by mortgage servicers and their mouthpieces among the Federal banking regulators. And it’s funny how a real prosecutor has managed to find significant problems in a mere six months, when the 50 state attorneys general effort, which has undertaken no investigation, is rushing to get a deal done. If the leader of that effort, Tom Miller of Iowa, instead had gotten to work when the effort was formed last October rather than having tea and cookies with the Treasury Department, they might have something to show by now.

Feds Reviewed Only 100 Foreclosure Files in Servicer Whitewash

Not only are the authorities engaged in a coverup of servicer abuses, they aren’t even bothering to pretend that the effort is serious. A post on Housing Wire offers some choice tidbits:

Mortgage Whistleblowers Say Servicers Foreclosed Rather Than Modify, HAMP Program Designed to Help Banks, Not Borrowers

A report at the Dylan Ratigan show confirms what we’ve argued for some time is happening: that banks are not making mods to viable borrowers because servicing is more profitable. In addition, an insider on the HAMP program says that the pressure to make trial mods to make the program look good wound up hurting […]

FDIC’s Bair Says Millions of Mortgages May Be “Infected,” Criticizes Consent Orders

We’ve said repeatedly that findings of the multi-agency Foreclosure Task Force review late last fall, which looked at 2,800 mortgages from 14 servicers, was a worse than stress test type review, with a deliberately narrow focus designed to find very little wrong.

One of its remarkable findings was that that banks were on solid grounds in foreclosing, both in the borrower owing the money (which would inevitably be the finding given the failure to investigate servicer-driven foreclosures) and that banks were able to find the borrowers’ notes, which was taken to be tantamount to them having the legal authority to foreclose. Anyone who has been following this issue here or on specialist legal blogs knows that mere possession of the note is often a not sufficient threshold for successful action if the foreclosure is challenged.

In a gratifying show of candor and independence (or perhaps because she recognizes that the facts on the grounds make the Administration/banking industry party line untenable) Bair took exception to the “nothing to see here” stance of the officialdom and took exception to the findings of the Foreclosure Task Force in Congressional testimony earlier today.

Banks are not Reserve Constrained

In a fiat money system, there is not a very good correlation between base money and M1 and credit because reserves don’t create loans. In practice, the lending operations of commercial banks have no interaction with reserve operations. Lenders simply take applications from customers who seek loans and assess creditworthiness and lend accordingly. In approving […]

On Dubious Defenses of the FDIC’s Lehman Resolution Plan

EoC has written a rejoinder to our post on FDIC’s paper on how it would have wound up Lehman with its new Dodd Frank powers. Since it’s a mix of smears and broken-backed arguments, it is nowhere near the standards he can attain when he is behaving himself. But as a tell about the officialdom’s propaganda preoccupations and methods, it isn’t entirely devoid of interest.

Before turning to the meat of his post, such as it is, I wanted to point out the biggest slur in the piece: his repeated assertion that Satyajit Das and I did not read the FDIC paper in full. That’s false, and brazenly so: somehow the fact that Das and I can crank out an analysis, quickly, gets twisted into anchoring a more general effort to discredit this site. Regular readers, including EoC, have no doubt seen other occasions where we’ve produced detailed and on target assessments before most of our peers. And Das is in Australia, giving him the ability to respond to evening releases in the US during his business day (in this case, one with specific page references).

EoC’s entire post fails when you look at its and the FDIC’s three central, obtuse misconstructions:

Quelle Surprise! 50 State Attorneys General Settlement Talks Beating a Retreat

As readers know, we’ve been very critical of the 50 state attorneys general mortgage “settlement” talks. The reason has been very simple. The leader of the negotiations, Tom Miller of Iowa, early on cast his lot with the Administration’s banking regulators, who are at best cognitively captured and at worst corrupt, rather than siding with the rule of law or the interests of the nation’s citizens. He took their lead and pushed for a quick resolution, when any “settlement” by definition depends on the prosecutors having a real case with decent odds of serious damages as a cudgel to bring the perps to the table and extract real concessions from them.

In the absence of doing investigations to develop a case, all the banks have to “settle” is robosigning abuses, which since they are sorta cleaning those up anyhow, does not add up to any kind of threat. Thus all the banks have to do is the obvious: call Miller’s bluff.

Seeking Reader Questions on Fixing Mortgage Securitization for the House Financial Services Committee Hearings

I participate in various e-mail threads where people chat among themselves (my hedgie bunch can be wickedly funny on slow market days) and one of the groups is focused on the mortgage mess.

I thought readers might be able to help with a query from one of the participants:

On May 23 the House Financial Services Committee will be having a briefing session on Securitization and risk retention proposals under Dodd-Frank. The following parties will be presenting and available for questions:

· David Moffitt, Global Head of Structured Solutions and Securitization, Morgan Stanley
· Tom Deutsch, Executive Director, American Securitization Forum
· Evan Siegert, Managing Director, Senior Counsel, American Securitization Forum
· Jim Johnson, Managing Director, Public Policy, American Securitization Forum

He is skeptical of the Dodd Frank risk retention rules and asked:

Does anybody who thinks differently have any questions regarding risk retention that should be asked of a person listed above? How about questions for any of these participants regarding securitization generally?

I find it impressive that the American Securitization Forum, which to date has been consistently in the wrong on foreclosure fraud and chain of title issues, is still treated with such deference, particularly since the sell side of the securitization industry, which is what the ASF represents (despite its pious claims otherwise) has fought meaningful securitization reform tooth and nail, with the result that the industry is almost entirely on government life support. Therefore I hope readers can come up with some suitable questions.

More on Greece Restructuring and Eurozone Worries

While the Euro recovered from its stumble last week and the EU officialdom put out a round of denials of a story on Friday that Greece was considering an exit from the eurozone, the Euro tea leaf readers are still chewing over the significance of a not at all secret secret meeting over the weekend. The trigger is the fact that Greece is already on the verge of breaking the terms of its loans last year. This is hardly a surprise; austerity does not work and the Greek debt burden was clearly unsustainable. Per the Guardian:

North Carolina Appellate Decision Raises New Chain of Title Issue

A potentially important North Carolina appeals court case, In re Gilbert, has not gotten the attention it warrants.

In very short form, the borrowers, who were unable to obtain a loan modification, tried to halt a foreclosure by arguing that the lenders had failed to make required disclosures under the Truth in Lending Act (which they hoped would allow for recission of the loan, and that the party seeking to foreclose had not proved that it was the holder of the Note with the right to foreclose under the instrument. The judges nixed the TILA argument, affirming lower court decisions, but reversed the superior court on the question of the standing of the petitioner.

A New Zombie Lumbers On: The Mortgage Settlement Negotiations

The kindest thing that can be said about the 50 state attorneys’ general negotiations over foreclosure abuses is that it is increasingly obvious that there will not be a deal. The leader of the effort, Iowa’s Tom Miller, has completely botched the effort. There was no way to have any negotiating leverage with intransigent banks in the absence of investigations. Miller has changed his story enough times on this and other fronts so as to have no credibility left. But whether there were no investigations (as other AGs maintain) or whether they did some (as Miller, contrary to a staffer’s remarks, now insists), they were clearly inadequate.

We’ve found the rumor, that Miller was angling to head the Consumer Financial Protection Bureau, credible. It would explain his unduly cozy relationship with Federal banking regulators, as well as his efforts to wrap up negotiations quickly, which reduced what little bargaining power he had (time pressure means a party that drags its feet can extract concessions).

But like so many zombies that inhabit the financial landscape, the mortgage settlement negotiations refuse to die.

Guest Post: Overruled

Cross posted from MacroBusiness

Ok, we all know that anyone who says “this time it is different” is to be treated at best as misinformed, at worst as a fool. “They are the five most dangerous words in the English language” etc. etc. But, to repeat my question: “Are things always the same?” Mostly, yes. Modern housing bubbles are not unlike 17th century Holland’s Tulipmania, government debt crises have not changed all that much since Henry VIII reduced the gold in coinage, greed, profligacy, irresponsible plutocracies are always with us.

But in global finance there are some things happening that are genuinely different. Dangerously so.

Euro Whacked by Reports that Greece May Leave the Eurozone?

The Euro has fallen from roughly 1.49 to the dollar to 1.43 in a mere two days, which is a huge move. Many pundits have argued that the ECB’s newly accommodative stance is the trigger, but there may be additional forces at work. Most experts have deemed the idea that any eurozone member would exit the currency to be simply inconceivable, that it would be too costly and disruptive. But with the hair shirt that Greece is being asked to wear, all bets may be off.

As of this juncture, this reports in Der Spiegel does not appear to have gotten traction among the Usual Suspects in the MSM. Headline: “Greece Considers Exit from Euro Zone” (hat tip readers John M and Illya F).

GAO Report Confirms Our Criticism of “Foreclosure Task Force” Review

We’ve taken a dim view of the “worse than stress tests” review by Federal regulators of foreclosure practices late last fall. This was an obvious effort to alleviate concerns in the wake of the robosigning scandal. When the bank-friendly OCC released the results of the review, the guts of which was a look at 2800 seriously delinquent loans from all the major servicers, it confirmed our reservations: