Category Archives: Credit markets

MERS Exposed I: Process Expert Catalogues Fundamental Flaws

Proposed legislation in Virginia, House Bill 1506, which if passed would eliminate the role of the electronic registry system MERS in that state by requiring every mortgage transfer to be recorded in the local courthouse, is having the salutary effect of exposing more information about this generally less than forthcoming company.

Various interested parties offered testimony about the bill. One particularly interesting presentation came from a process and systems expert, Daniel Pennell, who was operating in a private capacity as a concerned citizen. His presentation raises numerous red flags about MERS.

Lender Processing Services Has Yet Another Bad Day in Court

In October, Lender Processing Servicer was targeted in two lawsuits, one filed in Federal bankruptcy court, both alleging illegal sharing of legal fees. The Federal suit sought class action status and was joined shortly thereafter by the Chapter 13 bankruptcy trustee for Northern Mississippi on behalf of herself and all other US Chapter 13 bankruptcy trustees as a class.

Lender Processing Services dismissed the suit as a “fishing expedition“. Funny, it appears the judge does not agree. I hope to get a transcript of the hearing on Friday, since he authorized the case against both firms moving into discovery and from what I understand, not on a very narrow basis as both defendants had sought.

If successful, this litigation would do tremendous damage to LPS.

Mass Supreme Court to Consider Whether Buyers Out of Faulty Foreclosures Actually Own Property

Oh boy, if you think the Massachusetts Supreme Judicial Court decision on Ibanez, which raised serious questions about the validity of transfers in mortgage securitizations, turned heads in the banking industry, you ain’t seen nothin’ yet. The SJC is considering what has the potential to be another widely-watched case, Bevilacqua v. Rodriguez. Note this case […]

Matt Stoller: The Real China Problem Runs Through JPM and Goldman

By Matt Stoller, the former Senior Policy Advisor for Rep. Alan Grayson. His Twitter feed is @matthewstoller

The Federal Open Market Committee releases its transcripts on a five year time lag. Last week, we learned what they were saying in 2005. Dylan Ratigan blogged an interesting catch: Dallas Fed President Richard Fisher expressed his frustration about Chinese imports. Not, of course, that there were too many imports, but that our ports weren’t big enough to allow all the outsourcing American CEOs wanted.

Fisher is just the latest Fed official to applaud this trend. Here’s the backstory. In the 1970s, there was a lot of inflation. The oligarchs of the time didn’t like this, because it made their portfolios worth less money. So they decided they would clamp down on inflation by no longer allowing wage increases. To get the goods they needed without a high wage work force, they would ship in everything they needed from East Asia and Mexico. The strategy worked. Inflation collapsed. Wages stopped going up. There were no more strikes. Unemployment jumped….But basically this was a way of ensuring that banks and creditors could make a lot of money that would instead go to workers.

Bank Board Member Proposes Legislation in Virginia to Change UCC to Help Banks Escape Foreclosure Woes

Earlier this week, we discussed how several measures proposed in Virginia would have the effect of redressing the power imbalance between banks and borrowers in the foreclosure process. One would give borrowers more time to mount defensed (Virginia has one of the fastest track processes in the US); another would require judicial approval for a foreclosure to become final. But the farthest-reaching proposal would force banks to maintain accurate property records in local government offices, which would end the use of MERS in that state.

Not surprisingly, the industry is not about to let this go down without a fight.

More Evidence of Undercapitalization/Insolvency of Major Banks

Even as we and other commentators have noted the underlying weakness of major bank balance sheets, which have been propped up by asset-price-flattering super low interest rates and regulatory forbearance, we still witness the unseemly spectacle of major banks keen to leverage up again. The current ruse is raising dividends to shareholders, a move the Fed seems likely to approve. Anat Admati reminded us in the Financial Times on Wednesday that we are about to repeat the mistakes of the crisis:

To Bailout or Not to Bailout: Mortgage Mess Endgames Emerging

In the last week, several ideas for fixing the housing market have surfaced. One is the Third Way proposal, which appears to be an Administration trial balloon. Predictably, it is yet anther bailout, with plenty of smoke and mirrors to disguise that fact.

A second proposal, from Sheila Bair yesterday, is to establish a “foreclosure claims commission“. This scheme sounds more promising that the Third Way proposal, but is very likely to wind up in bailout territory.

Third is a not-widely-covered plan by Senator Jeff Merkley.

The Merkley proposal is pro consumer and pro investor; the other two are pro bank. Sadly, it isn’t hard to see which is likely to prevail in the absence of public pressure.

Banks Halting Foreclosures in Parts of Florida

This is starting to get interesting. Having achieved the creation of special courts to whittle down a backlog of foreclosures, called the “rocket docket” due to the propensity of many of its judges to operate on an accelerated timetable that too often led to a refusal to hear borrower objections and evidence, servicers are now withdrawing foreclosure cases in Southwest Florida en masse.

It is not yet clear whether these cases are being abandoned or whether the banks will refile once they find a way to argue their action is valid. However, reading between the lines, one has to question whether they will succeed.

The Goldman Uncertainty Principle of Securities Regulation

I wish I had bandwidth to cover the Goldman-Facebook egg-on-its-face fiasco long form, but since other able writers are all over this story, I suspect NC readers will not find coverage wanting.

However, I could not let this remark pass without comment. From the Wall Street Journal:

Past Rulings by New York Judge Schack Reached Ibanez-Like Conclusions

Judge Arthur Schack might be the American Securitization Forum’s worst nightmare if more people started paying attention to his rulings. The Brooklyn judge has gotten a lot of media coverage for his lack of patience with “dog ate my homework” excuses from bank plaintiffs in foreclosure cases, as manifested by how often he has dismissed cases with prejudice (meaning those parties cannot return to court on the same matter).

But Schack is treated as a curiosity, a maverick. His colorful, rambling decisions reinforce that perception, which is useful from the banks’ perspective: he can be depicted as an outlier rather than as someone who has looked hard at securitization practices and does not like what he sees.

Pending Legislation in VA Would Give End Use of MERS, Give Borrowers More Foreclosure Defenses

The securitization industry may be about to reap the whirlwind of its failure to take the need for reform seriously. As we’ve indicated, industry incumbents have adopted a denialist approach to widespread evidence of serious documentation problems and procedural abuses, and have fought reasonable, pro investor proposals tooth and nail.

The Washington Post reports on several pending legislative proposals in the state of Virginia, all of which seek to level the power imbalance between the financial services industry and mortgage borrowers. The interesting thing about this pushback is that Virginia is not at all left leaning state. These measures instead appears to result from the fact that it has one of the fastest foreclosure processes in the US.

Should We Believe Jamie Dimon’s Crocodile Tears Over How Much Mortgages Have Cost Banks?

Jamie Dimon told the press on Friday that the mortgage crisis has been costly (but not TOO costly) for JP Morgan. From MarketWatch (hat tip Lisa Epstein):

J.P. Morgan Chase & Co. Chief Executive Jamie Dimon said Friday that the foreclosure process is a “mess” that’s cost the financial-services giant a lot of money.

Dimon also said litigation over troubled mortgage securities is “going to be a long, ugly mess,” but won’t be “life-threatening” for J.P. Morgan….

More Reasons Why Banks Should Worry About Ibanez Decision

Banks and the securitization industry have been spinning the Ibanez decision as hard as they can, even going so far as to put forward Baghdad Bob style claims that the Massachusetts Supreme Judicial Court ruling said that mortgage assignment in blank worked, when a reading of the ruling show the polar opposite.

Georgetown law professor Adam Levitin has done a bit of digging to see if the securitization industry defenders’ claims, that most mortgages in RMBS meet the documentation standard set forth in Ibanez, actually holds up. He find that many deals fail to meet the decisions’ requirements:

Greenspan Put, aka “Be Nice to Banks”, Trumped Recognition of Housing Bubble in 2005

In an interesting bit of synchronicity, we’re getting other “how did we get there” snippets from the global financial crisis today. Bloomberg reports that the Federal Reserve actually did see that a housing bubble was underway, but stuck to its guns of measured interest rate increases. The problem is that its account is far too kind to the Fed and comes awfully close to being revisionist history:

Federal Reserve staff and policy makers identified a housing bubble in 2005, and failed to alter a predictable path of interest-rate increases to slow down the expansion of mortgage credit, transcripts from Open Market Committee meetings that year show….

The FOMC in June heard presentations from staff economists, with some raising alarms about housing markets, the transcript shows. Those warnings didn’t translate into a more aggressive policy. The committee raised the benchmark lending rate a quarter-point at that meeting and said “policy accommodation can be removed at a pace that is likely to be measured.”..