I should have mentioned this week, back when I relayed Felix Salmon’s description of the massive mortgage bond fraud intertwined with the general fraud in the mortgage lending industry, that most of what we know about that comes from the FCIC. They subpoenaed and acquired the documents from Clayton Holdings, the third-party due diligence firm, showing that the top banks knew that substantial numbers of the mortgages in the pools they were about to securitize, about half, were faulty and not consistent with underwriting standards. You can see all the evidence from Clayton Holdings on the FCIC’s website.
The FCIC has taken a lot of grief over the past year. They saw some staff changes, and the Congress went ahead and passed financial reform before they even completed their work. Pitched as a modern-day Pecora Commission, they have not been able to grab a similar spotlight, and have basically hovered in the background of the financial crisis. But just their evidence from Clayton is incredibly valuable. And William D. Cohan believes there is more to come.
I predict that not only will the commission’s report — and accompanying documents — reveal numerous causes of the crisis that others have overlooked, but also that it will have a significant impact on the regulations that still must be written by the Securities and Exchange Commission and the Treasury as part of the implementation on the Dodd-Frank financial reform law. In fact, the inquiry commission may have already played an essential role in beginning to bring fraudsters to justice.
A much-derided federal panel has produced clear evidence that investment banks kept secret from their clients the shaky nature of many mortgage-backed securities [...] did Wall Street throw all those mortgages back into the pond as being too risky for securities they were going to sell to clients? Of course not — many were packaged right into their product.
In fact, the banks probably weren’t disappointed at all by the shaky status of many of these loans: in part because they could use the information that some of the mortgages were rotten to get a discount from the mortgage originators on the price paid for the entire portfolio. The people who should have been concerned were the investors who bought the securities from the Wall Street firms. But the amazing revelation of the Sacramento hearing was that the investment banks did not pass this very valuable information on to their customers.
This is a giant piece of the puzzle in understanding the financial crisis, and the FCIC ferreted it out. This has finally started to roll in the media, from Salmon’s take to stories from Gretchen Morgenson and what I highlighted this morning from Eliot Spitzer. And they’re talking about criminal fraud, not just civil penalties.
Maybe what the FCIC will release will offer nothing new. But just what they’ve already provided is an enormous contribution.




5 Comments

Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
FCIC = Financial Crisis Inquiry Commission. (There are so many acronyms, I had to check to be sure. This is the one headed by Angelides. Glad to know their efforts are finally reaching fruition. Thanks so much for keeping us so up-to-date and well-informed, David.)
The whole mortgage mess is very complex and there is a lot of finger pointing going on and this will continue for some time. But there was a news story earlier this week that I think we should not let die. It was about a couple in Semi Valley, CA, that bought a house for $500,000 and ran up the mortgage to around $880,000. They made the news because they broke into their old home (breaking the law) but my point is this couple, in running up their mortgage, were just like about 90% of the homeowners in this country during the day. Now these same people are trying to find a loophole to weasel out of their obligations.
http://www.housingwatch.com/2010/10/12/evicted-family-breaks-in-to-own-home/?icid=maing%7Cmaing7%7C8%7Clink2%7C19439
Really, you can run up your mortgage by yourself? That’s interesting to know. I guess the lenders underwriting the loan had no say in the matter. Or the securitization sponsors looking at the second lien without wondering how it would fly. Or the investors who happily took the security. Or the ratings agencies who rubber stamped it as secure and golden. Or the originators who didn’t transfer the note properly. Or the predatory lenders who hid time bombs in their servicing agreements and broke the law by refusing to modify the loans. Or..
Last night I decided to see if I could tell how many land records had MERS as a party. I selected a rural county in my state (county population of around 45,000) that put their land records online as of late 2007, and found almost 200 records, mostly assignments and mortgage releases where MERS was listed.
That much was free, but it’s a buck a page to download the actual documents, so I selected a couple assignments, a couple releases and one mortgage from that list and downloaded the documents. All showed MERS as a nominee for (whatever bank name) on the actual document.
Three of the four assignments & releases I selected were signed by the same person as a VP for MERS. Those three all had the name of the same law firm that they were to be returned to after signing, so I pulled up some info on the law firm, and the signer (as VP of MERS) was one of the attorneys. There was a list of their clients on the same website, and they included all of the big players: Chase, Wells Fargo, Countrywide, etc.
I didn’t have access to foreclosure records (although the above-mentioned lawfirm does include foreclosures in their areas of practice), so I don’t know if any of the records on the list are affected by the foreclosure fraud. I was just wondering how many land records would have MERS shown as a grantor or grantee, and decided to spend a couple hours and $12 to see what I could find.
If titles (of foreclosed and not foreclosed properties) are clouded when assignments and/or releases are signed by someone who is not a MERS employee (because they have none) but who signs as a VP of MERS as nominee for the bank (or whoever may or may not own the note and mortgage) in a land record, this is just an idea of how pervasive this is–and the heavy involvement of some law firms.
LOL