Category Archives: Real estate

California Establishes Mortgage Fraud Task Force

In further proof that attorneys general are abandoning the 50 state attorneys general investigation, California AG Kamala Harris announced that she is establishing a 25 person mortgage fraud task to look into abuses across the spectrum, from the individual borrower level to practices, such as questionable transfers to trusts when the securitizations were formed, that hurt investors.

Note that the defection of a second Democrat (Harris follows New York’s AG Eric Schneiderman in creating her own effort) from the AG investigation is particularly significant. A number of Republicans joined at the 11th hour and were never on board with the premise of talks, so their defection is expected. By contrast, the AGs from solidly Democratic states were expected to stay the course. The fact that the AGs from two major states have effectively left the talks confirm what we have said all along: that the negotiations were not serious precisely because no investigations had been conducted.

We applaud this step forward by Harris, since it shows at least some public servants are taking mortgage abuses seriously. From the Los Angeles Times (hat tip reader Denotis):

Federal Court in Texas Deals a Potentially Serious Blow to MERS

Texas is not exactly a consumer-friendly state, so the Federal court ruling in the Eastern District of Texas against MERS has the potential to have broad ramifications (note a Federal court in Texas will still have to look to Texas law and precedents on real estate matters). Oddly, even though this decision took place last month, it seems to have escaped the notice of most real-estate oriented sites until now. Hat tip to April Charney for highlighting it (literally and figuratively, she marked the filing that I’ve posted below):

More Worries About the Foreclosure Overhang

The New York Times provides a workmanlike update on the impact of current and probable foreclosures on the housing market. The odd bit is that even though the article is downbeat, it manages to be relatively optimistic compared to industry sources.

Quelle Surprise! SEC Worked Hard to Ignore Warnings of Subprime Fraud

Saying that regulators ignored danger signs in the run up to the financial crisis now verges on being a “dog bites man” account. But the New York Times excerpt from the new book Reckless Endangerment by Gretchen Morgenson and Josh Rosner show that the SEC was not merely asleep at the switch, but apparently peopled with higher ups who were looking hard for reasons not to pursue suspicious conduct.

The extract is about a particularly rancid case, that of subprime originator NovaStar, which was one of the twenty biggest. Not only did it issue the drecky mortgages in impressive volumes, but it engaged in obvious financial misreporting. While the frauds it foisted on borrowers fell largely between regulatory cracks, since NovaStar as a non-bank mortgage broker was regulated only at the state level, and those offices are chronically understaffed, misstatements in public reports reside squarely in the SEC’s beat.

Lawyers Threatened With Sanctions for Talking About Foreclosure Abuses

So much for the idea that the legal profession cares about integrity. While there are no doubt many upstanding attorneys, state bar associations seem vastly more concerned about trying protect the industry’s meal ticket than policing questionable conduct. It’s well known in the profession that to the extent lawyers are ever sanctioned, it’s almost without exception small firm operators. The big boys pay a lot in dues and often have partners in their firms that hold offices in the state bar organization.

One damning illustration: even though Florida has been a virtual cesspool of legal malfeasance, with its biggest foreclosure mill having shuttered its doors and impermissibly not passed open cases on to other lawyers and all of the other big players on the ropes, not a single lawyer has been sanctioned. Yet two lawyers in the state were threatened because they’ve dared to say a candid word or two about the mortgage mess.

Former LPS Employees Allege 30% to 78% Error Rate in Borrower Mortgage Records, Contradicting Banker/Regulator Cover-Up

One investor said that every time he looked at corporate misconduct, “No matter how bad you think it is, it’s always worse”. Lender Processing Services is proving to be a classic illustration.

The City of St. Clair Shores Employees’ Retirement System is the lead plaintiff in a class action lawsuit against Lender LPS that was amended and expanded yesterday. The suit is against the company and its three top officers, charing them with violations of Federal securities laws with the intent of inflating the company’s revenues and stock price.

Florida Kangaroo Foreclosure Courts Likely to Fold

e reported from time to time on the special foreclosure courts created in Florida to clear up its foreclosure backlog, and this horribly implemented experiment looks as if it is moving to a well deserved death.

In concept, creating a specialized court system to provide extra capacity and judges who focused only on that issue was a sound move. In practice, it was an embarrassment and a disaster for many borrowers. As we recounted last September:

These new foreclosure-only courts are special creations of the Florida legislature, funded separately from the usual court system. They are manned by retired judges, which means in many cases they are not familiar with real estate law.

But perhaps most important, the explicit objective of these courts is to clear up the backlog. And that is coming to pass not by the Legislature having thrown enough resources at the problem (that is, having greatly enlarged court capacity to process more cases in parallel) but by pushing for faster resolution. The problem is that an accelerated process runs roughshod over due process and allows banks to foreclose when they may not be the right party, or worse, when the foreclosure is the result of servicing error.

Registrars of Deeds as Unexpected Foot Soldiers Fighting Mortgage Abuses?

As regular readers no doubt know, the reason for creating the electronic mortgage registry service MERS was to save on recording fees when notes (the borrower IOUs) were transferred through multiple parties when mortgage securitizations were set up. As MERS legal status has come under questions, a few local registrars of deeds (the officers in charge of local recording offices) have made estimates of the losses to their county and have come up with significant numbers.

As more and more information about mortgage abuses have gotten media coverage, some registrars of deeds have dug further into their records to document their extent.

Bank Tout Dick Bove Proves His Ignorance in Defending of His Meal Tickets

Is Dick Bove’s put-foot-in-mouth-and-chew exercise yesterday proof of the eagerness of the banking industry to push back against any and all interference in their ability to milk the public, or merely that Bove is a great negative indicator (one of his most famous calls was to buy Citi in early March 2008. You’d have lost more than 3/4 of your money if you’d followed his advice.)

News that New York attorney general Eric Schneiderman has opened an investigation into the mortgage activities of Goldman, Morgan Stanley, and Bank of America sent Bove into a tizzy

New York AG Schneiderman Investigating Goldman, Morgan Stanley, Bank of America Mortgage Operations

New York attorney general Eric Schneiderman has announced that he is investigating Goldman, Morgan Stanley, and Bank of America on their mortgage securitization activities. His office made a broad document request in recent weeks and has also asked to meet with these banks.

It is not yet clear what the focus of the probe is, but since Goldman and Morgan Stanley were not lenders, it could relate to their mortgage originations, their servicing operations (Litton for Goldman Saxon for Morgan Stanley) or their role as CDO issuers. With Bank of America, the investigation could cover additional ground.

Note that this announcement effectively blows up the 50 state attorney general settlement talks.

HUD Audits Show Five Biggest Servicers Defrauded Taxpayers

This revelation, that HUD audits of the biggest servicers over a mere two-month period, showed extensive fraud, is proof that abuses were extensive. It also establishes that the effort by Tom Miller to settle the 50 state attorneys general investigation quickly and and the recent “see no evil” Federal consent orders are a cover up. The fact that HUD found extensive misconduct over a similar time frame as the Foreclosure Task Force, which Assistant Treasury Secretary Michael Barr described as a ““11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks” proves that the latter to be pure regulatory theater. And as we’ve noted, the Tom Miller-led effort has done no investigations, guaranteeing that the negotiators would have no bargaining power.

From Shahien Nasiripour at Huffington Post:

New Homeowner Scam: Mortgage Securitization Audits

Con artists who prey on people who are already in financial hot water deserve their own circle of hell. The latest sighting comes via April Charney: “mortgage securitization audits” which charge thousands of dollars for dumping public information into binders. From Brian Canupp’s website:

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: