Yale Law Review: “In Defense of “Free Houses”

Posted on March 28, 2016 by Neil Garfield

MEGAN WACHSPRESS, JESSIE AGATSTEIN & CHRISTIAN MOTT published an article that takes dead aim at the “free house” controversy. In the Yale Law Review they come to the conclusion that (1) the house isn’t free to any homeowner even if they escape the mortgage and (2) the projected social cost of  market values are wrong. But probably the most stinging criticism of the judicial system is that judges are abandoning the rule of law for ad hoc rulings whose only purpose is to avoid a result the judge doesn’t like.

Unfortunately, the article does not fully address the issue of why the banks are failing to prove what is ordinarily a slam dunk case. The authors seem to assume that the debt is legitimate and that it is mainly a paperwork problem. I would add my usual comment: if the banks simply had continued with the standard procedures they would not have had any paperwork problems no matter how many times the loan was sold. The greater evil that is not addressed in case decisions and law review articles is that this was all part of fraudulent scheme and THAT is why the banks had to resort to more fraud (in documentation).

We should remember that banks basically drafted the statutes and are the source of all paperwork on consumer loans, especially mortgage loans. For hundreds of years they knew how to do it, knew how to keep it and rarely misplaced anything. It strains belief to think that suddenly the banks  forgot what took hundreds of years to develop. The more insidious reason is what is feared to be the nuclear option — that the mortgages, notes and loan contracts were all an illusion, even if the money was real.

In the end, for reasons other than those expressed on these pages, the authors come to the same conclusion that I did — the “free house” is going to the banks every time a foreclosure is granted.

Here are some quotes from their article that I think are self-explanatory.

When addressing faulty foreclosures, courts are afraid to bar future attempts to foreclose—that is, afraid of giving borrowers “free houses.” While courts rarely explain the reasoning behind this aversion, it seems to arise from a reflexive belief that such an outcome would be unjust. Courts are therefore quick to sidestep well-established principles of res judicata in favor of ad hoc measures meant to protect banks against the specter of “free houses.” [e.s.]

This Comment argues that this approach is misguided; courts should issue final judgments in favor of homeowners in cases where banks fail to prove the elements required for foreclosure. Furthermore, these judgments should have res judicata effect—thus giving homeowners “free houses.” This approach has several benefits: it is consistent with longstanding res judicata principles in other forms of civil litigation, it provides a necessary market-correcting incentive to promote greater responsibility among foreclosure litigators, and it alleviates the tremendous costs of successive foreclosure proceedings.

In a foreclosure suit, the bank must generally prove the following: (1) the homeowner has signed both the note (the underlying loan) and the mortgage assigning the house as collateral for that note; (2) the bank owns the note and mortgage; (3) the homeowner still owes a debt to the bank; (4) the homeowner is behind on that debt; and (5) the bank has accelerated that remaining debt in accordance with the terms of the note itself. When a bank fails to prove these elements, a judge is legally required to rule in favor of the homeowner.

Recently, courts have been inundated with suits where homeowners question the bank’s ability to prove the second element. Litigation over “proof- of-ownership” issues in foreclosures is a growing nationwide problem; sampling suggests a ten-fold increase between the periods immediately preceding and following the 2007 collapse of the housing market.

To demonstrate ownership without expending more resources than pooling and servicing agreements allotted, bank employees signed hundreds of thousands of affidavits asserting that they had seen and could attest to the contents of original documents demonstrating ownership of the underlying mortgage. Although such affidavits were a legally acceptable means of demonstrating such ownership, a significant number of them were actually fraudulent.

…ethical transgressions have affected hundreds of thousands of foreclosures.

Judge Schack, a trial judge sitting in the New York Supreme Court for Kings County, has repeatedly sanctioned law firms for bringing improper foreclosure suits when he has independently discovered the inadequacy of the plaintiffs’ evidence as to defendants’ indebtedness or plaintiffs’ ownership of the note. See, e.g., Argent Mortg. Co. v. Maitland, 958 N.Y.S.2d 306 (Sup. Ct. 2010); Wells Fargo Bank v. Hunte, 910 N.Y.S.2d 409 (Sup. Ct. 2010); NetBank v. Vaughn, 841 N.Y.S.2d 827 (Sup. Ct. 2007).

By focusing on the immediate consequence of a ruling for homeowners, the courts ignore perverse incentives created by allowing banks to continue to externalize the costs of their mistakes.

…one approach—that taken by the Florida and Maine Supreme Courts—is to bend the rules of res judicata to avoid a windfall for homeowners. This approach creates few benefits and significant economic problems. In this Part, we argue that further subsidizing banks’ poor litigation practices results in deadweight loss by contributing to negative public-health outcomes and by disincentivizing banks from improving their servicing and litigation techniques. We also explain how granting winning homeowners “free houses” will not negatively affect the mortgage market.

…broader social subsidization of irresponsible [bank] behavior.

…prolonged foreclosure proceedings create negative social externalities, depressing surrounding homes’ resale value, reducing local governments’ tax revenues, and increasing criminal activity.44 Foreclosures also appear to have significant effects on community members’ physical and mental health, and correlate with increased rates of depression, anxiety, suicide, cardiovascular disease, and emergency-care treatment.

…although judges have expressed concern about homeowner windfalls, the alternative creates a windfall for banks that cut corners in managing and prosecuting foreclosures. The risk and costs of losing foreclosures should already be internalized in the price of current mortgages. Empirical studies suggest that greater protection for mortgagors historically corresponds to slightly higher mortgage rates among lenders. These studies indicate that lenders adjust the price of mortgages based on what they anticipate the cost, and not just the likelihood, of foreclosures will be.

 

Filed under: foreclosure | Tagged: , , , , , | 32 Comments »

Healthcare Madness and Private Taxation

Posted on April 3, 2008 by Neil Garfield

Healthcare Madness: Stem Cell Furor

You must remember the simple American health care formula: if insurance covers it, it gets done. Insurance only covers it if the overall revenue and profit picture for big Pharma and insurance is maintained or enhanced.

The big LIE in the United States that we have all subscribed to until recently is that single payer systems would vastly increase our costs and decrease the quality and availability of health care producing long waits for appointments and treatments. 

The TRUTH is that of all the countries in the world, the United States pays more per citizen for health care and many, if not most, of its population is ineligible to receive it. Long waits for appointments and treatments under most HMOs exceed any waiting period in England, France and Canada. Check it out. 

In short, we are already paying for socialized medicine but we are not getting it — just like the education we pay for that is not delivered to our children and requires us to seek private school alternatives. 

And under Medicare Part D, the public has been frightened into taking a plan that drains more money from them than before — AND they can’t shop around for better prices. Worse yet, most people after going to the doctor under Medicare get billed for the part that Medicare didn’t pay. One can only wonder why AARP endorsed Part D. 

AND that secondary insurance they pay for every month somehow never seems to cover the shortfall, which is MORE expense (private tax) to the citizen providing a benefit that is 90% oriented to the sellers of insurance, the providers of drugs, and medical service providers. There again we are paying for socialized medicine, and not getting it. It is capitalist medicine disguised as socialized medicine. How about the real thing, since we are already paying for it?

The problem with ANY proposal that keeps the insurance companies in the mix is that while it makes it look like we are not going to a political extreme” (socialized medicine), we are going to pay for it anyway, and guarantee that prices will remain high, costs of providing healthy care will remain out of reach and will burden taxpayers with far more than they are paying right now. 

We are already paying double what we should be paying. All of the difference is going into the pockets of large corporations controlling our government policies. It is not politically feasible for any candidate to come right out and say we should convert to a National Healthcare System because too many people have blindly accepted the disinformation disseminated by drug companies, insurance companies and medical associations. So until we educate ourselves we are stuck with this ridiculous system.

EDITOR’S COMMENT: STEM CELL IS A HOT TOPIC. I knew that when I wrote the piece.

The comment from “watchdogonscience” contains inaccurate facts resulting from disinformation from the pharmaceutical companies and from lobbyists working for medical service providers. Cell treatment isn’t the end of disease or dying, but it is the largest advance in medical care we have achieved in human history. 

Only some of the bone marrow transplant has worked and none of it has worked for lung disorders. It also is quite troublesome on the issue of rejection when the marrow comes from another human being. It is not yet “quite successful” because of a variety of absurd and sometimes dangerous side effects (cancer etc). 

Embryonic stem cell research, still in its infancy is far more promising under the latest advances. It avoids the pitfalls and pain and risks of bone marrow extraction, and allows true differentiation into specific organs which in many countries has resulted in the regeneration of organ function and sometimes the organ itself. 

The comment about the drug companies wanting stem cell therapy is wrong. Drug companies want any therapy that requires purchases from them on a regular basis at prices controlled by the seller in protocols that are written by the sellers themselves and which medical providers blindly follow. 

This is why almost every recent medication requires a constant regimen for life rather than a defined course of treatment over a specified period of time. The oath to “first do no harm” is completely ignored by the drug companies because it doesn’t apply to them. And doctors, afraid of liability, must stay with “conventional protocols, which as it turns out were written by the drug companies. It is a perverse cycle. Thus they want gene therapy but not stem cells. 

Stem cell therapy and other forms of cell therapy from animals threatens drug revenue far more than any regulation or other external event. By getting Bush to veto stem cells in this country the drug companies shot themselves in the foot. The protocol is now developed in the UK, China, Venezuela, Costa Rica, Mexico and several other countries. 

The price structure has been developed without any input from the major drug companies. Hence a person receiving a successful stem cell treatment and eliminating, for example, diabetes from their current health condition is likely to avoid more than $200,000 in health care costs mostly including medications from pharmaceutical companies. The cost of stem cell therapy varies from $15,000 to about $45,000 and the cells themselves cost only around $7,000. 

It is not hard to see why the pharmaceutical companies are putting out disinformation about stem cells and stoking the religious fires to maintain opposition. 

Stem cell therapy, far from “making the pharmaceutical companies richer” threatens their legislative and market dominance. And insurance companies and government health care programs, faced with decreasing health care costs, will be under pressure to reduce premiums. Thus revenues of insurance companies are threatened as well. And fewer visits to doctors’ offices, urgent care and hospitals does the same.  

You must remember the simple American health care formula: if insurance covers it, it gets done. Insurance only covers it if the overall revenue and profit picture for big Pharma and insurance is maintained or enhanced. 

The TRUTH is that the United States pays more per citizen for health care and many, if not most, of the population is ineligible to receive it. Long waits for appointments and treatments under most HMOs exceed any waiting period in England, France and Canada. Check it out. In short, we are already paying for socialized medicine but we are not getting it — just like the education we pay for that is done delivered to our children and requires us to seek private school alternatives.

Filed under: bubble, Chelation, CORRUPTION, education, foreign relations, GTC | Honor, healthcare, inflation, Investor, medical insurance, Medical Treatment, Obama, politics | Tagged: , , , , , , , , , | 1 Comment »

Mortgage Meltdown: Free Market Theology and Politics

Posted on March 25, 2008 by Neil Garfield

Mortgage Meltdown: Socialized Losses and Expenses

The root of any solution to the current credit crisis and meltdown is politics, which is simply a consensus of opinion. When people consent to an idea like “free market” it seems to work because we make it work. The fact is that we don’t have a free market, we never had a free market, and if we did, the mortgage crisis  would be even worse. When we give up our ideology in favor of thoughtful response to the facts “on the ground” we will have a solution. Failing that, the economy is headed for far worse than ever imagined by the doom  sayers.

There is not enough MONEY in the world to stop this crisis. Mortgage Meltdown/Credit Crisis/Monetary Crisis/Housing Crisis can ONLY be solved politically through a consensus of ALL parties involved. REAL incentives must be present for borrowers, homeowners, bankers, mortgage brokers, appraisers, lenders, underwriters, investment bankers, retail securities brokerage houses, traders, money managers, CFO’s of government and companies and individual investors. “Bailing out” some of the variables just tips the economy more toward ultimate disaster. 

While we have free market forces at work within our economy, sometimes they work and sometimes they don’t. That is why you need a referee (government regulation). Free market ideology is wrong in its premise — that given the chance, everyone will rise to their highest potential, at least in terms of wealth. That has never been true because people are all different, they have all different perspectives and values, and all different life challenges that come from factors outside the closed circle of economic theory. 

In a truly free market, tyranny is the inevitable result. Those with the ambition, leadership qualities and political skills end up with controlling positions in the marketplace and in government such that wealth is unevenly distributed to themselves. Innovations, education, and cultural advances that endanger the dominance of such persons or companies are squelched. It’s legal because we make it legal. For the past 10-12 years American society has been reaching for the “ideal” of non-regulation or “free economy.” Now even the most ardent free market proponents are conceding that it has brought us to the brink of disaster.

In a truly “free market,” the market is actually a closely held dominated society with despotic leadership. Government mirrors the society in which the predatory and monopolistic entities get to pay for legislation and enforcement (and non enforcement) they want. 

In a truly free market, a few people dominate government and the marketplace so that losses and expenses are transferred to the citizens while profits and gains are transferred to the leaders in the marketplace and in government. This is what Bill Maher called “socialized losses.” I would add “socialized expenses.” 

Thus a truly free market is actually a socialized marketplace for the benefit of those at the top. In other words, “free market” is a combination of words stating an idea that does not exist but which politically is accepted because politicians and business leaders refer to it so much it has gained sufficient acceptance by listeners to be considered true. 

Thus it is the opinion of most people that “free markets” exist even though all empirical evidence is to the contrary. 

However as a political tool, the bullet phrase “free market” is appealing and is used to socialize the marketplace for the benefit of a select few right under the noses of the people whose opinion was swayed by disinformation emanating from the top.

 

  • We already have socialism as the predominant policy in our politics. We just call it other things like “benefits,” “bailout.” loan, relief package, earmarks, etc. 
  • We have socialized medicine — it just works to provide profits to the Big Pharma and service providers instead of medical service to the patients. 
  • We have socialized schools — it just works to provide added money to government budgets instead of education to our children and college for aspirants. 
  • We have socialized police — it just works to put more people behind bars than any other country in the world in a highly secretive privatization of prisons, the owners of which need to know the prisons will always be full. 
  • We have socialized fire departments — but they are sacrificed in budget cuts as soon things get a little hairy. 
  • We have socialized defense — but it used offensively to promote oil and profits pursuant to policies that should have been abandoned decades ago, instead of providing for the defense and welfare of citizens beset by disasters (Katrina) or defending and securing our borders.
  • We even have socialized money — it just works such that non-regulated money floods the marketplace, leveraged off of a money supply that is supposed to be controlled by the Federal Reserve, creating hollow profits and rising stock prices, while the rest of the citizenry deals with prices so high for fuel, food and other essentials that they can’t make it on two incomes.
  • We are a socialized economic society NOT a free market society. It just works for the benefit of the people at the top instead of the usual way of  spreading the benefit throughout the country to all the citizens. 

In a truly free market, Bear Stearns would have gone out of business, the proper result of overreaching behavior that tipped the risk allocations without telling anyone. 

OR, in an environment where free market forces were the goal, the Fed would not only have opened up its window to private investment houses, but also to private individuals and small businesses that were equally in danger of being wiped out. Instead we have the Fed conspiring to bail out one of a dozen variables in the equation that would produce a solution and then, responding to political pressure (something that the Fed was designed NOT to do), it increased the bailout for Bear Stearns 500% so rich people and the people that worked for this firm would not get completely wiped out. 

Careful examination of the Fed bailout of Bear Stearns, however, reveals the perfect plan for bailing out all the players behind all the variables in the equation for solving our monetary crisis, credit crisis, housing crisis, confidence crisis, political and economic crisis: Leaving the opportunity for their fortunes to rise when the crisis is over allows maximum protection for the player to recover, establishes an equilibtrium or plateau that is fairly strong is withstanding further downward pressure, and restores CONFIDENCE in the U. S. financial markets around the world.

By starting out as $2 per share and then moving up to $10 per share, the Fed and JP Morgan established a new precedent that can be applied to borrowers, investment bankers, lenders, investors in CDOs, homeowners who are in foreclosure and homeowners who are at risk. 

If followed out to its maximum advantage, foreclosures could stop, evictions would cease, payments would resume, CDOS (CMOs) would recover their value on balance sheets, capital insolvency would recede, and the opportunity for every one to recover as much as possible would be restored. 

As we have repeatedly said, there is not enough MONEY in the world to stop this crisis. Mortgage Meltdown/Credit Crisis/Monetary Crisis/Housing Crisis can ONLY be solved politically through a consensus of all parties involved. REAL incentives must be present for borrowers, homeowners, bankers, mortgage brokers, appraisers, lenders, underwriters, investment bankers, retail securities brokerage houses, traders, money managers, CFO’s of government and companies and individual investors.

Central to the solution is a political feat of enormous proportions: accepting the fact that housing prices were artificially inflated in 2001-2007. A reduction of the mortgage balances, payments and interest rates combined with an incentive to all players to recover their losses downstream when the market recovers would stop the slide, eliminate the crisis and stimulate the recovery. 

Filed under: ATM, bubble, CDO, community banks, CORRUPTION, credit unions, currency, education, Eviction, foreclosure, foreign relations, GTC | Honor, healthcare, inflation, interest rates, Investor, Mortgage, Obama, politics, securities fraud | Tagged: , , , , , , , | 2 Comments »

Obamanomics: Free Trade and Bank regulation

Posted on March 4, 2008 by Neil Garfield

Obama’s message of inclusion and practicality presents a fresh face and a valid approach. He seeks commonality rather than differences and guides the process toward a consensus rather than either force-feeding poorly vetted solutions or stonewalling perfectly workable solutions. Neither his presence nor his approach create knee jerk ideological objections in most circles. He presents an opportunity that might not show up again for a long time.

Obama’s history shows that he is less interested in specific plans made in advance and based upon assumptions than in real solutions based upon consensus of the parties who know how their own interests will be effected. In short, he understands that commerce, economics, politics and policies are processes rather than events. for those who seek concrete details on the outcome of the processes before they begin, Obama refuses to commit — because to do so, would be to presume to force others into an apparent consensus rather than a real one.

The Economist has been an advocate for “free trade” based upon [1] ideology and [2] “proof” based upon measurements of commercial activity that they think demonstrates the correctness of their position. Obama starts with a different premise: [1] practicality and [2] broadening the data that is interpreted to include more human factors and more humans.

Obama’s message of inclusion and coalition is not merely a political or electoral message. It is a fundamental, artful shift in approaching commercial behavior from the standpoint of believing that all sides have a legitimate stake in the short run as well as the long term. Criticism of his economic message has focused on lack of specifics. But the truth is that nobody has real specifics because current conditions are either unprecedented or at best difficult to reconcile with historical commercial behavior.

The free market advocates, including those who wish to infuse Basel II which allows Banks more lee-way in making their own risk decisions ignore the fact that the market forces are not free unless [a] there is some referee which inhibits but does not eliminate market dominance of a single company or group preventing access to information or commerce and [b] education and information are available and delivered to level the playing field created by complexity and sophistication in the financial markets that have undermined the notion of risk analysis.

In the recent mortgage meltdown, banks and other lenders made a simple calculation: if they lent the money under circumstances where they were able to sell off the risk element, they stood to enlarge revenue and eliminate losses associated with loan defaults. Stripped of fear of loss, an infrastructure sprung out of the maze of derivative securities that enabled artificial inflation of housing prices, fees and rebates to be paid to virtually everyone in the feeding chain of building, selling real estate, selling securities, lending and investing.

The result was that another massive re-distribution of wealth occurred away from the middle class on the borrowing side, and from government funds, pension funds and other managed wealth on the investing side thus reducing their ability to engage in commercial activity that supports the U.S. economy, which is driven overwhelmingly by consumer spending and availability of capital. The risk analysis performed by poorly educated bankers playing with securities far beyond their level of sophistication has led inevitably to a bubble of unprecedented proportions. Simple stated, a $250,000 house was sold for $400,000 and the extra $150,000 was spread around like confetti.

But the other net result was the equivalent of our eating our young. Most middle class citizens are out of options to come up with money to continue their discretionary buying, and their simply is not enough money around, nor a way to channel money to the middle class that will make up the difference. The result is that the continued divide between ideologies prevents effective solutions that are sitting right on the table but ignored by the decision-makers for fear of abandoning or enraging their political base.

Obama’s message of inclusion and practicality presents a fresh face and a fresh approach. He seeks commonality rather than differences and guides the process toward a consensus rather than either force-feeding poorly vetted solutions or stonewalling perfectly workable solutions. Neither his presence nor his approach crate knee jerk ideological objections in most circles. He presents an opportunity that might not show up again for along time.

Filed under: bubble, community banks, credit unions, currency, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, Investor, Mortgage, Obama, politics, securities fraud | Tagged: , , | 2 Comments »

Deadly Dynamics

Posted on October 12, 2007 by Neil Garfield

This is why the FDA should be eliminated as an agency. As the public is slowly finding out, the FDA lacks authroity, resources and will to monitor, inspect or regulate anything on its own. It basically is composed of arrogant people who either did work for food and or drug companies, do work for them now, or will work for them as soon as they get out of the FDA. The so-called lab tests are all owned and controlled by the companies that the FDA is supposedly monitoring. The net result is that the food and drug companies do everything possible to keep the FDA in place because it gives the appearance and misleading impression that the FDA is protecting American consumers when in fact they are doing nothing of the kind.  The FDA provides the shield that not only allows false and deceptive advertising but also allows wild barriers to entry and policies that prevent consumers or potential competitors from getting a fair shake. The simple fact is that if the FDA was disbanded tomorrow, nothing would change except the shield would be gone and the quality of our food and drugs would start to improve. And the appearance of competitiors in a highly centralized controlled marketplace would be refreshing. The Federal Commerce Commission possesses all the necessary authority and far more teeth to prevent the labeling problems, the inspection catastrophes and at least reduce the politicization of the food and drug marketpalce. Americans are being poisoned by nearly everything they eat, drink, use of play with, thanks to the false appearance of safety created by the FDA. People want to believe the FDA does some good and want to believe their government is not part of a business marketing plan that proceeds with complete disregard to the safety of Americans. But they are wrong to believe it and as citizens of a  great nation, they should get “mad as hell and not take it anymore.”

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