The American Prospect Q&A: How Mortgage Lenders Broke the Law and Got Away With It

Q&A: How Mortgage Lenders Broke the Law and Got Away With It

The financial crisis and its aftermath haunt the 2016 elections. The shattering dislocation caused by the Great Recession set the stage for political insurgencies that have shaken both political parties. Free trade without a safety net is one of several issues galvanizing the downwardly mobile white voters rallying behind Donald Trump. On the left, Bernie Sanders weaponized the issue of Wall Street’s duplicity, Hillary Clinton’s ties to it, and the stunning fact that no one went to jail for systemic fraud that plunged the world economy into chaos.

The story of how we got into this mess is well known. But many of the accounts have centered on New York skyscrapers and on the corridors of power in D.C. Early this summer, financial journalist (and Prospect contributor) David Dayen released his dramatic account of the disaster from the perspective of three people who lived through foreclosures. Chain of Title focuses on Lisa Epstein, a nurse; Michael Redman, a car salesman; and Lynn Szymoniak, an insurance fraud lawyer. All three live in Florida, one of the states at the heart of the bubble. All of them wound up in difficulties, but instead of submitting to the indignities of foreclosure they fought back.

Dayen’s account interweaves the personal stories of these citizens with a bird’s eye analysis of the machinations that allowed the bubble to form and the cottage industry that sprang up to paper it over. Over the course of the book, his heroes uncover a stunning fact: The entities foreclosing on them do not have the legal right to do so. In the process of packaging mortgages into complex financial products, banks lost track of who actually owns the titles to the houses. Not only that, but the lenders have tried to cover their tracks by doctoring the paperwork—often clumsily—to make it appear as though the foreclosures are legitimate.

Dayen’s protagonists uncover a fraud so pervasive that it seems to implicate the majority of mortgages dispensed during the bubble years. He portrays the weak penalties imposed on the criminals in question, which were limited to fines and stiffer regulations, as a signature failure of the Obama administration that explains the further degradation of public trust in our institutions.

The American Prospect caught up with Dayen in his hometown of Philadelphia to talk about the financial crisis, Chain of Title, and the whole ugly episode’s deleterious effects on American democracy. This is an edited transcript of that conversation.

Jake Blumgart: There have been a raft of books about the financial crisis. What sets yours apart from the rest of the literature on the housing bubble and its aftermath?

David Dayen: I felt like what was missing from the literature was a ground-level focus on those who were most powerfully affected by the financial crisis. The experience of homeowners was largely invisible in the policy debate and even culturally. There’s a movie that came out last year, 99 Homes—Lynn Szymoniak was a consultant on it—and to prepare, the director wanted to look at instances on film where somebody was evicted and foreclosed upon. He looked in film archives for depictions of foreclosure in movies and he had to go all the way back to The Grapes of Wrath. That really speaks to the fact that we don’t look at this community, and the community doesn’t look at itself very much. People in foreclosure don’t talk to each other about foreclosure. They try to navigate it themselves individually. There’s a lot of shame and humiliation attached to it.

That’s what the main subjects of my book were reacting to. They got their foreclosure notice and they saw these irregularities with the foreclosure. But instead of just using that to fight their own cases they wanted to collectively help more than just themselves. To build that support space for a broad range of people to fight these cases and get a more equitable solution. It’s really a novel thing to see victims like this, who are dealing with their own personal crises, try to band together and go after the most hurtful financial institutions in this country.

OK, talk to me like I’m stupid and see if I have this right. Basically, during the housing bubble, the mortgages issued during that hot period were securitized into immensely complex financial products. After they’d been sliced and diced it became nearly impossible to prove which financial institution owned which mortgages. Is that right?

That’s generally right. These Wall Street institutions were so sophisticated that they could figure out how to package thousands of mortgages into an instrument that was a bond they could sell all over the world. And they could give part of the interest on a loan to one mortgage-backed security, and part of the principal on the loan to another mortgage-backed security. They could slice and dice these things through financial alchemy. But in that process, they neglected the most elemental part of this entire process, which is maintaining the chain of ownership on the loan by physically documenting transfers from one entity to another.

This goes backs to the 1630s in America, to the first property records law. One hundred fifty years before we had a constitution, we had this idea that you have to document property transfers publicly and that you have to show it, so everyone in the community has access to that information. They have to have confidence that when they are buying or selling a property, no one else has a claim on it. Despite their complexity and sophistication, the simplest part of this process is the part that financial institutions just completely neglected during the housing bubble.

How did the industry deal with this problem of its own making?

I guess it wouldn’t have been a problem at all if everyone had ended up paying their loans. But that didn’t happen, and millions of people went into default. That presented this problem that you need the documents to prove ownership. If you stole my car, I need a piece of paper to prove I owned the car in the first place. What they did was, they falsified that paper. They hired third party companies to mass produce fabricated documents to allegedly prove up this chain of title, this chain of ownership on these loans—particularly in states where you actually need judicial ruling to foreclose, like Florida.

They were foreclosure victims, and they committed this revolutionary act when they got their foreclosure papers: They actually read them.

False evidence was distributed to court houses and country records offices on a mass scale, and my three individuals figured this out. They weren’t in law enforcement, they weren’t in government, they had no expertise prior to this in real estate. They were foreclosure victims, and they committed this revolutionary act when they got their foreclosure papers: They actually read them. They found irregularities and became obsessed with unravelling this whole massive scheme. Then they made a pact to expose it to the nation. That’s why we know about this today.

So, basically, the financiers created a business model that was structurally incapable of doing this right?

It would have been extremely costly and time consuming because of the way that securitization was carried out during the housing bubble. It would have cut into their profits in a significant way. But if those laws were adhered to you would not have had as big of a housing bubble. These laws were there because buying a mortgage should be a deliberative process both at the level of the homeowner individually and at the level of the lender when they are trying to sell that mortgage in the secondary market.

When those laws are broken, that’s when you get this chaotic situation we had during the foreclosure crisis. People were foreclosed on who had no mortgage, who paid cash for their homes, you had people getting two foreclosure notices for different companies with each claiming to own the loan. You just had this absolute breakdown of the system of integrity in this market, which is the largest market in the world.

What percent of the mortgages had this fraudulent paperwork?

Near the back of the book, I mention a case against Barclays Bank that was one of the rare cases where one of the litigants actually got to do some discovery. They looked into one of these mortgage-backed securitizations and looked into all the mortgages in them and found that 100 percent had not properly transferred the documents. It was routine, a matter of course. Nobody transferred the paper correctly. So you’re talking about every securitized mortgage in the United States having this fatal defect.

How is it that so few people seem to be aware that so much of the foreclosure crisis was based on the mortgage industry’s illegitimate claims?

I think people on a subconscious level have a sense that it was all based on fraud. They might not know the details, but look at the Bernie Sanders movement. He says the business model of Wall Street is fraud and a lot of people were attracted to that idea.

I shouldn’t have been able to write this book, because it should have been common knowledge.

It’s somewhat a failure of the media. There are brief moments where this got into the headlines late in 2010, when all the big mortgages services stopped foreclosing on people because they no longer had confidence that they could do it legally. You saw headlines then and around the big settlements in 2012. But in those spaces in between, where you have this absolute horror story, the traditional media just turned a blind eye. I shouldn’t have been able to write this book, because it should have been common knowledge. Someone should have gotten to it before 2016.

Do you think it’s due to the complexity of the issue? Probably a lot of journalists were concerned that their readers wouldn’t click on a link about securitized mortgages.

There is a passage in the book where a reporter from the Tampa Bay Times says this story is too complicated for a daily news audience. But Lisa Epstein asked, “Was Watergate too complicated?”

Ultimately what I show in the book is just fabrication and forgery. I think we all understand that. When you see the name Linda Greene, who was employed by one of these third-party companies, and she was named as a bank vice president for over 20 different companies to speed up the assembly line because so many documents had to be prepared. Other people signed her name. There’s a piece of the book where you see the name Linda Greene in 17 different styles of handwriting. This is not that hard to understand. People get forgery, people get fabrication.

What I try to do with the book I try to simplify that story a little bit by peeling it back like the layers of an onion. It’s a whodunit. I follow these subjects as they come to understand it piece by piece. If you do it in this deliberate fashion, you could have made it real to people. A home is the most important and the biggest purchase most families ever make. When you are talking about these real stories about people trying to save their homes, that’s a gripping piece of journalism.

What could the Obama administration have done about this systemic fraud and abuse?

First of all, you prosecute wrongdoing. When you do that you create a deterrent so wrongdoing doesn’t recur. As the result of that failure to prosecute, every day in America people still get thrown out of their homes because of false documents. A bunch of settlements were made and you would presume that the settled activity actually stopped, but it hasn’t. There was no mandate to clean up this system. Now you see this pitched battle on the ground level where there are still foreclosure defenses and judges are really confused about it. There isn’t any global solution coming, so they have to go on a case-by-case basis.

As far as what can be done today, I have long since passed the stage where I think somebody on a white horse is going to come to the rescue. But one of the reasons I wrote the book is that I don’t want this to go down the memory hole. I want us to reckon with the fact that this massive fraud took place and we didn’t do anything about it. We have to figure why there is this skewed system of justice in this country, where who you are matters more than what you did.

Why did the administration prove so reluctant to do anything about this scandal that warped millions of American lives?

That’s the million-dollar question. Why did no one go to jail for the various sins perpetrated during the financial crisis? Why did no one go to jail for the crimes? I’m not clairvoyant and I can’t answer this question completely. What I know is that just from the actions that were taken, it appears there was this concern over the banks having balance sheet problems. There was less concern over homeowners, even though there are credible studies that show that the failure to deal with the foreclosure crisis had a material effect on the recovery. The economy grew slower because you had millions of people worried about whether they were going to be kicked out of their homes and not spending money in preparation for that possibility.

This was one of the biggest mistakes of this administration. I don’t think we can write the legacy of the Obama administration without including that when they had the chance to really strike a blow for Main Street they did not take the opportunity. That was disastrous for the rule of law in this country, and it seeds a lot of the anxiety we see playing out in our politics in this election cycle.

6 Responses

  1. The best punishment to banks is to give homes free to homeowners who are affected with fraud. People need homes to comeback from jobs and to send kids to schools. Otherwise, the future of this country may be at stake. The foreclosure crisis is destroying the middle class and the poor with stress, trauma and overbearing financial burden.

    The society needs to understand that while we live we must let others live with no greed anymore. Hope the people of the United States stays united with compassion, love to one another and peace. It starts with people and stays with people.

  2. @ Michael Keane,

    Your first few sentences are incorrect, presumptive and off base.

    In 1968 the mortgage industry was hijacked by those interests using the GSE Business Model as the vehicle to accomplish their end. The fuel used in that vehicle is the government guarantee of the the GSE mbss without which the Model would have gone nowhere.

    Your epistle may very well describe where the “interests” reside. My goal is to make folks aware of the vehicle used called the GSE Business Model (how stuff works). I will leave it to you or others to describe who is pulling the strings of that Model.

  3. @ Richard Davet,

    I feel you cannot be more wrong, particularly as the whole dog-and-pony show has been engineered by the bankers, from the start.

    It is a false narrative to say the government isn’t complicit in what is a criminal SCAM.

    Moreover, the GSEs were owned until Obama kidnapped them in 2008 by the same, criminal, Privately-owned and operated, intentionally-mislabeled, English-based, central banker cartel that masquerades as the “Federal Reserve Bank- neither Federal”, nor, possessing ANY “Reserves”- our currency- T-bills, T-bonds, T-notes is created out of thin air.

    The English Central Bankers learned, early on, they should manipulate their intended victims from a place of concealment.

    As “puppet masters”.

    James Comey was on the executive board of a Chinese-English hybrid-bank, “HSBC”, aka “Hong Kong-Shanghai Banking Corporation” while that bank was using American Mortgages to launder terror and drug cartel money!!!!

    If you’re having a sandwich, call on James Comey;

    When it comes to the Clintons: He’s full of baloney.

    He’s not fixed for a hero

    Or submarine sandwich

    And there’s evidence now he can’t provide for a manwich.

    But his chicken is good

    And while his feathers are yellow,

    The Clintons have plucked him; he’s now boneless and mellow.

    He once was a slaw man but he’s now into a pickle

    While his digestion has turned and his appetite fickle.

    The United States is presently, under attack and that attack is being conducted from within our financial center. The attack comes, in the nature of a “Palace Coup”.

    The criminal, banking cartel attempting to use our own financial well-being as a weapon, directed against US, is doing so, in service to a Criminal Erosion of our Property Rights (fraudulent “REMIC Trusts” concealing fraudclosures of American Homes), the value of our currency (1200 Trillion owed to inter-bank, criminal behaviors, ie: laundering terror and drug money) and a coordinated effort, within Law Enforcement, to ignore and refuse to adhere to the “Rule of Law”.

    Eric Holder’s DOJ and Loretta Lynch’s DOJ know Bank of America, Wells Fargo and “HSBC” banks are using American Mortgages to launder terror and drug money.




    Every true patriot should ask themselves:

    “How is it that the English managed to preserve their currency, while every other currency (the wholly-insolvent, now-“hyper-inflationary”, “federal Reserve Notes”, included) has been targeted for destruction”?

    Yes, Ladies and Gentlemen, the criminal, English-based, Central Bankers have managed, yet again, to preserve their currency of choice, “The English Pound”.

    President Obama, the Judas Goat…

    Uncle Tom at the tiller of the Big Banker’s Boat.

    Once colored a “donkey” for the DNC vote

    Now sinking, with Warren,

    Two turds that won’t float.

    President Obama is currently holding Fannie and Freddie hostage in order to rob minorities of their ability to use F&F to purchase a home.

    The President kidnapped F&F in 2008 and has been robbing the homes within the portfolios of “loans” within F&F and the investors to those portfolios of “loans”.

    The criminal bankers, like Hank Paulsen, from Goldman Sachs, explained 10% of the funds generated by F&F would be taken until the financial system stabilized. The President allowed this scam to go forward.

    The President did so in order to steal 100% of the profits owed from the “loans” within Fannie and Freddie so he could reward his masters, the criminal, English-Based, Central Banking Cartel, with those profits.

    The President is trying to help his masters, the criminal bankers, to re-capitalize after they have destroyed themselves. (Google: “1200 Trillion and derivatives”, an impossible sum of money for any bank, or group of banks, to ever pay back).

    The President’s actions in concealing the central bankers’ “Insolvency”, is a NATIONAL DISGRACE” and his … er … ehem … “Law Enforcement Officials” are simply fronting for a Criminal Cartel.

    At the moment, Obama is “Lynching” the Nation.

    He is now just a scaffold for Clinton Castration.

    He reached within his chest of drawers

    To pack the Bureau with Clinton whores.

    The first of which, Loretta Lynch,

    Is just another Clinton Donkey;

    Grinding DNC organ,

    For the Clinton Monkey.

    And We The People must never forget the HSBC Banker:

    Now FBI Director Comey:

    A peerless Coward and Corruption’s Homey…

    So, PBO thought to himself: “While that monkey’s on Clinton’s back,

    “Let’s hire ourselves an FBI Hack”:

    Loretta the Mule.

    A sterile result for all to see, of Law Enforcement that sits to Pee.

    The thoroughly-bred Mule,

    Now on plantation,

    That won’t raise a hand to save the Nation.

    Lorretta Lynch and Eric Holder

    Two crimes of inaction; each bolder-than-bolder.

    Eric Holder, held US down while the banksters robbed homes in every town.

    They used the “MERS” to murder our dreams,

    And poison our children through criminal schemes.

    While, not so much as a one, has gone to jail,

    Through Holder’s NONSENSE… Of “Too Big To Fail”-


    Barack Obama: no “American Lion”;

    While not quite above, putting the “lie-on”,

    For the crime that is Clinton; Democracy’s Canker

    And the Treason to Britain, as a “Federal … Reservation… Banker”.

    Now, not so much a riddle, while once there was Biddle;

    A “Tubman” to “Jackson”, Obama’s inaction, smacks of coercion and political faction.

    There’s nothing “Left” of Obama,

    While he’s now “Right” in the middle…

    A panned-cake, filled with BS of Bought-and-Sold,

    A nutless brownie, now burned by the griddle.

    Senator Sanders, We The People, Abe Lincoln’s Greenback Dollar.
    Investigate and Jail the Clintons
    Investigate and Jail the Bankers
    Investigate and Jail the Media as a full-blown Foreign Propaganda
    Investigate and Jail any politician that doesn’t go on the record to explain the intentionally mislabeled, “Federal Reserve” is a foreign, privately-owned and operated, front for an international criminal Cartel.

    Impeach Loretta Lynch. She is another Clinton Apologist and an international disgrace to LAW ENFORCEMENT!

    The Clintons and their fellow, corruption, aka, American Politicians, are also an international, Criminal Disgrace.

    Bring charges against Eric Holder and Lanny Breuer for criminal negligence.

    They and their law firm, Covington-Burling and The bankers and the corrupted political class have destroyed legal title to every home within the MERS- the “REMIC Trusts” are altogether, wholly-fraudulent.


    Read,the article, above, particularly p. 116, wherein, the author, Professor Christopher L. Peterson, formerly of S.J. Quinney Law School, now chief counsel of enforcement for the CFPB, explains the “MERS” as created as a “shell company” that is being used to “PRETEND” TO OWN SOME 70 MILLION RESIDENTIAL TITLES TO PEOPLE’S HOMES!)


    The two “shell companies” the bankers and corrupted politicians are using to rob the American Electorate are: 1) The Mortgage Electronic Registration System; the “MERS” … and 2) Residential Capital; “RESCAP”.

    3rd parties (drug and terror cartels) are cleansing their criminal proceeds, using 30-day, monthly mortgage payments, on “loans” that have already been paid, in-full, up-front, at the beginning of the “loan”…



    The Pension Plans of the Police, firemen, teachers and municipal workers were stolen by the banks and the government, to pay the “loans” off before a single penny was due from the defrauded homeowners.

    Then the criminals created phony, hyper-fraudulent, “REMIC TRUSTs” with equally-phony, Pooling and Servicing Agreements “PSAs” to “PRETEND” to the SEC those “TRUSTS” are legitimate… They are not.

    There are no assets (homeowner “loans”) in the “REMIC Trusts”! They are EMPTY!!!!


    Eric Holder, Lanny Breuer and Covington-Burling’s activities, through their creation of the “MERS” and the robbing of fees owed to lawful recording among 3142 American Counties, have cost communities, across America, Billions, lost to legal accounting of lawful residential titles, that should have been used for “representative government” and fresh water for children…

    These criminal behaviors and criminal actors, are now responsible for the deaths of, at least, 11 children, in Flint, Michigan…

    To say nothing of the death of “representative government”.

    The Attorney’s General throughout all fifty states are also complicit in Criminal Negligence, through their inactivity, even as they refused to do their job in order to take a “pay-off” of 25 million dollars.


    The English-based, central bankers, currently in residence to the intentionally-mislabeled “Federal Reserve (neither “Federal”, nor, possessing ANY “Reserves”)”, have hijacked Obama’s chapter 11 restructure of GM and they are using Fannie and Freddie to mask their “Insolvency”:

    The Criminal, English-based, Central Bankers have destroyed themselves (Google: “1200 Trillion Dollars and Derivatives”) and they are attempting to install a new puppet: whether Trump or Clinton…

    Clinton deregulated “Derivatives”; now there are 1200 Trillion (an impossible amount of money, 20 times the combined GDP, of every country on this planet), owed to these criminal “bets”. It is a deliberate attack (as those fedbucks are now worthless) against what the bankers would like the American Electorate to believe is, “American Currency”.



    The good news is: Article 1, Section 8, of the Constitution, makes zero allowance for a privately-owned and operated, Criminal, Foreign, Cartel to manipulate American Currency.

    Not only have they have concealed, for 100 years, they are an imposter, they are, just now, hijacking our electoral process to install a puppet; whether Clinton or Trump, in order to conceal 1200 Trillions owed to their multitude of criminal behaviors.

    The Obama Administration is allowing it.

    Repudiate and Jail the Bankers; renounce their phony “Fed” “Notes”.
    Repudiate the phony Bankers’ debts; replace those with pro-rated Greenbacks.
    Jail any politician or media representative that doesn’t, immediately, confess the intentionally-mislabeled “federal Reserve” is a FRAUD of epic proportions.

    It is simply “TREASON” to allow any other procedure to go forward.

    Every true Patriot should question why the Chinese Yuan is now a minority partner in the American financial system: the intentionally-mislabeled, “Federal Reserve, neither Federal, while privately-owned and operated”, nor, possessing ANY “Reserves- our currency is created, out-of-thin-air”!


    Why is the present FBI Director concealing the crimes of a Chinese-English-hybrid Bank????

    Why is the DOJ of Holder and now, Lynch, concealing the crimes of a Chinese-English-hybrid Bank????

    American soldiers died while American Politicians and American “Law Enforcement” were busy concealing a criminal laundry, robbing homes and pensions, in order to steal property rights, in order to launder terror and drug money.

    Don’t believe me? You don’t need trust me.

    Instead, read this analysis of the “Deferred Prosecution Agreement- DPA”, below, written by Federal Judge Gleeson:

    Case 1:12-cr-00763-JG Document 23 Filed 07/01/13

    Federal Judge Gleeson and now, Federal Judge Ann Donnelly are both aware, HSBC is in violation of the “Anti-Money Laundering Acts”, “The International, Emergency Economic Powers Act”, “The Bank Secrecy Act” and “The Trading with Enemies Act”.

    In fact, as part of the sanctions imposed by Judge Gleeson, Wells Fargo and HSBC are now forbidden the “Servicing” of any new “loans”.

    American Soldiers had their homes stripped in foreclosures, predicated upon, counterfeit titles, forgery and fraud, so American “Law Enforcement” and Corrupted American Politicians could curry favor with criminal banks owned by foreign cartels.

    American soldiers died, at the hands of these cartels.

    Every true Patriot should ponder why it is the English Pound has managed to survive, intact, while every other currency on the planet has been undermined, in service to British lies about a phony war in the Middle East.

    In fact, the British used the American CIA, in “Operation Ajax (1953)”, to remove a democratically-elected president (Mossadeq), of the Iranian People. He was promising to eject the British and return the Iranian oilfields to the Iranian People.

    The US then installed Shah Pahlavi, a degenerate murderer of the highest order; American Awareness of the “Islamic Revolution” was born.

    Prior to British and American LIES, the Iranians were promising a “Bourse” to sell their oil to countries using any money, other than the US Dollar.

    Enter the EURO.

    The phony war in Iraq conspired to destroy the Euro and the victims it has consumed while continuing to consume Libya and Syria, in its aftermath, scream at the top of their lungs for retribution…

    Hence a phony “War on Terror”.

    The bright and shiny, “Brexit Bauble”, demands further scrutiny and it will never suffice, beyond a distraction, until the Criminal, English-based, Central Banking Filth are stripped of their ability to manipulate the well-being of America’s Finances, our service women and men and American Citizens… to say nothing of every Citizen of every Nation the present, Criminal Cartel destroys, while masquerading as the United States.

    ~ Michael Keane copyright 6/25 2016
    Please feel free to share on FB.

  4. “Why did the administration prove so reluctant to do anything about this scandal that warped millions of American lives?”

    The answer is quite simple.

    Congress bet the US Treasury On the GSE Business Model by guaranteeing the MBSs. This is the same Model that every major scholar on the subject describes as “fatally flawed” and sent the financial system into chaos. But for the first implied and now explicit government guarantee this Model would have died a long time ago in a free market environment.

    The GSEs are the classic examples that government is the problem, not the solution.

  5. obama in on it

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