Category Archives: Real estate

Iowa Attorney General Tom Miller, Head of 50 State Investigation, Retreats From “Tough With Banks” Stance

We were early to warn readers that Iowa Attorney General Tom Miller, who is heading the 50 state probe into mortgage abuses, was unlikely to take as tough a stand with banks as his early sabre-rattling suggested.

Now other close observers of the 50 state AG probe, like Marcy Wheeler of FireDogLake, have pointed out that expectations for this group were probably too high, given that some of the AGs had been opposed to the effort before, and they’d hobble the effort from the inside. But even though true, that observation still gives Miller more of an out than he deserves.

The fact is that Miller had decided, before any investigation was undertaken, that his group was not going to take any action that might allow investors to recover for losses. Why? Some of the parties in a position to recover would not be Americans. This came by e-mail before the December meeting at which Miller promised to “put people in jail” as well as obtain deep principal mods and compensation for defrauded homeowners:

The homeowners off to meet Tom Miller is a setup for a photo-op to imply buy-in.

Ambac Accues JP Morgan of Fraud in Ongoing Mortgage Suit

One of the big reasons there have been so few fraud charges leveled against what looks like clear and widespread banking industry is that under the law, “fraud” is pretty difficult to prove. Needless to say, that puts commentators in a bit of a bind, because they can be depicted as being hysterical if they use the “f” words, since behavior that is often fraud by any common sense standard may be hard or impossible to prove in court.

The hurdle in litigation and prosecution is proving intent. Basically, the party who is being accused has to not only have done something bad, he has to have been demonstrably aware that he was up to no good. Thus po-faced claims of “I had no idea this was improper, my accountants/lawyers knew about it and didn’t say anything” or “everyone in the industry was doing it, so I had not reason to think this was irregular” is a “get out of jail free” card. Similarly, even if lower level employees knew that their company was up to stuff that stank, if the decision-makers can plausibly claim ignorance, again they can probably get away with it.

So it is gratifying in a perverse way to see a case in which the perp not only looks to have engaged in chicanery, but the facts make it pretty hard for him to say he didn’t know he was pulling a fast one. And even more fun, it involves JP Morgan, which has somehow managed to create the impression that it was better than all the other TARP banks, when on the mortgage front, there is plenty evidence to suggest that all the major banks have been up to their eyeballs in bad practices.

The case involves the bond insurer Ambac and the mortgage company EMC, which was the Bear Stearns conduit for buying mortgages to securitize and now thus part of JP Morgan.

John Hempton: What to do with Fannie and Freddie

By John Hempton, a Sydney-based investor, recovering financial services analyst, and former Australian government official who writes at Bronte Capital

There are a bunch of ideologues out there with solutions to the Fannie and Freddie situation. They argue that government intervention has to end and then propose a system with a permanent role for government. It is not just nonsensical – it is usually in the interest of some large financial institution. All they want is Frannie out of their part of the business. They like government subsidies in the rest of their business.

Anyway I have the free market solution to the Fannie and Freddie situation – and – I hate to say it – it is dead obvious.

MERS Exposed II: General Counsel Tells Whoppers in Testimony Before Virginia House

t has become so common for members of the securitization industry to play fast and loose with the truth that nothing should surprise me any more. Nevertheless, I am taken aback by a rough transcript of the remarks by William Hultman, the general counsel of MERS, before members of the Virginia House of Representatives last week. The overwhelming majority of statements he made about matters that can be verified are either untrue or at best disingenuous.

Here is the transcript.

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.

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 […]

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.

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.

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.”..

Securitization Industry Defenders Present Even More Dubious Defenses

Wow, having liability on opinion letters on securitizations will lead law firms to try to pass off distorted readings of court decisions to save their bacon.

The latest example is K&L Gates, one of the signers of the executive summary of an American Securitization Forum paper issued last November. It endeavored to defend securitization industry practices that have led securitization trusts which own mortgages to have difficulty foreclosing. Even thought its claims are increasingly being rebutted in court decisions, the ASF cohort seems to believe that if it tells the Big Lie long enough and loudly enough, the problem will go away. But judges have this funny habit of being very independent, so I sincerely doubt this strategy has any chance of succeeding.