There are very specific and reasonable remedies for the foreclosure fraud crisis. Paul Krugman, the Times editorial board and Ezra Klein go over them today. They should be familiar to anyone reading here for the past year – fixing the predatory lending scheme known as HAMP, adding cramdown to it to provide a stick along with the carrot, having mandatory mediation or otherwise taking the loan modification process out of the hands of the banks (or doing something similar to NACA, writing binding agreements and bringing the lenders and borrowers together), or instituting right-to-rent. These are all very positive solutions that would provide benefits for homeowners rather than just the banks (though they would be aided as well – this would reset the housing market and both reduce foreclosures and much of the banks’ liability for their faulty processes).
But to this point, the Obama Administration has preferred having the banks undertake “internal reviews” and hoping the whole thing blows over. As Krugman says, “I mean, that’s worked so well in the past, right?”
I don’t know how much more we can expect, sadly. Because what we’ve learned over the past decade is that we have a two-tiered system of justice in this country: one for the rich and connected, and another for the masses, who have virtually no access to justice.
Why haven’t more Americans successfully sued the banks that lured them into fraudulent mortgages, then foreclosed on them without the required paperwork?
It could be because the civil justice system in this country is essentially inaccessible to many Americans — and when it does get accessed, is tilted toward the wealthy and moneyed interests.
That’s certainly consistent with the finding of a world-wide survey unveiled Thursday morning that ranks the United States lowest among 11 developed nations when it comes to providing access to justice to its citizens — and lower than some third-world nations in some categories.
Particularly when it comes to access to and affordability of legal counsel in civil disputes, the U.S. ranks 20 out of the 35 nations surveyed, below not only developed nations but also such countries as Mexico, Croatia and the Dominican Republic.
The World Justice Project found that the US ranked near the bottom on most rule of law measures, with a 31% gap between how rich litigants and poor litigants view the fairness of the system.
The story of the one home in Maine which sparked the entire foreclosure fraud mess is inspiring, but anomalous. The woman who faced foreclosure managed to find non-profit legal services and got better representation that anyone in her position would normally hope for. We only know about it because they managed to get the deposition out from under seal; as Marcy asks, we don’t know how much else is still hidden from the public. Judges in Florida are to this day being pressured to speed foreclosures through the system.
Judges in Florida are under pressure to clear their foreclosure dockets; the state’s crippled real estate market and its lagging economy cannot recover until cases work their way through the courts. Earlier this year, Florida’s legislature allocated $9.6 million to help speed up the processing of foreclosures. Much of that money went to pay retired judges and case managers to help shoulder the load and quickly dispose of cases in special foreclosure courts.
But the recent reports about flawed and fraudulent filings – and a series of announcements by large lenders that they are freezing foreclosures – have given pause to some judges in Florida. While judges agree that speed remains important, some are warning that churning through cases so quickly could mean overlooking fraudulent documents and prematurely seizing homes, perhaps depriving borrowers of due process.
How judges in Florida, at the epicenter of the foreclosure crisis, strike a balance could presage how courts elsewhere in the country will grapple with the mortgage meltdown’s latest challenge for homeowners, financial firms and the broader economy.
Despite multiple state and federal investigations, some judges in Florida continue to rocket foreclosures through the system, ignoring the pleas of defense attorneys. The state Attorney General, Bill McCollum, who’s running one of those investigations, thinks the foreclosures should be sped up. And that’s the position of the arrogant, clueless banksters, trying to mold public opinion and claim this is merely about technical paperwork issues and deadbeats who deserve to lose their homes. They know that our legal system can allow them to act like landed gentry, pillaging the peasants with impunity. In a way, this all comes back to income inequality, which has driven the judicial inequality.
There’s reason to believe that the problem has become too widespread to fall along the typical lines of “the rich get richer, the poor get poorer.” With the issues of non-existent documentation for mortgages, unclear titles and notes for the properties and the attendant consequences for holders of mortgage-backed securities, the homeowner is not alone. Investors want to take a chunk out of the hides of the banks, too, poised to sue the sponsors of the trusts – i.e. the major banks – for bundling mortgage pools without obtaining the mortgage notes that spelled out the legal obligations of the borrowers. Institutional investors are coming to this understanding, pushing down bank stock prices and massively increasing credit default swaps for the financial giants. So there are countervailing forces here, bigger than just homeowners, that could bring the banks to heel.
But I have to confess that it’s hard to believe much will be done, even though the remedies are so clear. Apparently the FDIC was robo-signing when they controlled IndyMac, so the government is as implicated in this as anyone else, providing them an incentive to fix it so that accountability is as limited as possible.
We can keep pushing for the only solutions that will save homeowners, banks and the economy. But that doesn’t mean they’ll be selected.