One of my colleagues had a long conversation with the CEO of a major subprime lender that was later acquired by a larger bank that was a major residential mortgage player. This buddy went through his explanation of why he thought mortgage trusts were in trouble if more people wised up to how they had messed up with making sure they got the note. The former CEO was initially resistant, arguing that they had gotten opinions from top law firms. My contact was very familiar with those opinions, and told him how qualified they were, and did not cover the little problem of not complying with the terms of the pooling and servicing agreement. He also rebutted other objections of the CEO. They guy then laughed nervously and said, “Well, if you’re right, we’re fucked. We never transferred the paper. No one in the industry transferred the paper.”
This creates a lot of problems. If the originator is bankrupt (New Century, IndyMac), the bankruptcy trustee is supposed to approve any assets leaving the BK’d estate. I’m told bankruptcy judges who have been asked were not happy to hear this sort of thing might be taking place, which strongly suggests this activity is going on without the requisite approvals. And who from the BK’d entity can endorse it over? It doesn’t have any more officers or employees. Similarly, a lot of the intermediary entities (the B and C in the A-B-C-D chain earlier) are long dead. How do you obtain their endorsements?
Now you understand why everyone is resorting to fabricated documents and bogus affidavits. There is no simple way to fix this mess. The cure for the mortgage documents puts the loan out of eligibility for the trust. In order to cure, on a current basis, they have to argue that the loan goes retroactively back into the trust. This is the cure that the banks have been unwilling to do, because it is a big problem for the MBS.
The former subprime lender CEO still refused this to consider this a problem: “Oh, Congress will pass a law.” My colleague pointed out that this was a state law matter, Congress had no authority, and even the Supine Court was unlikely to intervene in well settled real estate law. The arguments from the CEO were distressingly familiar, bank industry incumbents seem to resort to the same script: any borrower friendly solution will wreck the economy, the banks will have to get another bailout to get themselves out of this mess.
So here we are back to 2007-8. If you and I make a serious mistake at our jobs, we get fired, and if we make a really serious error, our company could perish. But when bankers screw up, and leave a lot of collateral damage in their wake, they are confident that their sugar daddies in DC will clean up the mess for them.
And the worse is they might even be correct if we let them get away with it this time.
Since turning mortgages into investments meant all these middlemen, the question of who owned the actual mortgage itself became a complete mystery. The big mortgage lenders decided that anything that they could have touched, they in fact owned, and started foreclosing as the best way to sweep the mess under the rug. Because there were so many foreclosures and they had to be processed fast, nobody bothered to check the particulars, or they faked it (literally, faked it).
Judges took their word on it and made the foreclosure happen. Only now, some two years after the financial meltdown, we're now finding out that a lot of these foreclosures are literal robbery, theft of property by banks that don't own the mortgage. GMAC/Ally Bank is one, and yesterday JPMorgan Chase also went into "review" of foreclosures. More banks will follow, and soon.
And do you know which member of Congress has been out front on this?
Alan Grayson. His Orlando, Florida district is right in the heart of this foreclosure nightmare.
No wonder the Republicans are so eager to destroy him. He's about to to seriously wreck the banks.
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2 comments:
Ok, I'd be ok with a law to clean up the mess but it should require that the banks pay all of the transfer taxes that were evaded by holding the mortgages in MERS.
I'd say they'd have to pay fines on top of that as well. This is fraud, plain and simple. They sold things they didn't own and did it systemically and knowingly.
Of course, the government was in on it, so. We'll see how far this goes.
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