The Nation: Letting The Banks Make The Rules

The Nation: Letting The Banks Make The Rules

Kai Wright

Friday, October 22, 2010 at 8:26 AM

As the nation deals with the fallout from the housing crisis, some of the policies that contributed to its downfall remain in place. Kai Wright of The Nation argues that as long as banks are allowed to write their own rules on foreclosure, the same practices that brought down the housing market will continue.

Many homeowners are losing their homes, despite a 10-day freeze on foreclosures by Bank of America and other large banks.

Many homeowners are losing their homes, despite a 10-day freeze on foreclosures by Bank of America and other large banks.

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Home Foreclosures Continue Despite Freeze

Delays over questionable paperwork have not eliminated the threat of foreclosure for homeowners.

A year and a half ago, I sat in the office of Jim Kowalski, a prosecutor turned defense attorney in Jacksonville, Florida, listening to him describe a crime that was, by then, known to anyone who’d dealt with the foreclosure process.

Kowalski worked with a small cadre of local attorneys trying to slow the area’s onslaught of foreclosures. In the aggregate, they were monstrously outmatched by banks with subcontractors of subcontractors dedicated to removing families from homes quickly. But on a case-by-case basis, they stole the advantage because they knew the mortgage industry’s secret: it had buckled under the weight of its own corruption. All you had to do was force the banks’ empty hand, and you could keep a client in her home.

The biggest tell came over list-serves that connected legal aid outfits and small private practices overwhelmed by the sudden demand for foreclosure defenses. As lawyers like Kowalski compared notes on the three big banks whose servicing arms controlled nearly half the mortgage market, they noticed case after case of irregularities. Once they forced the servicers into court, the pattern became clear: everybody involved in the securities process had cut so many corners in pursuit of record profits, had operated with such disregard for the many steps that ensure a safe and sound mortgage market, that they couldn’t even show who owned the debt.

In April 2008 Kowalski deposed a Citibank residential lending employee, Tamara Price, whose name had recurred on foreclosures. Price described a system for creating bogus mortgage assignments that was baldly deceptive, all the way down to the fake “vice president” title with which Price signed her name. The case was exceptional only in that Price was on record. Already, scattered judges had reached their wits’ end with the legal corner-cutting and were throwing out foreclosures. Lawyers in the trenches clung hopefully to the trend; most national advocates quietly said it would never prompt the sort of federal leadership that the foreclosure crisis demands.

More than two years and millions of foreclosures later, a deposition similar to Price’s — from a GMAC employee who admits to “robo-signing” 10,000 sworn documents a month — has revealed the fraud to the whole country.

Federal law enforcement officials have launched an investigation that could lead to a Justice Department suit, though both the probe and the potential suit will certainly be lengthy. In the meantime, some investors in mortgage-backed securities are making noise about wanting their money back, a disaster the banks have clearly feared from the start of this crisis. The banks, for their part, insist that the robo-signing scandal is just a matter of bad paperwork.

And the defrauded homeowners? They go right on facing foreclosure — at least those who still have homes. The same political advisers who guided Barack Obama into claiming, as a candidate, that he’d freeze foreclosures now fret about “moral hazard” and the systemic threat that protecting borrowers would create. They insist that we accept the fantasy of a mortgage and banking industry in need of tweaks, rather than confront the grotesque beast that ate millions of American dreams before devouring itself.

Obama’s arguments might be more convincing if the robo-signing fraud was exceptional. But it’s just the latest dirty open secret to make headlines. In the past three years, we’ve learned that originators, desperate for more loans to feed banks, steered borrowers to the no-doc, low-doc and other subprime loans that were required to keep the securities game going. We learned that those originators targeted seniors and people of color — or, in the parlance common at Wells Fargo, “mud people” — because they were the easiest to exploit. We learned that the Office of Thrift Supervision (OTS) found widespread lending fraud and malpractice at one of the largest subprime lenders, Washington Mutual, year after year for five years — and did nothing. Worse, OTS blocked other regulators who wanted to act. And we learned that credit-rating agencies inflated ratings of plainly shoddy loans. All this and more was required to fuel the securities trade that made a very few people very rich.

A number of big banks have voluntarily suspended foreclosures while they no doubt scramble to falsify more documents. It’s not the first voluntary foreclosure freeze. We last saw such charity when President Obama began crafting his foreclosure policy in early 2009. When it became clear that his policy would be toothless, the foreclosures resumed. Since then, the administration’s audits have confirmed the program’s widely predicted failure. A solution based on the industry’s good will couldn’t work then, and it won’t work now. Bank of America announced recently that it will resume business as usual in the twenty-three states where foreclosures require a judge’s approval. The bank insists that during its ten-day freeze it managed to review its foreclosure process in the relevant states and found nothing that demanded a pause. Just a few papers out of order is all.

Meanwhile, the president has thus far made it clear he will do nothing to force the banks’ hand. He has said there will be no foreclosure freeze, and his foreclosure prevention program still contains no cudgel to force meaningful rewrites of plainly bad loans. The federal probe into banks’ criminal behavior is welcome news, but millions of homeowners are fighting desperate battles right now and getting no real help from the White House or Congress, which has refused to pass the bankruptcy reform that would, finally, give borrowers the power to demand a fair deal. The president and his advisers tell us instead that holding banks accountable while helping families who are drowning in fraudulent debt is too dangerous for the housing market.

This position does not differ substantively from that of George W. Bush. Given what we’ve learned lately, it’s even less defensible. Mortgage servicers have shown that they have neither the will nor the ability to fix millions of bad loans. But until those loans are dealt with, there will be no housing recovery, any more than the broader economy will revive without job creation. The situation clearly demands that the government step in and lead. There is sadly not much more than that to add to the foreclosure debate; the solutions have long been clear. As long as banks are left to write their own rules, they will go on flouting law and decency. And as long as President Obama allows them to do so, he’s a willful participant in their ongoing scam.

10 Responses

  1. Order the Orange Jump Suits

  2. Gloria Allred is a lawyer in LA

  3. The golden rule, of course the make the rules (rule), they have the cash. But actually it’s a fiction when the whole backdrop they finance is bust in the numbers, a bankrupt nation.

    So it heads to litigation, and then you have the classic handmaiden hoe of the whole mess, the next recipient of the non-existent blood money, the judicial systm and lawyers (which cycles back to the banks they bow before) LOL.

    Has anyone noticed the greedy joke of a vulture eating vulture nation we have now officially, globally become?


    Like Chris Cornell said in 1989, “turning eagles, into vultures, into vultures…”


    We just got our Notice of Eviction !!
    The alleged lender’s actions force our hand into filing a lawsuit now.
    They’d rather throw us out than to work with us. They need their profits.

    Too late now, we no longer trust them and will fight against the corruption.
    I pray more homeowners strategically default so this beast gets tamed.

    A good lawyer in Los Angeles area would be helpful right now.
    Please write to


  5. I wonder how the rest if the world views us now

  6. HAMP has proven itself to be a perfectly designed program that has helped immensley. Without this program cleverly designed by Geithner and other government officials, the banks would have had a much tougher time bringing the hammer down squarely on the head of citizens across America.

    The act of causing a homeowner to default, by telling them that they need to be late on their mortgage payments before being considered for HAMP review, was a stroke of genius on the part of the Treasury and it’s partner banks. Then, the banks get an exact accounting of how much money the homeowner has available through the mandatory accounting paperwork that the soon to be non-homeowner has to supply them

    And if that wasn’t enough, the administration’s various departments, HUD, FHFA, SEC…pic any set of letters here, it doesn’t matter, they all align themselves in perfect sync on the side of the BIG securitization players, the ones that took out a negotiable instrument in our names the moment we signed a prommisory note. Off to the casino.

    Then their retainered appraisers, originators, title agents (note that the actual definition of retainer means person or soldier’s service to a lord) act in perfect unison, like a pride of lions taking down a wildebeest. Hidden fees, unknown rate hikes, or as E. Warren writes, “The fine print is the shrubbery the robber hide in.” The crime is a well crafted and perfectly choreographed ballet.

    And then finally, after a perfectly executed crime, one in which the once homeowner has been stripped of each and every coin they had in their possession, they are turned out onto the street, right next to what’s left of their belongings by a judiciary that has overstuffed 401K’s in the very same banks. And all the while our president stumps, reciting, “Oh yes we can!”

    And the banks state over and over that HAMP is simply a suggestion, not a requirement. Congress is too busy counting the barrow loads of cash rolling into their offices. “Oh yes they can!” And they did.

  7. Insurance companies will keep rates high (for years) because of negative credit.

  8. The only way to really win this is at the local level. City of Bell Case Study. Even the civil rights movement of the Sixties the local level forced the Feds to come in effectively

  9. So for the record,
    I am paying my property taxes as I go, $12.60 per day includes the 5% penalty for being strategic, the county will charge 1% interest as well. For the Insurance, I called my agent and made him lower the policy to pre bubble expense, from 2300,00, last year, then the new bill was 2900.00 and I thinking no Fing way, the new policy will come in at 1200.00 for the year going forward.. This is not a small matter, we all paid hyper inflated insurance cost’s too.
    People talk to your agent. Thank you State Farm.
    I reachieved a 594.00 refund check in the mail Yesterday from last years policy.

  10. Very well written. I agree wholeheartedly.

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