Banks created the foreclosure crisis - they should have to live with it

by: danps

Sat Oct 23, 2010 at 14:00

On Tuesday Prairie Weather linked to this episode of the Diane Rehm show on the foreclosure crisis.  Representing the mortgage industry was Tom Deutsch of the American Securitization Forum, and his oily insincerity positively oozed out of my speakers.  Along with Greg Ip of The Economist (who seemed very sympathetic) they nicely summarized the industry's position.

It goes something like this:  There were a few rogue operators who rushed through some bureaucratic formalities during foreclosure.  Nevertheless the homeowners in question are in default.  Therefore, the proceedings are all proper; we just need to correct the paperwork and roust the deadbeats.

One theme that runs through such commentary is the remarkably cavalier attitude towards the consequences of foreclosure.  Consider these astoundingly inapt analogies used to compare to a family losing its home.

Deutsch: "You know, if you go to the grocery store, and you're buying your groceries. And they accidentally overcharge you 50 cents for your milk, you don't just say, well, you know what, let's just stop everything and figure out whether these scanners nationwide are working or not."

Ip: "I used to cover the stock market, Diane, and I -- it was basically a rule of stock market that if I sold -- you know, stock trades get fumbled all the time. You said 16. No, you said 60. And the basic rules that nobody contested unless they actually ended up losing money on the trade, and that's exactly what we're dealing with here."

Then Rehm quotes a Wall Street Journal editorial: "One left-wing financial blog has compiled news accounts that as many as seven people have unfairly suffered a foreclosure, despite making all payments. That's right, seven in a nation of more than 310 million."

The clear implication is that seven fraudulent seizures nationwide is acceptable.  The foreclosure machine is cranked up and we'll just have to accept that a few eggs need to be broken to make our modern, streamlined 21st century free market omelet.  This appears to be irreconcilably opposed to the perspective of those for whom a house is not a commodity but a residence.  For them, the maximum number of acceptable fraudulent home seizures is zero.  It should never, ever happen under any circumstances.

Foreclosure Fraud

by: Mike Lux

Fri Oct 15, 2010 at 18:00

This foreclosure fraud issue is yet another domino falling, where once again the big Wall Street banks are wreaking havoc with our economy in order to come away with outlandish profits at the expense of poor and middle-class people. These huge banks are so powerful both politically and economically that they haven't worried about playing by the rules and following the law. Their thinking is that because they are too big to fail, and too influential in Washington, they can just get Washington to change the rules as they go along and bail them out whenever needed. They were shocked that their sneak attack at changing the mortgage rules got exposed by progressives and vetoed by the President, but they almost certainly still assume they can eventually get the rules changed to save them from their own fraud one more time.

This issue is example number one on why progressives need to remain focused on cleaning up Washington and standing up to the special interests who still act like they own the place. And our message has been getting through. Check out this striking new poll from MoveOn.org:

• An overwhelming 84% of voters polled, including 80% of Republicans and 81% of Independents, believe voters have a right to know who is paying for ads for a particular candidate.

• Fifty-six percent of voters overall (including 53% of Independents) are less likely to vote for a candidate if they know the ads supporting that candidate are paid for by anonymous corporations and wealthy donors.

• Forty-seven percent of all voters are more likely to support a candidate who insists that voters have a right to know who is paying for ads, with only 9% of total voters saying they are less likely to support a candidate who holds that position.

• Almost two out of three voters (63%) do not believe that the anonymous groups running ads hold the voters' best interest in mind. This belief is held by 65% of Independent and 70% of Democratic voters.

• A straight majority of total voters (53%) are less likely to trust a candidate to improve economic conditions if that candidate is supported by anonymous groups.

Those are very big, very dramatic numbers. People want to know who is behind these ads, and they want to kick the special interests off their throne of power. This message of changing and cleaning up Washington, challenging big corporate interests, and standing up to the banks on behalf of the middle class has the chance to come through in spite of the swarm of corporate money flowing into attack ads.

Whatever happens in the elections, this foreclosure crisis is ugly, and the economic dominoes that could fall as a result should scare all of us. It may well be that this fragile economy gets pushed into another crisis. The question then will be do we again arrange some kind of backroom sweetheart deal for the big banks that got us into this mess, or do we go the opposite direction, and save the economy by helping middle class homeowners first. If the bankers still "own the place" in Dick Durbin's famous words, we will get screwed again. If voters say no to these secretive special interest ads, and elect some more good down home Democratic populists like the Senators who wrote this letter, we might just win this round.

Weekly Audit: Will Obama Save Homeowners From Wall Street's Latest Fraud Scheme?

by: The Media Consortium

Tue Oct 12, 2010 at 10:50

by Zach Carter, Media Consortium blogger

A massive foreclosure fraud scandal is rocking the U.S. mortgage market. Wall Street banks and their lawyers are fabricating documents, forging signatures and lying to judges-all to exploit troubled borrowers with enormous, illegal fees, and in some cases, improperly foreclose on borrowers who haven't missed any payments.

The fraud is so widespread that it could put some big banks out of business and even spark another financial collapse. Fortunately, things haven't fallen apart just yet. With strong leadership from President Barack Obama and Congress, the government can help keep troubled borrowers in their homes and prevent another meltdown.

One fraud begets another

As Danny Schecter emphasizes in an interview with GRITtv's Laura Flanders, this mess is just one element of a broader, criminal fraud at the heart of the foreclosure fiasco and resulting financial crisis. Banks pushed fraudulent loans onto borrowers during the housing bubble because the loans could be packaged into mortgage-backed securitizations and pawned off on hedge funds and other banks. Banks made a lot of money from this process, until the mortgages went bad and the fraud-packed securities plummeted in value.

Document drama

At the heart of any mortgage is a document called "The Note", which lays out the terms of the mortgage and the kinds of fees that banks can levy against borrowers if they fall behind on their payments. Owning the note also gives banks the right to foreclose when a borrower stops paying.

The trouble is, in an effort to cut costs and boost bonuses, banks haven't kept actually kept track of the note-in fact, they've actively destroyed the document so they don't have to deal with filing it. Now that mortgages are going bad, banks are taking advantage of the documentation vacuum they created to levy massive, illegal fees on borrowers both before and during the foreclosure process. They do this by manufacturing fake documents, forging signatures, and getting bogus signatures from notaries to approve sham documents.

This is all terribly unfair to borrowers. In some cases, illegal fees push borrowers over the edge into foreclosure, while in others, borrowers get saddled with tens of thousands of dollars in illegal fees after getting kicked out of their home. The situation is a national disgrace.

Failure to produce

But the situation also creates legal liabilities that can push banks into failure. If banks can't pony up the note, they don't have the right to foreclose-not without some serious, expensive legal maneuvering. And what's more, if the banks who created these shoddy securities can't supply notes, investors who bought the securities can force losses back on the banks that created them. Given that there are $2.6 trillion in mortgage-backed securities out there, banks are very worried that losses and lawsuits stemming from shoddy documentation could spark another round of major financial turmoil.

The sheer lack of documentation makes it very difficult for investors to decipher which banks are exposed to loads of red ink, and which banks are not. That's a recipe for financial panic.

Silencing whistleblowers

The banks know they're in serious trouble. That's why, as Andy Kroll notes for Mother Jones, mortgage servicers like GMAC are trying to silence whistleblowers who can explain the extent of these frauds. GMAC employee Jeffrey Stephan confessed to robo-signing 10,000 foreclosure documents every month without actually examining them. His acknowledgment sparked the current public scrutiny of foreclosure fraud, which has expanded to banks including JPMorgan Chase and Bank of America.

Kroll was one of the first to report on these fraudulent foreclosure mills and their illegal fees, and his coverage of the issue is essential reading for anybody following the unfolding crisis. Kroll also highlights the wave of new investigations and inquiries being launched by attorneys general in eight states, a phenomenon that is likely to expand as the crisis widens.

As Annie Lowrey details for The Washington Independent, one of those states is Ohio, where Attorney General Richard Cordray is suing GMAC, seeking $25,000 in damages for every fraudulent document the company has filed. In Ohio alone, there have been 190,000 foreclosures over the past two years.  Cordray hasn't won his suit, and not every foreclosure will include fraud, but that's a potential loss of over $7 billion to GMAC from foreclosures in Ohio alone over the past two years. And that doesn't include what would be much higher losses to banks who packaged the mortgage securities, who are forced to repurchase them by burned investors.

Banks are doing their best to minimize the appearance of scandal, but the scope of potential losses from outright fraud is quite clearly a threat to the viability of the financial system. It's easy to imagine a disaster scenario in which the government has no choice but to take major action to prevent the economy from imploding (yes, it can actually get worse).

Obama needs to pick up the slack

So far, President Obama is sending mixed signals about his intentions. As Steve Benen notes for The Washington Monthly, Obama vetoed a bill that would have made it harder for borrowers to show that banks were engaging in fraud during the foreclosure process. That was on Friday-but by Sunday, top Obama adviser David Axelrod was telling the press that the administration was not ready to support a foreclosure moratorium, dismissing the fraud crisis as a set of "mistakes" with lender "paperwork."

As I note for AlterNet, Axelrod's comments are a complete mischaracterization of what's going on in the foreclosure process, and of what can be done. The housing market is a mess because banks have been systematically committing fraud. We cannot rely on such fraudsters to fix the mess-- some kind of government action is going to be necessary. Whatever the solution, the administration cannot stand with big Wall Street banks against the borrowers and investors that are being defrauded. Any solution must take the interest of troubled borrowers as paramount. We've already tried saving the banks without saving homeowners, and as the unfolding foreclosure fraud crisis illustrates, it didn't work.

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