|October 17th, 2010, 01:44 PM||#1|
Looking to ride
Join Date: 03-28-07
Location: Petoskey area
Billion-Dollar Foreclosure Mess Took Root at $75K House
...How much will the foreclosure mess cost? Estimates are still forming, writes Mark Gongloff in Friday’s WSJ.
Some $154 billion in mortgages could be affected by foreclosure delays, according to an estimate this week by Laurie Goodman, senior managing director at mortgage-bond trader Amherst Securities Group LP in New York.
Morgan Stanley trading-desk analyst Greg Gore estimated in a conference call on Tuesday that as much as $134 billion of mortgage bonds held by the nation’s four biggest banks could ultimately be affected by foreclosure delays.
That’s a lot of money for a problem that the NY Times traces back to a $75,000 house in Denmark, Me. The article, by David Streitfield, looks at a home Nicolle Bradbury bought seven years ago; a tiny little house near the New Hampshire border.
A couple of years ago, Ms. Bradbury lost her job and could no longer make the $474 monthly payments. But her run-of-the-mill foreclosure became anything but when it landed in front of a lawyer at a nonproift group who had worked in the foreclosure industry for years–helping to foreclose on homes that small business owners had put up as collateral.
The lawyer, Thomas Cox, succeeded in getting the deposition of a GMAC ‘robo-signer’ who admitted that he didn’t read through the 400 foreclosures he signed each day.
Mr. Cox then laid out in a court filing what he’d heard from robo-signer Jeffrey Stephan:
When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.
The judge hearing Ms. Bradbury’s foreclosure case was persuaded. He rejected GMAC’s request for a foreclosure without trial. Even when given the chance to file amended documents, the judge noted, GMAC still didn’t even include the actual street address of the Maine house.
Lawyers around the country are now looking at this case as a model for further litigation, writes Mr. Streitfield.
Don Saunders of the National Legal Aid and Defender Association tells the New York Times: “This ammunition will be front and center in thousands of foreclosure cases.”
A $75K bullet to take down a billion-dollar industry?
|October 18th, 2010, 10:07 AM||#2|
Join Date: 11-08-05
Location: Orchard Lake
I'm still not sure what to think of haulting foreclosures. On one hand it's great that people will not lose their homes on the other, people who are ready to buy will not have as much opportunity.
What will this do to property values? Will they increase because the houses on the market do not have to compete with foreclosures?
May the Sparks be with you
|October 18th, 2010, 10:24 AM||#3|
Join Date: 09-22-08
Location: Commerce Twp. Michigan
This whole mess began with Clinton saying everybody deserves to own a home, reguardless if the have a job or even afford it. With that then to inform the banks that they will have to lend to anybody even if they should only be renters.
|October 18th, 2010, 11:27 AM||#4|
Join Date: 11-07-05
Halting foreclosures is just going to accelerate the nailing of the coffin to hold our dead economy. By halting them, it just means that rather than 200,000 to 300,000 per month hitting the market, there will millions that hit the market all at the same time. Supply and demand... Flood the market all at once will destroy any value left in the housing market. Great plan.
|October 18th, 2010, 11:51 AM||#5|
What about the impact on the banking industry? What is going to happen when these banks are sued out of existance? Not that they don't deserve to go bankrupt but will they? Or will the nice government men step in and bail them out at your expense (again)?
We are so screwed.
|October 18th, 2010, 04:21 PM||#6|
Professional Pisser Offer
Join Date: 09-15-06
Location: Bay City, MI
|October 18th, 2010, 04:38 PM||#7|
Join Date: 05-20-10
I understand your dual feelings on this subject, but consider this thought. The home that started all this mess was almost 2 years without a payment. The foreclosure was not halted because the paperwork was wrong, or because a mistake had been made, but because of a technical violation of the law. When you boil it down, she agreed to make payments and didn't, and agreed to give back the house if she didn't make payments. Now she won't give back the house or make the payments and refuses to leave until she is forcibly evicted. And the bank is on trial now because someone did not completely read a package of documents? Did she completely read all of her docs before she signed her mortgage. I bet you her 75k mortgage she didn't read any of them.
|October 18th, 2010, 08:24 PM||#8|
A very long read but well worth your time.....
The Second Leg Down of America’s Death Spiral
TUESDAY, OCTOBER 12, 2010
I swear to God Almighty: Mortgage Backed Securities are America’s Herpes—the gift that keeps on oozing.
Last Friday, Bank of America announced that it was suspending all foreclosure proceedings, presumably until further notice. Other banks have already suspended foreclosures in a whole truckload of states. A nationwide moratorium on foreclosures might soon happen—which would be a big deal:Global Financial Crisis, Part II—Longer, Wider and Uncut.
But the mainstream media—surprise-surprise—has downplayed the whole shebang. They’re throwing terms out there into the ether, but devoid of context or explanation: “Robo-signings”, “foreclosure mills”, forged signatures, “double booking”, MERS—it’s confusing as all get-out.
So the mainstream media just mentions it casually—“and in other news tonight . . .”—like it’s no big deal: A couple-three lines, lots of complicated, unfamiliar terms, an attitude like it’s a brouhaha overpaperwork of all things!—and thenzappo-presto-change-o!: They’re showing video footage of a cute koala nursing in the arms of a San Diego zookeeper.
But even the koalas know that something awful is heading America’s way. Smart little critters, they’re heading for the treetops, to get away from this mess.
So what the hell is going on with the God forsaken mortgage mess in the United States?
It’s got a lot of bells and whistles, but it’s basically quite simple: It’s all about the fucking Mortgage Backed Securities (MBS). Again.
then we heard tonight on CNBC that Bank of America was going to restart the foreclosure process!!
There are two videos that I would liketo bring to your attention on the foreclosure mess:
1. the first one has to do with the ratings agencies and how they committed fraud on on the Mortgaged backed securities they were rating:
here you see how a family who were foreclosed upon, hacksawed the locks and re-entered their foreclosed home.
You will see that the bankers just made up numbers. They had no idea what was owed on the property.
I urge you to watch both videos as you will get a sense of what is happening in America tonight.
Also I received this commentary from J. Mauldin and it contains another wonderful summary of the fraud and why it happened.
I will highlight the entire passage for you: I would like to thank Ross Pellegrino and Ron Kapan for sending me this article.
Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper—only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage, the note, which is the actual IOU that people sign, promising to pay back the mortgage loan.
Before mortgage-backed securities, most mortgage loans were issued by the local savings & loan. So the note usually didn’t go anywhere: it stayed in the offices of the S&L down the street.
But once mortgage loan securitization happened, things got sloppy—they got sloppy by the very nature of mortgage-backed securities.
The whole purpose of MBSs was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with correspondingly higher rates of return.
Therefore, as everyone knows, the loans were “bundled” into REMIC’s (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then “sliced & diced”—split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.
This slicing and dicing created “senior tranches,” where the loans would likely be paid in full, if the past history of mortgage loan statistics was to be believed. And it also created “junior tranches,” where the loans might well default, again according to past history and statistics. (A whole range of tranches was created, of course, but for the purposes of this discussion we can ignore all those countless other variations.)
These various tranches were sold to different investors, according to their risk appetite. That’s why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
But here’s the key issue: When an MBS was first created, all the mortgages were pristine—none had defaulted yet, because they were all brand-new loans. Statistically, some would default and some others would be paid back in full—but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads—but what will the result be of, say, the 723rd toss? No one knows.
Same with mortgages. So in fact, it wasn’t that the riskier loans were in junior tranches and the safer ones were in senior tranches: rather, all the loans were in the REMIC, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder last.
But who were the owners of the junior-tranche bond and the senior-tranche bonds? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn’t be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.
Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier tranche?
Enter stage right the famed MERS—the Mortgage Electronic Registration System.
MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two again —I know, I know: like the chlamydia and the gonorrhea of the financial world—you cure ‘em, but they just keep coming back).
The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially where the digitized mortgage notes were sliced and diced and rearranged so as to create the mortgage-backed securities. Think of MERS as Dr. Frankenstein’s operating table, where the beast got put together.
However, legally—and this is the important part—MERS didn’t hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.
But the REMICs didn’t own the notes either, because of a fluke of the ratings agencies: the REMICs had to be “bankruptcy remote,” in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors.
So somewhere between the REMICs and MERS, the chain of title was broken.
Now, what does “broken chain of title” mean? Simple: when a homebuyer signs a mortgage, the key document is the note. As I said before, it’s the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the “chain of title.”
You can endorse the note as many times as you please—but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.
If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
Read that last sentence again, please. Don’t worry, I’ll wait.
You read it again? Good: Now you see the can of worms that’s opening up.
The broken chain of title might not have been an issue if there hadn’t been an unusual number of foreclosures. Before the housing bubble collapse, the people who defaulted on their mortgages wouldn’t have bothered to check to see that the paperwork was in order.
But as everyone knows, following the housing collapse of 2007-’10-and-counting, there has been a boatload of foreclosures—and foreclosures on a lot of people who weren’t sloppy bums who skipped out on their mortgage payments, but smart and cautious people who got squeezed by circumstances.
These people started contesting their foreclosures and evictions, and so started looking into the chain-of-title issue, and that’s when the paperwork became important. So the chain of title became crucial and the botched paperwork became a nontrivial issue.
Now, the banks had hired “foreclosure mills”—law firms that specialized in foreclosures—in order to handle the massive volume of foreclosures and evictions that occurred because of the housing crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
Well, what do you know, it turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby “proving” that the banks had judicial standing to foreclose on delinquent mortgages. These foreclosure mills might have even forged the loan note itself—Wait, why am I hedging? The foreclosure mills did actually, deliberately, and categorically fake and falsify documents, in order to expedite these foreclosures and evictions. Yves Smith at Naked Capitalism, who has been all over this story, put up a price list for this “service” from a company called DocX—yes, a price list for forged documents. Talk about your one-stop shopping!
So in other words, a massive fraud was carried out, with the inevitable innocent bystanders getting caught up in the fraud: the guy who got foreclosed and evicted from his home in Florida, even though he didn’t actually have a mortgage, and in fact owned his house free –and clear. The family that was foreclosed and evicted, even though they had a perfect mortgage payment record. Et cetera, depressing et cetera.
Now, the reason this all came to light is not because too many people were getting screwed by the banks or the government or someone with some power saw what was going on and decided to put a stop to it—that would have been nice, to see a shining knight in armor, riding on a white horse.
But that’s not how America works nowadays.
No, alarm bells started going off when the title insurance companies started to refuse to insure the titles.
In every sale, a title insurance company insures that the title is free –and clear —that the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because—of course—they didn’t want to expose themselves to the risk that the chain –of title had been broken, and that the bank had illegally foreclosed on the previous owner.
That’s when things started getting interesting: that’s when the attorneys general of various states started snooping around and making noises (elections are coming up, after all).
The fact that Ally Financial (formerly GMAC), JP Morgan Chase, and now Bank of America have suspended foreclosures signals that this is a serious problem—obviously. Banks that size, with that much exposure to foreclosed properties, don’t suspend foreclosures just because they’re good corporate citizens who want to do the right thing, and who have all their paperwork in strict order—they’re halting their foreclosures for a reason.
The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills’ forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their master’s will by a voice vote—so that there would be no registry of who had voted for it, and therefore no accountability.)
And President Obama’s pocket veto of the measure? He had to veto it—if he’d signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as unconstitutional in short order. (But he didn’t have the gumption to come right out and veto it—he pocket vetoed it.)
As soon as the White House announced the pocket veto—the very next day!—Bank of America halted all foreclosures, nationwide. Why do you think that happened? Because the banks are in trouble—again. Over the same thing as last time—the damned mortgage-backed securities!
The reason the banks are in the tank again is, if they’ve been foreclosing on people they didn’t have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
And it won’t matter if a particular case—or even most cases—were on the up –and up: It won’t matter if most of the foreclosures and evictions were truly due to the homeowner failing to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that, now, all foreclosures come into question. Not only that, all mortgages come into question.
People still haven’t figured out what all this means. But I’ll tell you: if enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loans and keep their houses, scott-free? That’s basically a license to halt payments right now, thank you. That’s basically a license to tell the banks to take a hike.
What are the banks going to do—try to foreclose and then evict you? Show me the paper, Mr. Banker, will be all you need to say.
This is a major, major crisis. The Lehman bankruptcy could be a spring rain compared to this hurricane. And if this isn’t handled right—and handled right quick, in the next couple of weeks at the outside—this crisis could also spell the end of the mortgage business altogether. Of banking altogether. Hell, of civil society. What do you think happens in a country when the citizens realize they don’t need to pay their debts?
|October 19th, 2010, 12:34 PM||#10|
Catch the wave
Join Date: 11-08-05
as many folks replying to his blog post have pointed out, there are differences between what he calls the chain of title vs. a recorded mortgage or assignment of mortgage vs. a promissory note.
his post correctly illustrates a huge problem with the secondary mortgage market, loan servicing and mortgage backed securities - but that's really not news.
|October 19th, 2010, 06:20 PM||#11|
I read it here, but he was quoting Jim Sinclair. Who's the Gonzo?
I personally don't need mortgage advice but maybe some will need to know. I sold my house last year and have become a renter by choice. I'm waiting on the side lines now. I do want to keep the value of my savings though.
|October 20th, 2010, 11:16 AM||#12|
Get Up and Go
Join Date: 11-05-05
Location: Oak Park, Michigan
Valid foreclosures should go ahead.
If you can't pay the note, you lose the house, that is the contract.
What is disturbing are those cases where the foreclosure should not be proceeding, but are because of rubber stamping of paperwork. The checks and balances need to take place. After all, it is a persons/families home we are talking about.