Mortgage Lenders Committed Massive Fraud and Now Wall St. Wants to Escape the Law

Here they come looking for an out-clause and a way to keep their coffers full. We need to repeat a simple mantra: No more bailouts for Wall Street.
By Joshua Holland
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January 27, 2011 |

They committed widespread fraud – largely whitewashed by the corporate media – and, in the process, threw the economy into a tailspin. They’ve broken into and stolen people’s homes, and, in the name of “efficiency,” bilked state governments out of billions of dollars in real estate transfer fees. They’ve even admitted to ripping off – and foreclosing on – soldiers deployed overseas, in violation of the law.

And they shredded a bedrock principle of capitalism, throwing hundreds of years of settled property law into doubt and in turn creating a massive drag on Main Street’s economic “recovery.”

They got rich in the process. The mortgage industry did all of that for a fat stream of profits while the going was good, but now that they face the prospect of being held accountable by the justice system — as would you or I had we routinely broken the laws — analysts expect the “banksters” to lobby hard for another bailout.

They won’t be looking for the Fed to shower them with free money or buy up trillions worth of “toxic assets” weighing down their books they already got that sort of bailout once, the voters detested it and with the Tea Party ascendant in the GOP, the political atmosphere precludes a repeat performance.

No, the mortgage industry – with the help of its political lackeys in Washington– is reportedly looking for a judicial bailout that would retroactively allow loan servicers to foreclose on properties without running up the costs of getting their paperwork in order, and limit investors’ – and possibly the states’ – ability to sue them for the mess they created in the housing market.

Third Way, the financial industry’s Trojan Horse in Democratic policy circles (which is very well represented in the White House), released a policy memo last week urging Congress to step into the chaos caused by the banks’ “robo-signing” scandal and immunize the banks from liability from the robo-signing mess (PDF).

As economics writer Yves Smith noted, the proposal “advocates Congressional intervention into well established, well functioning state law.”

This proposal guts state control of their own real estate law when the Supreme Court has repeatedly found that “dirt law” is not a Federal matter. It strips homeowners of their right to their day in court to preserve their contractual rights, namely, that only the proven mortgagee, and not a gangster, or in this case, bankster, can take possession of their home.

This sort of protection is fundamental to the operation of capitalism, so it’s astonishing to see neoliberals so willing to throw it under the bus to preserve the balance sheets of the TBTF banks. Readers may recall how we came to have this sort of legal protection in the first place. England learned the hard way in the 17th century what happens with low documentation requirements: abuse of court procedures, perjury and corruption become the norm.

Lenders are playing down the mess they created, suggesting they’re simply dealing with some isolated “paperwork” issues. But the Third Way memo comes in the wake of a series of judicial setbacks for the banks that indicate their legal problems are likely to be anything but “minor.”

Last year, the New York Times reported that “in numerous opinions, judges have accused lawyers of processing shoddy or even fabricated paperwork in foreclosure actions when representing the banks.” In both New York and Florida, courts “have begun requiring that lawyers in foreclosure cases vouch for the accuracy of the documents they present,” which “could open lawyers to disciplinary actions that could harm or even end careers.” Stephen Gillers, an expert in legal ethics at New York University, told the Times, “when … it turns out there are documents being given to the courts that have no basis in reality, the profession gets a very big black eye.” The bar association is, understandably, up in arms over the requirement.

Last week, in response to a class action suit, GMAC Mortgage thew out approximately 1,000 foreclosure filings in Maryland that had been “verified” – at a rate of as many as 10,000 per week – by infamous robo-signer Jeffrey Stephan. Anthony Depastina, an attorney for Civil Justice, Inc., a public interest law-firm representing the mortgage-holders, explained to AlterNet that in an affidavit, “the signer is supposed to attest that they verified the numbers … they’re attesting under the penalties of perjury that the information contained in the affidavit …are true and accurate. Plus they’re supposed to sign it in the presence of a notary.” But in the robosigning scandal, “none of this happened.”

In fact, the Associated Press reported that “financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in ‘foreclosure expert’ jobs with no formal training.” In depositions reviewed by the AP, “many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word ‘affidavit.'”

The Maryland case was the first ever “defensive” class action suit filed. GMAC responded by offering to dismiss the foreclosure proceedings against the homeowner whose case sparked the suit. “We argued that was just an attempt to get around what was right,” said Depastina. “At the end of the day we would have to file on behalf of some other Maryland homeowner after we found there was a falsified affidavit.” GMAC can refile the foreclosures, but they have to start at square one.

Depastina said he expects these issues to extend far beyond the home mortgage industry. It’s “only symptomatic of a greater attempt by lending institutions of all types to circumvent the processes set up by the courts, the judiciary and legislatures in an effort just to increase their bottom line,” he said. “And I don’t think the foreclosure industry is the only problem – you’re going to see it in credit cards, in debt buying, in assignment of debt, in the auto industry… You know, the same individuals signed off on billions of dollars of debt every year. They’re supposed to verify all that debt information. Do they verify it? I have my doubts.”

The case came only weeks after the Massachusetts Supreme Court dealt the banks a serious blow in US Bank National Association (as trustee) vs. Antonio Ibanez. The case hinged on whether the banks (the case combined two separate foreclosure proceedings) actually had clear titles for properties they claimed to own.

At the heart of the case was the practice of slicing up and bundling hundreds of loans into investment vehicles – “securitizing” the debt. In the process, loans change hands a lot – they were assigned and reassigned from investor to investor, and a servicer dealt with the homeowners. But along the way, paperwork was required by law each time the mortgage changed hands. When the banks showed up to to foreclose, they didn’t have the required chain of title – the court found they were essentially trying to foreclose on properties they didn’t own.

The ruling only applied to Massachusetts, but it sent shockwaves across the mortgage industry. According to Harvard legal scholar Adam Levitin, “there are lots of securitization deals where the mortgages might not be enforceable in title theory states like Massachusetts … and that could well be fatal to enforcement of these trusts’ mortgages in Massachusetts at the very least, and possibly in” many more states.

Then there is the banks’ potentially massive liability stemming from the MERS mess. MERS is a private company established by the banking industry to allow investors to instantly trade debt back and forth. The idea was simple: instead of assigning and reassigning loans and filing the required paperwork with the states, MERS would oversee a database of all of the securitized mortgages in the US – about half of the total number of loans. It would theoretically “own” all the securitized loans, and transfer them within its network instantaneously. The problem is that when a deed changes hands, a recording fee has to be paid to the state or locality where the property is located, and MERS allowed investors to skirt these fees, costing communities untold billions.

Creating a privately operated registry of deeds in order to skirt local filing requirements was a remarkable act of hubris. “Fees are paid for a service performed, and if a document is eliminated because it is no longer necessary, no fee is due because there is nothing to record,’’ reads a statement on the MERS Web site. But that’s nonsense; when a state charges a $50 filing fee, it doesn’t represent the cost of the piece of paper. Those fees make up the revenues that finance state and local government and all the services they provide.

But the key point is that they’re required to file those documents by law, a law the home loan industry believes doesn’t apply to mortgage-lenders. Now they face not only investigations by all 50 state attorneys general, but potentially a wave of lawsuits from investors who may claim that the losses they took on these mortgage backed securities weren’t just the product of the market’s ups and downs, but a consequence of widespread misrepresentation on the part of Big Finance.

But the damage is, unfortunately, in no way being contained on Wall Street. According to data compiled by Housing Wire, the robo-signing boondoggle is largely responsible for a 50 percent drop in the number of foreclosures being completed over the past few months, shifting 250,000 from 2010 to 2011. It’s good for those homeowners to stay in their places for another year, but potentially disastrous for the economy to have a large overhang of distressed properties weighing down the market. According to an analysis by Barclay’s Capital, cited by Housing Wire, “If the worst happens… [if] widespread issues are found throughout the process and foreclosures are not allowed to be carried out, the damage could mean frozen home sales and new lending nationwide.”

In other words, the uncertainty around these chains of ownership may add to the “shadow inventory” of distressed properties that will come onto the market at some point down the road, a number estimated to be as high as seven million homes.

There are also untold numbers of homes that the banks are simply walking away from. Just as many homeowners have seen the value of “strategically defaulting” on their loans, these are properties so far under water that lenders have no financial incentive to take possession of and maintain them until they can be sold. A study conducted in Chicago by the Woodstock Institute, an advocacy group, found 1,896 “red flag” homes in the city that appeared to have been abandoned by loan servicers. The properties were disproportionally located in already distressed low-income communities.

Woodstock Institute VP Geoff Smith told AlterNet that the abandoned properties “add to the destabilization of these neighborhoods. They further effect surrounding property values.” He added that from the city’s perspective, “a lot of times they have to step in and secure these properties because nobody else will. That’s a cost to the city there. If there’s criminal activity, the city has to respond, adding to the cost. They have to demolish these properties in many cases, again adding to the cost for the city. All of this is an extra layer of impact for communities that are already experiencing some distress.”

According to Smith, the issue “raises questions about servicer accountability. How are [they] accountable for the decisions they make and the impact those decisions have on communities? If it’s not in their economic interests to take possession of the properties, then how does that effect the community” as a whole?”

The answer is that the consequences are disastrous, which may in turn provide the argument that the mortgage industry will use to seek judicial relief from the mess it created. It’s a good bet that they will once again claim they are “too big to fail” – or too big to bear the brunt of widespread litigation on the part of struggling homeowners, investors and state governments.

It would be scandalous to reward the lending industry with an effective pardon for its wanton, fraudulent practices. The good news is that the banksters face a much steeper climb this time around. In October, only 26 percent of the public said that George W. Bush’s Wall Street bailout was “good for the country, and disapproval spanned the political spectrum.

So defeating a judicial bailout for the loan industry should be a winnable fight against an opponent that the public views as a toxic influence on the economy. Back in November, rumors floated around about a potential “MERs whitewash bill” that would immunize the firm from lawsuits, but such a bill never materialized in Congress. Reaction to the trial balloon was swift and angry, and nobody on Capitol Hill has dared to introduce such a measure.

If a judicial fix ends up being debated, the outcome will likely be determined by which side wins the battle of narratives. The lending industry will say that it’s necessary to keep the Main Street economy afloat. In order to defeat that message, opponents need to repeat a simple mantra: No more bailouts for Wall Street.

19 Responses

  1. Why the avoidance

  2. Money Mainline Junkies

    I’m no visionary! There were people who saw this potential danger as far back as 1890, really.

    So, how do you keep people from putting together the obvious? We all just got robbed, in the largest organized swindle in human history…

    Distraction, and I mean addictive distraction. I’ll just cover a couple systemic addictions here.

    1. Democrazy – LOL. Do we need to go back to Alvin Toffler’s analysis of democracy again? And he was not the first, and don’t worry, communists and socialists are just as bad, except the state capitalizes, rather than the corporation, the state is the corporation, remove the vote, and see that the vote is a placebo anyways, and what do you have? The exact same monster, as a new fangled chamaeleon, a philosophical, polemic, blackhole of useless distraction. Argue, debate, philosophize, but nothing successful comes of it, the grind of perpetual loss and degradation persists, decade after decade, century after century and so on. You’d think even your average lawyers and politicians would figure this out, from the get go, but they fall under the powerful illusionary effects of sleeping pill institutionalized philosophics, reinforced by the monkey the other monkey saw murdering people to promote it in sanctioned, religiously backed war, they are paid to believe in it and share the blood proceeds philosophically bleached as white as wool over their eyes, And! Whoooopeeee! they get a chance to also take part in it, gather followers, and promulgate the illusion, now as real as an entire nation dragged into it, albeit a world. It’s like letting the deck hands paddle the Titanic too, it seems like we are doing something, but it’s ineffectual, and we’re going to sink anyways, LOL.

    A. How does that [dustract] people? look around you, it’s the seed of the proverbial Eve, taking root in everyone’s pride and motivation all around the world, we are right, the other guys are wrong, God is wrong or re-invented to pat our backs x 7,000,000,000 people, lets start throwing highly profitable wars to prove it, lets sell the knowledge at the university, and blab about it with Rush Limbaugh, because you can survive on the pay that pimpdom pays out – crime pays big time, reinforces itself, and self-replicates, especially institutionally backed crime, LOL. It’s self-sustaining, but it’s as useless today, as it was in 1914. See any changes from the claims of the Industrial Prophets and politicians over the seemingly endless four year cycles of false hope? Nope, nor will you, we just keep eating the potatoes and meat they pipe in to our mouths, and all the other comforts of our prostitution, that keeps us happy, and quiet. That is great evidence, that what we chase, is an illusional architecture. It doesn’t just spring from a primordial soup, we made it, LOL.

    B. It pacifies people into the illusion that they have a say so in what goes on. Do they? Yes, they can choose between dumb and dumber, greed and greedier, bad and worse, and so on, till no one has a pot to piss in, including the trillionaire architects of this, who store money like bacon, and wonder why it rots. It has to flow, not be horded by anal, truly greed addicted minds demented beyond repair. Like rapists, murderers, molesters and many others, they are dopamine cycle addicts, who have reinforced the neural architecture for such a pleasurable rush, of not spending money, but possessing it and controlling others with it. The brain is like clay, it changes evry minute, it’s not set in concrete, it is dynamic real-time. Keep reinforcing bad behavior, even under the gloss of holiness, generation after generation, in a self promoting super system, and it will have telling effects, especially viewed years later, yet some people warned us about it way back in 1900.

    2. Now as you see the basic psycho-active chemistry science is quite real, when you see through the upper layers of the distractions of addictions. The common denominator, is dopamine flow, as exemplified in the human orgasm, the biggest rush of dopamine brain chemistry eruption that exists, so far! LOL. Well, probably, judging by the lack of self-control in far less addictive (supposedly) behaviors as obsessive greed, theft and murder, this can be seen as a controlling psychoactive root. What’s the next biggest dopamine rush? Well for some it’s doing good things, for others it’s become an art of neural modification, synergy and weird, gradual obsessions with money, power, greed, murder, lies, and theft. It’s not an accidental architecture, we architect what we become, by repeated resistance, or repeated reinforcement, the trick is to make it publicly acceptable in media and philosophy, then the resistors can be pegged as weirdos, and people lose the will to fight things which any dictionary defined as evil, wicked, destructive, anti-social behaviors a hundred years ago; eg, old hat, not needed, to constraining, etc. And, again, these behaviors though costing the society at large, are highly profitable, self and nationally justified, and impossible to satisfy for any given length of time; slavery. You know it’s an addiction, if the more you do it, the less you are satisfied, the more it is desired, and the more it costs in time, energy, money and mental structure. So what could be worse? The synergy of combining a number of questionable dopamine enhancing practices, for a super-dopamine rush, for pleasure; super slaves. This is exemplified in megalomaniacs, and Ted Bundy, dopamine is the root, willful obsession is the multiplier, and global infection is the evidence, it is present in many synergies all around us.

    So, to make a long story short, the bank, banked on dopamine, before it ran of with the money. It’s not going to ever cure itself, it’s systemic, widespread, compounding and terminal.

  3. To Brian Davies, When do you think you can share your discovery?

  4. I’d like to see what M. Soliman says about this. How come I don’t see his posts these days? I’m going to court tomorrow and am confident it will go well with the new stuff he gave me. He seems to be about a year ahead of the curve now. Wish me luck!

  5. Or how about convincing the people buying houses at Auction to sue with the previous owner for quiet Title.

    Just Brain Storming.

  6. What about the people making payments and getting drained. In other words the paying people whose equity (life savings) has been wiped out. And the inflated mortgage payments that is money that could be used for constructive inestments. and not on deflated houses.

    If you want to win this war you need to convince en masse the paying or the ones wealthy enough to pay off their loans and then sue for Quiet Title.

    Just brain storming.


  7. A man, Egypt isn’t child’s play…it’s not about handguns here. This is big **** here!

    It’s about freedom, and the cost of getting by and every day living. Right now, the world resembles a stalactite, we’re all hanging on by what we’re allowed to cling to. Thus, the elite allowing us bread and circuses. They’ve done this for eons. Caligula was even better at it than Greenspan and Bernanke!

    It’s about control of the Suez canal. It’s about a whole lot of nations that are fed up with the usury that we’re all fed up with, only many of them are oil producing nations. And they all know that we started this meltdown.

    Watch oil. I’m an old futures trader. I don’t like the feeling in the pit of my stomach. Gas is already starting to get to where it disrupts normal economies, much less fragile ones.

    If gasoline get’s to $5 bucks per gallon, and food prices continue to climb, watch for the streets of America to resemble Egypt. Especially when Americans come to the realization that Bernanke has been burning the last of our firewood, and we’re just now entering February.




  10. […] This post was mentioned on Twitter by Wanta Freedumb, Teri Sherwood. Teri Sherwood said: SECURITIZERS LOOKING FOR JUDICIAL BAILOUT; BANKS WALKING AWAY FROM HOMES?: #Fraud #Corruption #Foreclosure […]

  11. While facts extrinsic to the allegations of the complaint clearly negating coverage can allow the insurer to deny coverage, particularly where the insured acknowledges such facts, an insurer’s failure to defend based on known unpleaded facts that potentially trigger coverage under the policy can lead to extra contractual exposure for the insurer.

  12. These claims and representations aginst the banks are amazing. Hard to believe and amazing.


    (sent 7.23 pm 01/31/2011)

  13. E. Tolle Egypt is childs play. They have gun control. We have alot of citizens with Guns. I am against violence But many people arent and they have guns. This violence will also go against innocent citizens so I am afraid for my own safety.

  14. Some bad news in Nevada regarding BofA can resume foreclosures

    Read blog comments

  15. Louise, there’s an in your face problem with the Third Way wanting to legitimize all of the fraud, which, when understood for what it truly is, is an attempt at handing over to the bankers the keys to the realm.

    If that occurs, when it sinks in as another 12-15 million houses are lost, it’ll be time to get fitted for a civil war uniform. Only this time, it will be three piece suits against Joe6pack flannel, and it won’t be pretty. I’d place a wager on Joe against the suits, just like our 1700’s militia against the powdered wigs in bright easy to shoot at red uniforms marching slowly in file.

    I love this country, when it works. And it’s not doing that right now. Working meaning as in functioning properly, but also as in people working…. at jobs….it’s all broken.

    When enough Americans feel the heat, or the growl of an empty belly, I have no doubt that Wall Street, the Treasury, the Central Banks, the Capitol, all will wish that they’d done things a little differently. Egypt is a precursor.

    Step on the states at your own peril feds. And Wall Streeters.

  16. E. Tolle, I am sure many people are starting to think like you. The President is in the middle of this as well. How long is he going to look the other way? It is not going to be good for reelection. I wonder if any of his cabinet and advisers realizes that. Time to boycott mega banks and just put them out of business.

  17. AIG $70 Billion
    Asset Guarantee Program $12.5 Billion
    Bear Stearns $29 Billion
    Capital Purchase Program $218 Billion
    Commercial Paper Facility $1.8 Trillion
    Fannie/Freddie bailout $400 Billion
    FHA rescue $320 BIllion
    GSE debt purchases $200 Billion
    GSE Mtg Backed purchases $1.25 Trillion
    Making Home Affordable $50 Billion
    PPIP $100 Billion
    TALF $70 Billion
    TARP $70 Billion
    TIP $40 Billion

    *owning Congress…. “priceless”

  18. Had a banker friend today tell me the FDIC “dumped” 300 houses on them after taking over “other” assets from a failed bank.

  19. If they judicialize the fraud by tramping over state’s rights, they’ll attempt to take my house at a very high risk of bodily harm. Extremely high.

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