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The Big Sh*tpile And The Foreclosure Due Process Crisis

Taibbi writes about the foreclosure due process crisis in the United States (repeated disclosure, I work in this area for distressed homeowners) and gets to the nub of the macro issue underlying it all:

[I]t's the unpaid bills that are incidental and the lost paperwork that matters. It turns out that underneath that little iceberg tip of exposed evidence lies a fraud so gigantic that it literally cannot be contemplated by our leaders, for fear of admitting that our entire financial system is corrupted to its core — with our great banks and even our government coffers backed not by real wealth but by vast landfills of deceptively generated and essentially worthless mortgage-backed assets.

You've heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud. Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can't admit to it — and so we are working feverishly to rubber-stamp the problem away, in sordid little backrooms in cities like Jacksonville, behind doors that shouldn't be, but often are, closed.

(Emphasis supplied.) A co-conspirator in this massive fraud and scandal is the United States Treasury Department led by the incompetent and corrupt Tim Geithner. When the history is written on the Obama Administration, this could well be the lede.

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    As big as it is as described (5.00 / 2) (#7)
    by ruffian on Sat Nov 13, 2010 at 10:18:30 AM EST
    I think it is even bigger. It is not only that the titles are not clear, it is that the home prices were jacked up fraudulently to begin with. When the banks are not putting the brakes on the loans they are willing to make, the whole system is a fraud.

    Put another way (none / 0) (#17)
    by ruffian on Sat Nov 13, 2010 at 11:17:06 AM EST
    Part of what inflated the bubble was that the banks had incentives to make risky loans, due to the fact that there was such a huge demand for the debt instruments. That has never been true prior to this bubble. People buying houses always could rely on the bank having the same incentive they themselves did to keep the system honest. This time the banks had no such incentive, or it was outweighed by the money they thought they could make on the high risk loans.

    Parent
    Inflated appraisals (none / 0) (#20)
    by MKS on Sat Nov 13, 2010 at 11:40:15 AM EST
    Some big lenders used in house appraisers who inflated values.  Of course the loans were immediately sold, so the originating lender faced on risk.  Classic fraud.

    The NY AG's office was (is?) investigating the practice of inflating appraisals....

    Parent

    Wow, just wow (5.00 / 4) (#9)
    by Militarytracy on Sat Nov 13, 2010 at 10:27:00 AM EST
    The best piece IMO that Taibbi has written.  He confirms what I suspected too, they sold mortgages to be securitized that they didn't even have yet.  I'm pretty blown away by this writting.  All my gears are grinding, it shatters all delusions, marks where profound changes in the "norm" occurred and why, explains why all the paperwork had to be destroyed....it is mind blowing.  The only thing my mind can settle on right now is his last sentence.

    Because in America, it's far more shameful to owe money than it is to steal it.


    Connected thought (5.00 / 5) (#13)
    by Stellaaa on Sat Nov 13, 2010 at 10:45:22 AM EST
    How in the middle of all this did everything get switched and the issues are now : social security, tax and spend, the criminalization of poverty and unemployment, teachers, public employees?  

    When a Democratic adminstration is handed the most iconic populist set of events and the GOP manges to swoop the issue under the rug and carry the populist torch, time to really panic.  

    Because our agenda setting (5.00 / 5) (#15)
    by Militarytracy on Sat Nov 13, 2010 at 10:53:56 AM EST
    President was never a Democrat that I can tell.  I disagree with BTD that he wanted to be a Bill Clinton style Democrat. I think Obama believes that Bill Clinton is too liberal, and if you believe that I'm not sure what could be left of the Democratic platform to guide an agenda by or form one out of.

    Parent
    Because the president thinks his job is to (5.00 / 6) (#19)
    by ruffian on Sat Nov 13, 2010 at 11:19:16 AM EST
    keep then people with the pitchforks away from the bankers. And he thinks he will be rewarded for it.

    Parent
    What does it take... (5.00 / 3) (#14)
    by waldenpond on Sat Nov 13, 2010 at 10:53:16 AM EST
    to get disbarred?  Regarding Taibbi's article.... how does an attorney get away with bringing obviously fraudulent documents into court?  I thought that was a no-no.

    They're just playing for time at this point (5.00 / 2) (#18)
    by TJBuff on Sat Nov 13, 2010 at 11:17:52 AM EST
    Exact same behavior you see at companies destinied for bankruptcy.  Get while the getting's good.

    NOT TO WORRY, BTD! (5.00 / 4) (#27)
    by scribe on Sat Nov 13, 2010 at 12:01:45 PM EST
    The Obama Administration has figured out how to ix the problem - they are working to paper it over with a new law, to be introduced as soon as Congress returns to session, to retroactively ratify and make right all those frauds and defalcations and make it so no little people can ever challenge the banks again.

    You remember that bill everyone went nuts over a couple weeks ago that would have fixed the robosigning and notary issues?  The one with no sponsors, no debate and no recorded votes?  This is worse.
    Like I said then:  this is land reform in reverse.

    Insanity (5.00 / 1) (#32)
    by Militarytracy on Sat Nov 13, 2010 at 12:28:14 PM EST
    And will a tea partier say anything?  This is a bit over reaching for government isn't it?  With the passage of this there will be no state's rights when it comes to property ownership that I can tell.

    Parent
    I hope the lenders all get screwed (5.00 / 1) (#28)
    by MKS on Sat Nov 13, 2010 at 12:02:36 PM EST
    And the homeowners get their homes without having to repay anything.

    The lenders will all take the hit but they are reporting large profits.....and, no, the cost will not be passed on to other consumers as the interest rates are at rock bottom now.

    Why shouldn't the little guy consumer get a windfall for a change?  The big money people  and funds usually get all the breaks and undeserved money.

     

    Yeah, that'll happen... (none / 0) (#34)
    by Joan in VA on Sat Nov 13, 2010 at 12:47:02 PM EST
    but I hope your hope becomes reality. Wouldn't that just be something? Independence Day-The Sequel-Triumph of the Little Guy. I sure hope there are some perp walks- I'll make the popcorn!

    Parent
    And how many times have we (5.00 / 3) (#36)
    by Anne on Sat Nov 13, 2010 at 04:00:43 PM EST
    heard Obama mention, in response to questions or comments about needing to do something about this crisis, the people who don't "deserve" to be helped?

    That some people who don't "deserve" help might benefit from a HOLC program, or from judges having to make the debt go away because those who knew what the rules were failed to observe and comply with them, is pretty much the equivalent for me of a very important principle: "better that 10 guilty men go free than that one innocent man be convicted."

    It's a principle that our president does not apparently live by, at least if it's a choice between the savvy businessmen bankers on the one hand, and some schlub of a homeowner on the other.

    Taibbi's article was riveting and frightening, because if they can do this - and get away with it with respect to foreclosures, they'll be doing it with respect to a lot of other things before too long.

    "Green Shoots?" (5.00 / 1) (#37)
    by NYShooter on Sat Nov 13, 2010 at 06:49:55 PM EST
    Maybe, just maybe

    There's a glimmer of hope ahead.

    Up until now the banks have been "regulated" by the Federal Government. And because of that, and the fact that our Federal Government has been corrupted beyond redemption, they been allowed to expand and mutate into the killing machines they've become. But the laws regulating real estate and land use are State functions so now the State Attorneys General have gotten into the action.

    That's a very good development as the State A.G's are closer to "the people" and generally have a more benevolent and consumer-friendly attitude towards home owners.

    Anyway, the A.G's have gotten into this thing with a vengeance, forming an organization that all 50 A.G. have signed onto. You'll be hearing much more of this because, first, they're not beholden to the banks, and second, they're elected and thus, answerable to "the people."

    (One reason I'm excited is that they issued a statement which basically said they believe fraud was involved and, as such, criminal, not merely civil, charges will be filed. Finally!)

    Stay tuned......

    p.s. to BTD and/or Jeralyn, wouldn't this make a good subject for you to get into, being lawyers, and such?


    The question is whether these (5.00 / 2) (#38)
    by Anne on Sat Nov 13, 2010 at 07:08:47 PM EST
    state AG's will be able to beat the Congress, which is moving rapidly to make all of this go away...

    From bmaz:

    There are rapidly emerging signs the Obama Administration and Congress may be actively, quickly and covertly working furiously on a plan to retroactively legitimize and ratify the shoddy, fraudulent and non-conforming conduct by MERS on literally millions of mortgages.

    From CNBC:

    When Congress comes back into session next week, it may consider measures intended to bolster the legal status of a controversial bank owned electronic mortgage registration system that contains three out of every five mortgages in the country.

    The system is known as MERS, the acronym for a private company called Mortgage Electronic Registry Systems. Set up by banks in the 1997, MERS is a system for tracking ownership of home loans as they move from mortgage originator through the financial pipeline to the trusts set up when mortgage securities are sold.

    Just to make clear the implications of this craven action, the White House and Congress are conspiring to give a get out of jail free bailout card to the biggest banks and finance companies in the country to cover up and mask their illegal behavior and behavior that did not conform with state, county and local laws throughout the United States. On at least sixty (60%) percent of the existing mortgages in America.

    [snip]

    Why would the Obama Administration and Congress be doing this? Because the foreclosure fraud suits and other challenges to the mass production slice, dice and securitize lifestyle on the American finance sector, the very same activity that wrecked the economy and put the nation in the depression it is either still in, or barely recovering from, depending on your point of view, have left the root balance sheets and stability of the largest financial institutions on the wrong side of the credibility and, likely, the legal auditory line. And that affects not only our economy, but that of the world who is all chips in on the American real estate and financial products markets.

    I've come to think of MERS more like what it really is: MRSA - the flesh-eating bacteria...

    Parent

    Yeah, well (none / 0) (#42)
    by NYShooter on Sat Nov 13, 2010 at 11:28:40 PM EST
    Of course, what else would you expect?  Our entire Government, from the President on down, could be arrested under the Rico statutes if there was any justice. I wouldn't expect them to go down without a fight.

    But, at least the battle has been joined and I understand that many of these A.G's are plenty P.O'd at the ham-fisted, bully attitude from the Feds. Anyway, I feel somewhat better that "the marines" have arrived and you can bet they're not going down without a fight either.

    Should be interesting.


    Parent

    We better hope it's the lead... (none / 0) (#1)
    by kdog on Sat Nov 13, 2010 at 09:33:25 AM EST
    cuz that would mean the infinite fraud and systemic corruption was at least acknowledged, finally, by somebody on the inside...if not corrected.  

    There is a golden opportunity here to build something solid on top of the house of cards rubble...but first the great lie must be acknowledged.  With everyone so conditioned and invested in the current system, I don't know if anyone has the stomach for it.  Not to mention, once acknowledged, the public will demand some heads on some platters....that our leaders certainly have no stomach for.

    What's the dollar value (none / 0) (#2)
    by observed on Sat Nov 13, 2010 at 09:34:07 AM EST
    of fraudulent mortgages>

    Me quoting bmaz- (none / 0) (#3)
    by ek hornbeck on Sat Nov 13, 2010 at 09:44:11 AM EST
    So (none / 0) (#4)
    by Ga6thDem on Sat Nov 13, 2010 at 09:49:32 AM EST
    Obama's failure is going to lead to what? The GOP surely isn't going to investigate this problem. I'm not sure of any answers and I'm not sure what banks hope to gain by having houses empty? They sure aren't selling around here.

    Covering up not investigating (5.00 / 5) (#5)
    by waldenpond on Sat Nov 13, 2010 at 10:01:44 AM EST
    The banks get to play with their books and not take the hit until they sell.  Legislators are currently working to protect the fraud being committed within MERS.  It would be no big deal if they simply pass legislation allowing bankers to tear down homes and never take a hit because they technically did not resell a house, it would have the added benefit of inflating remaining home prices for their bottom line.

    I find how blatant and in your face the eff yous are getting.  FU we're getting a tax cut and you can't do anything about it... FU were taking your SS and you can't do anything about it.... FU were taking your property and you can't do anything about it.... FU we broke the law but we'll never go to jail and you can't do anything about it.

    Taibbi's article was good.  He seemed surprised at some of it.  A judge not allowing the public in a public courtroom?  pfft.

    Parent

    Actually (5.00 / 1) (#8)
    by Ga6thDem on Sat Nov 13, 2010 at 10:24:28 AM EST
    I know about them not wanting to take the hit on their books from my brother's experience. The house had sat empty for quite a while and along comes my brother wanting to buy it and they make him jump through hoops and are not willing to deal on the bottom line. For some reason, they are willing to give tons of allowances for replacing lost appliances etc. but since it's been a long time since I took accounting, my best guess is that this shows up as a business expense and not on the balance sheet. It seems that they all are wanting to keep that inflated balance sheet.

    But yet why does kicking people out of their houses help them? Are they afraid that they will have to give a loan modification? surely not from my experience with the modification process. They can lie and say that they never got the documents even though they did.

    There is NO ONE holding these scumbags responsible for their behavior. If Obama gave a few of them the perp walk, my view of him would go way up but I know that won't fit into his PPUS narrative and someone might call him a "socialist". BAAWAA

    Parent

    If they change that bottom line (none / 0) (#11)
    by Militarytracy on Sat Nov 13, 2010 at 10:36:40 AM EST
    they owe the trusts the difference too.  What the homes are worth has deflated considerably, while buying a new stove is a minimal cost compared to the interest that the loan is supposed to generate.

    As the child of a lifetime home builder though, they play a dangerous game.  An unlived in home erodes very easily, if pipes freeze and burst or any other plumbing problem occurs, it isn't known for months and the damage will be profound.  All sorts of asset damaging problems bloom in unoccupied properties.  It keeps builders in business during such economic times, but not working with home owners is going to start blowing up in their faces soon.  They will not save money playing such games.  Accountants are pathetic carpenters and plumbers.

    Parent

    I know. (5.00 / 1) (#16)
    by Ga6thDem on Sat Nov 13, 2010 at 10:57:03 AM EST
    I see it right in my neighborhood. I'm sure they're not keeping the termite contracts up to date and I'm willing to bet that there is a ton of that damage especially in a state like FL.

    One house in the neighborhood actually did have a subcontractor that came and "winterized" it to keep the pipes from bursting but from my experience that is unusual.

    I'm with you that the only good thing to come out of this whole mess is that former general contractors are able to switch to home repair and at least have some money coming in and most of this work calls for skilled labor not unskilled.

    Parent

    Here in CA (5.00 / 3) (#23)
    by Harry Saxon on Sat Nov 13, 2010 at 11:53:27 AM EST
    it's become a public health problem, from www.pe(Press-Enterprise(dot)com:

    Winter rains have filled backyard pools at scores of foreclosed homes throughout the region, setting up a perfect breeding ground for virus-carrying mosquitoes.

    At least three Inland mosquito species are capable of spreading the West Nile virus, which in rare cases can cause neurological damage or death in humans and animals such as horses or birds.

    As the weather warms, Riverside County vector control technicians are applying pesticide to as many pools and other potential mosquito hatcheries as possible. Warmer temperatures allow mosquito eggs to hatch, larvae to develop and dormant adults come out of hiding to breed and feed.

    Since mosquito season began in mid-February, Riverside County workers have applied pesticide at 87 locations, said Dottie Merki, vector control program chief.

    When the county treats foreclosed properties, it may not get paid for the work for months if not years, Merki said. Depending on how many times a property is treated, the bill can range from $500 to $1,700, Merki said. The debt must be paid when the property is sold.

    Click Me

    I worked one summer between semesters in college for a Mosquito Abatement District, and this is truly a nightmare for these folks in the Inland Empire.

    Parent

    And EFF you, this (none / 0) (#6)
    by observed on Sat Nov 13, 2010 at 10:04:18 AM EST
    is the best President you could possibly have.

    Parent
    The golden rule (none / 0) (#10)
    by Rojas on Sat Nov 13, 2010 at 10:36:22 AM EST
    Those with the gold make the rules.. GFY

    Parent
    Three month delinquent (none / 0) (#12)
    by Stellaaa on Sat Nov 13, 2010 at 10:40:27 AM EST
    The HUD funded homeowner counselling agencies should have been screaming bloody murder, they knew of this " you have to be 3 months behind for a workout", the tactic was we don't know your lender, we only know a servicer.  Servicers cannot do workouts, it has to get to the lender it only gets there when late.  But, when that happened, it went in the foreclosure churn.  There was never an intent or a process for workout.  This is the core of the crime.  

    We bloody worked out GM and a small mortgage we have no capacity.  

    I would be amazed if any of the original docs were processed correctly.  

    How are Obama and Geithner (none / 0) (#21)
    by MKS on Sat Nov 13, 2010 at 11:43:25 AM EST
    to blame?  Because they did not fix it?

    Geithner directly responsible (5.00 / 1) (#24)
    by waldenpond on Sat Nov 13, 2010 at 11:56:33 AM EST
    on top of coming across as incredibly ignorant at best and most likely, simply corrupt.

    "These efforts to improve risk management did change behavior, but they did not achieve enough traction," Geithner said. "We're having a major financial crisis in part because of failures of supervision."

    Geithner was a uh, whatchamacallit... "supervisor."  Maybe, looking back, just maybe, Geithner should not have pushed making the scam that was the buying and selling of fraudulent mortgage based derivatives easier. Maybe.

    Parent

    Precisely (5.00 / 1) (#30)
    by Ga6thDem on Sat Nov 13, 2010 at 12:04:26 PM EST
    they had the ability to do something and chose not to.

    Parent
    Because blaming the Architects (none / 0) (#26)
    by Rojas on Sat Nov 13, 2010 at 11:59:20 AM EST
    of the big sh!t pile would mean acknowledgment that the hillbilly messiah was a false prophet.  

    Parent
    What (none / 0) (#29)
    by Ga6thDem on Sat Nov 13, 2010 at 12:03:36 PM EST
    a condescending statement. I'm not surprised though. And you wonder why dems lose elections? It's people like you who talk down to people.

    Parent
    You've been talked down to for twenty years (none / 0) (#33)
    by Rojas on Sat Nov 13, 2010 at 12:37:56 PM EST
    and you've been lappin it up because it was always somebody else payin the price. You keep lappin it up because you lack the introspection to acknowledge you were played for a fool. Just bring in sideshow Bill again to play a few rounds of Cultural Wars so the rubes don't notice that the Eastern Financial establishment with their Democrat hand maidens take a little more creme of the top. Well it was damn obvious to anyone paying attention they weren't going to be satisfied with just the creme.

    Parent
    You (none / 0) (#35)
    by Ga6thDem on Sat Nov 13, 2010 at 01:39:24 PM EST
    are the one being played for a fool by Obama.

    You are completely wrong on your judgement of me but go ahead and have your fantasy.

    Parent

    Well, I only got my hopes up a little..... (none / 0) (#39)
    by Rojas on Sat Nov 13, 2010 at 08:10:38 PM EST
    When Biden was announced, I put those in check. With Holder in place and when the rest of the "smartest kids" from the Clinton administration showed up I knew it was over. By the time Geithner was announced it was what the hell, Goldman owns the place, it was only fitting.  

    If you really wanted some perspective I'd suggest you take a look here

    In contrast to the post-war "Fordist" period, when wage increases were tied to growth, deregulated and numerically flexible labour markets meant that consumption could no longer be stimulated directly through the wage relation. Instead, consumer debt, backed by the collateral of pension savings and increased value of mortgaged properties, provided the impetus. This was a cornerstone to Clinton's welfare policy, which sought to extend private loans and home ownership to broader segments of the population through the sub-prime market. The privatisation of the New Deal housing institutions Freddy Mac and Fanny Mae, making them dominant interlocutors between the mortgage market and securities market, were cornerstones in that policy.

    I suspect you won't however. A true critique of Clinton and the neoliberal Third Way with the corrosive effect it had on democratic institutions both here and abroad is beyond the grasp of the true believer.

    Parent

    It's (5.00 / 1) (#40)
    by Ga6thDem on Sat Nov 13, 2010 at 08:53:36 PM EST
    all about welfare reform again. Do you realize that welfare reform paved the way for the return of liberal policy. That one policy was holding back all the progress for years because it created a huge resentment among working class voters that the GOP was able to exploit. The article never goes into that does it?

    Parent
    Social welfare...those Europeans talk funny (none / 0) (#41)
    by Rojas on Sat Nov 13, 2010 at 09:08:17 PM EST
    .

    Parent
    In California, non-judicial foreclosures (none / 0) (#22)
    by MKS on Sat Nov 13, 2010 at 11:51:18 AM EST
    are the norm.  A result of Great Depression era consumer protection statutes.

    A Bank can record a Notice of Default if a borrower is late.  90 days after an NOD is recorded, the bank can record Notice of Sale, which must give at least 21 days notice of the auction.  A borrower can cure and reinstate the loan on the old payment schedule merely by paying the past due amounts--and can make this cure up to 5 business days before the auction.

    If there is a problem in the paperwork etc, a borrower can sue in court to enjoin the sale.

    The trade off for non-judicial foreclosures is that the bank cannot come after the borrower for the difference in unpaid debt and what the house realizes at the sale.  So, people can walk away from their mortgages without incurring any personal liability.

    The Florida process requires a lawsuit--which gives rise to more shenanigans....

    Bottom feeders will (none / 0) (#25)
    by MKS on Sat Nov 13, 2010 at 11:58:20 AM EST
    always exist.

    During the last real estate downturn in the early 90s, there were a lot of people who made hundreds of millions of dollars buying distressed loans and foreclosing.  They would buy the loans (this was during the S&L crisis) at pennies on the dollar, and then work the bad debt by foreclosing or engaging in collection efforts.  It was "Cash for Trash."

    Back then, however, the loans had not been securititzed and were part of a larger portfolio that the originating bank or perhaps successor bank held, or often a portfolio held by the original S&L.  So, this business of phony transfer documents did not exist....

    I thought the early 90s was really, really bad and would never be replicated.  People in SoCal called in a Real Estate Depression.  But this current situation is far worse.   There is another wave of foreclosures on the horizon....

    And of course the real estate scammers who will buy distressed  or non performing loans, or who will say they can save the homeowner.....

    Never again.... (none / 0) (#31)
    by Rojas on Sat Nov 13, 2010 at 12:15:40 PM EST
    Not hardly.
    I used to contemplate the idea that the S$L fiasco had been some kind of small scale Milgram experiment. Having come of age in the midst of that debacle I have been asking not if but when.

    Parent