Foreclosure News in Review

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Starting with the Clinton and Bush administration and continued by the Obama administration (see below), the public, the media, the financial analysts, economists and regulators are uniformly ignoring the obvious pointed out originally by Roubini, myself and many others (Simon Johnson, Yves Smith et al). We are pretending the fix the economy, not actually doing it. The fundamental weakness of world economies is that the banks caused a drastic reduction in household wealth through credit cards and mortgages. Credit was used to replace a living wage. That is a going out of business strategy. The economies in Europe are stalling already and our own stock market has started down a slippery path. The prediction in the above-linked article seems more likely than the blitzkrieg of planted articles from pundits for Bank of America, and other banks pushing their common stock as a great investment. The purpose of that blitzkrieg of news is simple — the more people with a vested interest in those banks, the more pressure against real regulation, real enforcement and real correct.

As the facts emerge, there were no actual financial transactions within the chain of documents relied upon by foreclosing parties. That cannot change. So the foreclosures are simply part of a larger fraudulent scheme. If the government regulators and the Federal reserve would tell the truth that they definitely know is the truth, the the mortgages would all be recognized as completely void and the notes would not only be void but subject to civil and potentially criminal charges of fraud. Most importantly it would eliminate foreclosures, for the most part, and allow borrowers to get together with their real (even if reluctant) lenders and settle up with new mortgages., This would restore at least some of house hold wealth and end the policy of making the little guy bear the burden of this gross error in regulation and this gross fraudulent scheme of non-securitization of mortgage debt, student debt, auto loan debt, credit card debt and other consumer debt.

It is ONLY be restoration of a vibrant middle class that our economy and the world economic marketplace can avoid the coming and recurring disaster. This is a matter of justice, not relief. See also Complete absence of mortgage and foreclosures are the largest component of our problems

What happens to restitution and why is the government ignoring the obvious benefits from restitution? NY Times

So a trader no longer needs to be subject to a requirement of restitution because he has already entered into civil agreement to restore creditors who bought bogus mortgage bonds that were issued by REMIC Trusts that were never funded by any cash or any assets. Since the “securitization fail” originated as a fraudulent scheme by the world’s major banks, and restitution is the primary remedy to defrauded victims, it follows that restitution should be the principal focus of enforcement actions, civil suits and criminal prosecutions. Meanwhile some restitution is occurring, just like this case.

The question is, assuming the investors who were in fact the creditors, how are the proceeds of settlement posted in accounting for the recovery of potential losses? If, as is obviously the case, the payments reduce the losses of the investors, then why are those settlements not credited to the books of account of those creditors and why isn’t that a matter subject to discovery of what the “Trust” or “Trust beneficiaries” are showing as “balance due” and what effect does that have on the existence of a default — especially where servicer advances are involved, which appears to be most cases.

The courts are wrong. Those judges that rule that the accounting and posting on the actual creditors’ books and records are irrelevant are succumbing to political and economic pressure (Follow Tom Ice on this issue) instead of calling balls and strikes like they are supposed to do. If third party payments are at least includable in discovery and probably admissible at trial, then the amount that the creditor is allowed to expect would be reduced. In accounting there is nothing more black letter that a reduction in the debt affects both the debtor and the creditor. So a principal reduction would occur by simple application of justice and arithmetic — not some bleeding heart prayer for “relief.”

Why the economy can;t budge — consumers are not participating in greater productivity caused by consumers as workers

Simple facts: our economy is driven by, or was driven by 70% consumer spending. Like it or not that is the case and it is a resilient element of U.S. Economics. Since 1964 workers wages have been essentially stagnant — despite huge gains in productivity that was given ONLY to management and shareholders. I know this is an unpopular position and I have some misgivings about it myself. But the fact remains that when unions were strong EVERYONE was getting paid better and single income households were successful with even some padding in savings account.

By substituting credit for a proper wage commensurate with merit (productivity), the country has moved most of the population in the direction of poverty, burdened by debt that should have been wages and savings.

But the big shock that is not over is the sudden elimination of household wealth and the sudden dominance of the banks in the economy, world politics and our national politics. Proper and appropriate sharing of the losses imposed solely on borrowers in a mean spirited “rocket docket” is not the answer. (see above) The expediting of foreclosures is founded on a completely wrong premise — that the debts, notes and mortgages are, for the most part, valid. They are not valid as to the parties who seek to enforce them for their own benefit at the expense and detriment to both the creditors (investors) and borrowers.

GDP of the United States is now composed of a virtually dead heat between financial “services” and all the rest of real economic activity (making things and doing services). This means that trading paper based upon the other 50% of real economic activity has tripled from 16% to nearly 48%. That means our real economic activity is composed, comparing apples to apples, of about 1/3 false paper. A revision of GDP to 2/3 of current reports would cause a lot of trouble. But it is the truth and it opens the door to making real corrections.

The Basic Premise of the Bailout, TARP, Bond Purchases was Wrong

Now that Bernanke, Geithner, Paulson and others are being forced to testify, it is apparent that they had no idea what they were really doing because they were proceeding on false information (from the banks) and false premises (from the banks). Most revealing is that both Paulson and Bernanke were relying upon Geithner while he was President of the NY Fed. Everyone was essentially asleep at the wheel. Greenspan, former Federal Reserve chairman, admits he was mistaken in believing that while his staff of 100 PhD’s didn’t understand the securitization scheme, market forces would mysteriously cause a correction. Perhaps that would have been painfully true if market forces had been allowed to continue — resulting in the failure of most of the major banks.

The wrong premise was the TBTF assumption — the fall of AIG or the banks would have plunged into a worldwide depression. That would only have been true if government didn’t simply step in, seize bank assets around the world, and provide restitution to the victims — pension funds, homeowners, insurers, guarantors, et al. We already know that size is no guarantee of safety (Lehman, AIG, Bear Stearns et al). There are over 7,000 community banks and credit unions, some with more than $10 billion on deposit, that could easily pick up where bank of America left off before its own crash. Banking is marketing and electronic data processing. All  banks, right down to the smallest bank in America, have access to the exact same IT backbone for transfer of funds, deposits and loans. Iceland showed us the way and we ignored it. They sent the bad bankers to jail and reduced household debt by more than 25%. They quickly recovered from the “failed” banks and things are running quire smoothly.

JDSUPRA.COM: What good is the statute of limitations if it never ends?

A word of caution. In the context of a quiet title action my conclusion is that it should not be available just because the statute of limitations has run on enforcement of the note. But it remains on the public records as a lien. The idea proposed by me, initially, and others later that a quiet title action was the right path is probably wrong. documents in the public records may not be eliminated without showing that they never should have been recorded in the first place. Thus the mortgage or assignment of record remains unless we prove that those documents were void and therefore should not have been recorded.

That said, I hope the Supreme Court of Florida makes the distinction between the context of quiet title, where I agree that it should not easy to eliminate matters in the public record, and the statute of limitations, where parties should not be permitted to bring repeated actions on the same debt, note and mortgage after they have lost. Both positions cause uncertainty in the marketplace — if quiet title becomes easy to allege due to statute of limitations and statute of limitations becomes  harder to raise because despite choosing the acceleration option, and despite existing Florida law and precedent, the court decides that the the foreclosing party is estopped by res judicata, collateral estoppel and the statute of limitations.

JDSUPRA.COM: Association Lien Superior to 1st Mortgage

As I predicted years ago and have repeated from time to time, one strategy that is absent is collaboration between the homeowner and the association whose lien is superior to the 1st Mortgage which can be foreclosed out of existence. This was another area of concentration in my prior practice of law. We provide litigation support to attorneys. We will not make any attempt nor accept direct engagement of associations. But I can show you how to use this to advantage of our law firm, your client’s interests and avoid an empty abandoned dwelling unit.

What a surprise?!? Servicers are steering unsophisticated and emotionally challenged borrowers into foreclosure

by string them along in modifications. This is something many judges are upset about. They don’t like it. More motions to compel mediation (with a real decider) or to enforce a settlement that has already been approved (and then the NEXT servicer says they are not bound by the prior agreement.

6 Responses

  1. Worth reading

    EXCLUSIVE: Elizabeth Warren on Barack Obama: “They protected Wall Street. Not families who were losing their homes. Not people who lost their jobs. And it happened over and over and over”
    “There has not been nearly enough change,” she tells Salon, taking on Obama failures, lobbyists, tuition. So 2016?

  2. “If the government regulators and the Federal reserve would tell the truth that they definitely know is the truth, the mortgages would all be recognized as completely void and the notes would not only be void but subject to civil and potentially criminal charges of fraud. Most importantly it would eliminate foreclosures, for the most part, and allow borrowers to get together with their real (even if reluctant) lenders and settle up with new mortgages.”

    So….it would be the new lenders who would be reluctant to enter into this new arraignment? What about the borrowers? After all the criminality, after losing easily half or better of their hard earned equity in these properties, after fighting for 6 or 7 years against these criminal elements with insta-refilling pockets, not to mention losing jobs by the gazillions, the borrowers are supposed to relish sweeping all of this crap under the floorboards and cheerily agree to a new note? Is it only me that thinks Neil is off his rocker with this global solution?

    My beef, from day one on LL, has been Neil’s belief that some investor somewhere can come together with a borrower and try to rearrange this cluster fuck so far after the one-sided party is over, at the same time pretty much just throwing up millions of borrower’s hands en masse, blithely accepting that we all “took out a loan”, it might as well be to this new party in the room, or even the old party that has no document perfection, just because of how Wall Street gave the entire mortgage system a poison pill with their RICO cartel. WTF is that all about?

    The only thing that will right this wrong is to bailout the borrowers entirely, forcing Geithner, Bernanke, Paulson, and even the Master of Hopeless Change himself Obama to reverse their ludicrous course by 180*, along the way locking (them up) up everyone above teller status at these criminal organizations. Nothing short of this will do.

    Asking the mortgagors to agree to forgive and forget, alongside losing trillions of hard earned equity is a very bitter pill to swallow. It’s time to use the foam trucks for the citizens, and put Paulson’s threat of tanks on the streets to good use, aimed straight at the brass bull and all who reside there. Or better yet, jump you fuckers, and save us all the bother.

  3. Ha, Neal compared himself to Roubini. When I told Roubini the spreads had reached an outside move up back i 2006, he had no idea what I was talking about.

    He knew so little about synthetic structures he continued to be a doom and gloom guy from 7k Dow to 12,500 Dow. Any economist knew the well was being pumped and that the Fed was all i after they saw the extent of the counter party exposure after Lehman.

    Neal, stick to the courtroom…

  4. @ Charles Reed ,

    A vicious circle ,, Fed backstops AIG because AIG backstops the banks that make up The Fed… Fed gives it’s member banks free money and charges AIG $25B/yr because they wanted to force AIG to sell itself on the cheap.

    Who pays for it all ?

  5. I am agreeing with where Neil going as he seems to have read at least part of our posting. I wrote about this everywhere about rewriting these mortgages, because they cannot prove who is the owner of the debt anywhere. This week I have been writing about the Three Stooges in Bernanke, Paulson & Geithner who were pulling things out their butts to deal with the crisis but had no history in Contract law.

    How do you charge the insurance company in AIG 14% while giving the producers of the toxic waste zero to .5% loans? How fair is it to have charged AIG $25.2 billion per year in interest and some 0% to .5% while borrowing a Citi $2.5 trillion?

    The Three Stooges are on the stand as representing the Federal Government in their decision, and they are giving answers saying they don’t remember the details of $180 billion loan to AIG. They are saying they treated AIG different because they wanted to send a message to other? What other insurance company, because they were treating all the bank easier than AIG!

    They are getting advice from Warren Buffett about Hank Greenberg’s situation where we know there is no love life, but Buffett talking trash about the CDOs & CDSs as Financial Weapons of Mass Destruction but who did he have the couple hundred of these products insured with? So at what point was it that the Fed Gov was going to allow AIG to fail? Never!

    I look at this trial as a blessing because it show these idiots were no more smarter about this crap than anybody else, but it also exposes the conflict of interest the three!

  6. Right on Target Neil!

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