Category Archives: Real estate

Florida Foreclosure Mill King David Stern Shows Crime Sure Did Pay

The Associated Press has a juicy story on the rise and fall of Florida’s foreclosure mill kingpin David Stern (hat tip Lisa Epstein). It combines sordid detail with an account of how his business as a business went wildly off the rails.

For those new to this blog, the Law Offices of David Stern was the biggest foreclosure mill in Florida, one of the first to be targeted by a state attorney general, and per both reports on the ground as well as revelations from official and media investigations, one of the worst abusers of court procedures and borrower rights.

Aside from depicting how utterly out of control Stern was as a businessman, the AP story helps explain how the mortgage business got to be such a horrorshow. Moe Tkacik, a financial writer who has poked around the dark corners of the securitization and muni finance businesses, and I chatted a couple of nights ago about the foreclosure crisis. One of the questions that was nagging at her was who came up with the idea of robosigning?

Wall Street Co-Opting Nominally Liberal Think Tanks; Banks Lobbying to Become New GSEs

One of my cynical buddies often remarks, “Things always look the darkest before they go completely black.”

His gallows humor comes to mind as a result of the hushed conversations inside the Beltway around GSE reform. While the shiny bright object these days in DC is health care repeal, or perhaps Egypt, in quiet corners in think tanks and trade associations the bankers and their allies are getting ready to appropriate themselves a permanent US credit card worth trillions of dollars. The dynamic that became all too familiar during the bailouts is about to repeat itself.

Barney Frank’s great moral passion is low-income housing, and that’s not an accident. The traditional alliance in financial politics since the 1950s was between liberal low-income housing advocates and Wall Street financiers. Since the 1970s, Democrats tried to balance the two sets of interests by creating consumer protections but allowing the capital markets to manage themselves. This dynamic has created a serious political problem in the last four years, because complete capitulation to the banks in the capital markets has pillaged the low-income and middle-income communities the Democrats thought they were standing up for.

It’s not that the people who made this Faustian bargain are bad so much as they are fundamentally irresponsible and childish. The breakdown of law and order in the capital markets arena has created predatory lending, and ultimately has subverted any attempt to implement new laws. Dodd-Frank not just a weak response to the crisis, but actually downright pathetic thanks to the lack of prosecution for anyone who breaks the rules set forth in the bill.

And so, we return to the reform of the GSEs.

So How Did Major Law Firms Lose Deal Documents on the Way to the Massachusetts Supreme Judicial Court?

At the time of the now famous Ibanez decision, in which the Massachusetts Supreme Judicial Court dealt the securitization industry a not-all-that-surprinsing loss by saying that lenders and servicers had to be able to produce reasonable evidence that the mortgage had indeed been transferred to the party that was trying to seize the house. The court wrote:

When a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale or foreclosure…. A plaintiff that cannot make this modest showing cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title.

Also note this section of the concurring opinion by Judge Cordy:

Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it….The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments.

We were reminded of an outstanding mystery in the Ibanez case by a story tonight by Abigail Field on the role of carelessness by lawyers in the mortgage mess.

Josh Rosner and Your Humble Blogger Discuss the Roots of the Financial Crisis on Radio Free Dylan

In addition to his weekday television show, MSNBC host Dylan Ratigan also has a regular radio/podcast. He interviewed Josh Rosner and yours truly on the origins of the financial crisis, which we both agreed started well before the housing bubble.

You can read the transcript at the site, but it has quite a few errors, and I’d recommending listening instead. Rosner is an emphatic, almost theatrical speaker, so I think you will enjoy the conversation.

Get the podcast here: http://www.dylanratigan.com/wp-content/uploads/2011/02/RFD-Ep-25-Rosner-Smith.mp3

Call Your Attorney General Tomorrow, February 3, to Call For Tough Penalties for Foreclosure Fraud

A number of national consumer groups are organizing calls to state attorney generals to stiffen their collective spines. As you may recall, the 50 state attorney general investigation into mortgage and foreclosure abuses started with the usual fanfare and promises of tough action and has been trying to beat a quiet retreat since them.

The AG leading the probe, Tom Miller of Iowa, made a public promise in December to put bank
executives in jail for the crimes they’ve committed against the American people. Last week, he backtracked almost completely, and is now claiming the matter is inherently civil, not criminal. The laws certainly haven’t changed since last year, only the party line has.

Florida Bar Says Attorneys Must Report Foreclosure Fraud to Judges

Florida, which has been Ground Zero of the foreclosure crisis as well as a hotbed of judicial abuses, ranging from the biggest and most active foreclosure mills to kangaroo courts known as “rocket dockets”, has taken a surprising step in the right direction. The state bar association has told foreclosure lawyers in no uncertain terms that they have a duty to report fraud to the court, and that supersedes their responsibilities to clients. And even more surprising, the duty is retroactive: lawyers are supposed to inform judges even if the home has already been sold!

This move will have the very salutary effect, if the new order were actually followed, of having judges know the extent of servicer abuses. And the side effect would be even greater skepticism on the behalf of judges (well at least those judges not bought and paid for by the banking industry). Even if lawyers complied in only, say, one-quarter of the abuses, the effect on servicer credibility, which has already taken a big hit, would be considerable.

How Servicer Junk Fees Push Borrowers into Foreclosure

A story at Huffington Post by Shahien Narisipour and Arthur Delaney, about how a couple lost their home as a result of the Administration’s HAMP program, actually serves to illustrate a broader issue, namely, how servicers’ dubious fees can put mortgage borrowers hopelessly under water.

It is critical to understand that it is not uncommon for borrowers to lose their homes thanks to servicer errors and abuses. And this bad practice has policy implications. Whenever we discuss “fix the housing mess” solutions that involve loss sharing, like giving viable borrowers a deep principal mod, some readers react that “deadbeat borrowers” are getting a free ride, and often will contend that they were irresponsible and need to take their medicine.

This black/white picture is simplistic and misleading.

FCIC Report Misses Central Issue: Why Was There Demand for Bad Mortgage Loans?

By Tom Adams, an attorney and former monoline executive, and Yves Smith

In common with other accounts of the financial crisis, the Financial Crisis Inquiry Commission report notes that mortgage underwriting standards were abandoned, allowing many more loans to be made. It blames the regulators for not standing pat while this occurred. However, the report fails to ask, let alone answer, why standards were abandoned.

In our view, blaming the regulators is a weak argument.

A much more sensible explanation can be found by asking: what were the financial incentives for such poorly underwritten loans? Why would “the market” want bad loans?

All the report offers as explanation is that the “machine” drove it or “investors” wanted these loans. This is lazy and fails to illuminate anything, particularly when there are other red flags in the report, such as numerous mortgage market participants pointing to growing problems starting as early as 2003. Signs of recklessness were more visible in 2004 and 2005, to the point were Sabeth Siddique of the Federal Reserve Board, who conducted a survey of mortgage loan quality in late 2005, found the results to be “very alarming”.

So why, with the trouble obvious in the 2005 time frame, did the market create even worse loans in late 2005 through the beginning of the meltdown, in mid 2007, even as demand for better mortgage loans was waning?

More Judges Pushing Back on Dubious Foreclosure Documents

Even though this example involves only three judges in Ohio, don’t underestimate its significance. The fact that judges of their own initiative have started insisting that all attorneys provide certifications of foreclosure-related documents, a standard now in effect in New York state, shows how much their credibility has fallen.

From the Columbus Dispatch (hat tip reader Lisa Epstein):

How Banks Influence People in High Places

This e-mail to Congressional staffers speaks for itself. I am probably being far too nice by omitting the RSVP details. However, I must note the ethics rules for Congress are more lax than those of some private sector companies. I had one client, a Fortune 25 company, that forbade all employees from taking gifts or entertainment of any kind from vendors, down to a cup of coffee. And that’s not as nuts as it sounds. Research by social psychologist Robert Cialdini verifies that a gift as small as a can of soda predisposes the recipient to a sales pitch.

From: The Financial Services Roundtable

New York Times’ Joe Nocera Blames Crisis on “Mania”, Meaning Victims

I often enjoy Joe Nocera’s take on Wall Street, but like some other well known financial writers, he has become overly close to his subjects. No where is this more evident than in a stunning little aside in an otherwise not bad piece on the Financial Crisis Inquiry Commision’s report, which points out that it is long on potentially helpful detail, short on analysis.

Here is the offending section:

But I wonder. Had there been a Dutch Tulip Inquiry Commission nearly four centuries ago, it would no doubt have found tulip salesmen who fraudulently persuaded people to borrow money they could never pay back to buy tulips.

Bank of America Fighting to Reverse Foreclosure Freeze in Nevada

Peculiarly (and I’ll have to admit I’m among the guilty), a state-wide halt of foreclosures by a Bank of America unit in Nevada earlier in the week attracted remarkably little notice. The number of foreclosures in involved is meaningful, over 8000. The reason may seem somewhat technical, and presumably would not apply to other BofA units, namely, that the entity, ReconTrust Co, is operating without a proper business license. But then it gets interesting.

First, we get Bank of America’s position, per the Las Vegas Review Journal(hat tip ForeclosureFraud):

Daniel Pennell: Mortgage Shenanigans in Virginia (The Wall Street – Washington – Richmond Axes)

By Daniel Pennell, a systems expert who has testified before the Virginia House of Representatives on MERS

This week demonstrated how financial special interests have created an obscene and incestuous relationship with the leadership in the state legislature and the Governor’s office in Virginia. This cabal managed to kill off a bill (HB-1506) proposed by Delegate Bob Marshall, a bill designed to protect the integrity of the county property records and preserve the integrity of home owner’s title to their property. Simultaneously they attempted to alter the Uniform Commercial Code (UCC) with HB-1718, such that any “record” (the previous version said document) signed or unsigned by a person they claim owed a debt would be good enough for the banks to win a legal judgment against a person. In other words a spreadsheet from a bank would be good enough to take someone’s home or report someone to a credit bureau.

US Bankruptcy Trustee Takes Interest in “Ta Dah” Documents Mysteriously Appearing in Foreclosures (aka Probable Fabrications)

One of the sorry reminders of the decline of the rule of law in the United States is the frequency with which incidents of what look like document forgeries take place in foreclosure cases. The fact that a now-shuttered subsidiary of Lender Processing Services, a vendor to the servicing industry, had a price list for creating mortgage-related documents out of whole cloth attests to the long-standing demand for this sort of product.

The reason for this activity is simple. As we’ve stressed in various posts, in so-called private label securitizations (the non-Fannie/Freddie type), a great deal of evidence indicates that the originators and packagers of these deals did not bother complying with the contracts they created to govern these transactions on a widespread, perhaps pervasive basis sometime after 2003. And their shortcomings only come to light in foreclosures, and then (possibly) if the foreclosure is contested. Given how low foreclosure rates were historically, this was a risk the securitization industry seemed willing to take, and it is now reaping the fruit of this short-sighted bet.

The big problem for servicers and trustees (the parties that are responsible for the trust that holds the assets of the securitization) is that the pooling and servicing agreement which governs the securitization required that the note (the borrower’s IOU) be transferred though a specific set of parties by a specified time not all that long after the deal closed. Increasingly savvy anti-foreclosure lawyers recognize that the party attempting to foreclose may not have the legal standing to do so.

A new development is that the US Bankruptcy Trustee, which is part of the Department of Justice, has started poking around the nether world of slipshod and possible made-up documents, and is asking banks to explain what they are up to. These inquiries may be paving the ground for broader-based action.

FCIC Insiders Say Report Gives Wall Street a Free Pass, Simply Sought to Validate Conventional Wisdom About Crisis

From the very outset, the Financial Crisis Inquiry Commission was set up to fail. Its leadership, particularly its chairman, Phil Angelides, was seen as insufficiently experienced in sophisticated finance. The timetable was unrealistic for a thorough investigation of a crisis this complex, let alone one international in scope. Its budget and staffing were too small. The investigations were further hampered by the requirement that subpoenas have bi-partisan approval along with Its decision to hold hearings with high profile individuals, including top Wall Street executives, before much in the way of lower-level investigation had been completed. The usual way to get meaningful disclosure from a top executive is to confront him with hard-to-defend material or actions; interrogations under bright lights, while a fun bit of theater, generally yield little in the absence of adequate prep.

So with expectations for the FCIC low, recent reports that the panel urged various prosecutors to launch criminal probes were a hopeful sign that the commission might nevertheless come out with some important findings. But correspondence from insiders in the last few days suggests otherwise. One, for instance, wrote, “I’m still in the process of getting the stink out of my clothes.”

These ideologically-neutral sources close to the investigation depict the commissioners as having pre-conceived narratives and of fitting various tidbits unearthed during the investigation into these frameworks, with the majority focusing more on the problems caused by deregulation and the failure of the authorities to use even the powers they had, while the minority assigns blame to government meddling, particularly housing-friendly policies.

These insiders see both sides as wrong, and want to encourage investigative reporters to challenge both the majority and dissenting accounts. They contend that both versions help perpetuate the myth that Wall Street was as much a victim of the crisis as anyone else.

One of these sources sent this document in an effort to question the notion that any of the reports coming out of the FCIC were the result of a fact-based investigative process…