The 49 state attorneys general are investigating allegations some banks used shoddy paperwork to kick struggling borrowers out of their homes during a foreclosure crisis that is one of the most visible wounds of the 2007-2009 recession.
"We are in the fourth year of a housing and economic crisis that was brought on by lax practices of the mortgage lending industry," Minnesota Attorney General Lori Swanson said in a statement. "The latest allegations of corner cutting and slipshod paperwork are troubling, but perhaps not surprising."
The attorneys general will be looking at the practice by banks and companies that collect monthly mortgage payments of using "robo-signers" -- people who sign hundreds of affidavits a day. It is alleged they did not properly review the documents they were signing.
The use of robo-signers "may constitute a deceptive act and/or an unfair practice or otherwise violate state laws," the attorneys general said in their joint statement.
Alabama was the only one of the 50 states not to join the investigation and it was not immediately clear why.
Ever wanted to pick up a red war phone and tell the person on the other side to "start the music"? Effectively, the housing market has just taken a semi-permanent vacation until further notice. There's not an insurance underwriter in the country who will touch a housing loan right now. The housing market just got carpet bombed.
And that brings us to major development number two, via Zero Hedge: JP Morgan Chase just threw MERS under the bus. What's MERS, you ask? It's "Robo-Signers R Us", the virtual reality that the mortgage banks created in order to play their shell game.
JPMorgan Chase's CEO says the bank has stopped using the electronic mortgage tracking system used by major financial institutions.
Lawyers have argued in court proceedings that the system is unable to accurately prove ownership of mortgages.
JPMorgan Chase & Co. and other banks have suspended some foreclosures following allegations of paperwork problems in thousands of cases.
JPMorgan's CEO, Jamie Dimon, made the announcement in a conference call Wednesday to discuss the bank's quarterly earnings.
The Mortgage Electronic Registration System, or MERS, acts as a trading house for millions of mortgages. Lawyers for homeowners say the system lacks the required paper trail to prove mortgage ownership in foreclosure proceedings.
MERS is the entity that's supposed to keep track of all the mortgage loans over the last five years. Right now, the validity of every single 1 and 0 in their systems is now 100% suspect. If JP Morgan Chase is walking away from MERS, then all the banks will. And suddenly, nobody knows who has the note for which mortgage anymore, because gosh, how can we make sure the computers are telling the truth?
Please don your peril-sensitive sunglasses at this time, folks. Your October Surprise is a-coming. And as Felix Salmon reminds us, the banks' investors are going to want their pound of flesh too when they figure out foreclosures are just the tip of the iceberg.
So when you see the Village try to blame the American people for this mess because they "defaulted on their mortgages" remember...the banks don't know who owned those mortgages in the first place, so this would have blown up sooner or later anyway.
Now, whose fault is that?
It's the fault of those lazy unemployed people (who are probably brown too!) who wouldn't pull themselves up by the bootstraps! That's who!
ReplyDeleteThat and Mexican Muslim Anchor Babies!
The financial industry, she is toast.
Ah, and Tyler makes a fair point in his post: this should finally precipitate the crisis in commercial real estate that everyone suspected but that hadn't quite blown up yet. Commercial mortgages use MERS too!
ReplyDeleteAwesome. I had for a fleeting moment neglected to think about MERS and the CRE market.
ReplyDeleteECONPLOSION.