Yves Smith wrote the best explanation of the mortgage mess in 1000 words or less, and to her great credit got it published in the New York Times. It absolutely cannot be improved upon – it sums up the last several years of breaking the mortgage market, leading up to the current crisis, beautifully. (I’d add that Smith shares my view that a fundamental solution to this problem involves principal reductions.)
The question remains how to get from Point A to Point B – how to get the banks to agree to principal modifications which are not in their financial interest. At least, they don’t believe this now, because they are confident of a federal bailout or some other intervention to prevent accountability for their crimes. But Joe Nocera, who’s been pretty good on all this, sees hope in the 50 state Attorneys General investigation happening now.
Unlike the feds’ tepid efforts, this will be a serious investigation, led by a handful of assistant attorneys general who’ve worked together for years, and who see this as their chance to finally do something for beleaguered homeowners. They’ve got resources, subpoena power and a justifiable suspicion that the robo-signing shenanigans are just the tip of a very ugly iceberg.
And best of all, they have a very clear idea of what they are trying to accomplish. They don’t want to merely reform the foreclosure system (though that would be nice, wouldn’t it?). Nor do they particularly want a big financial settlement, which would be meaningless for a giant like Bank of America.
Rather, they hope to use their investigation as a cudgel to force the big banks and servicers to do something they’ve long resisted: institute widespread, systematic loan modifications. “Instead of paying a huge fine,” Mr. Miller posited to me the other day, on his way to an election rally, “maybe have the servicers adequately fund a serious modification process.” Getting the banks and servicers to take loan modification seriously is another in a series of areas where the Obama Treasury Department has failed miserably.
Nocera pretty thoroughly documents one potential roadblock to this effort – the ability for the feds to pursue pre-emption. Many AGs wanted to do more to stop the predatory lending during the housing bubble, but federal regulators essentially shut them down. AGs still pursued – and secured judgments against – some subprime operators that weren’t allied with national banks, like Household Finance and Ameriquest, but in general they were neutered.
There are differences this time. First of all, consumer financial protection laws have been rewritten by Dodd-Frank, and there are taller hurdles now for pre-emption. Second, foreclosures are almost exclusively governed by state laws, so the Office of the Comptroller of the Currency cannot intervene in the same way. Nocera also claims that times have change and federal regulators wouldn’t dare intervene on the side of the banks, but I don’t agree with that. Shamelessness is not exactly in short supply.
But incredibly, Nocera fails to mention the simple fact that a substantial number of the Attorneys General leading the investigation may not have the same jobs after Tuesday. This includes Tom Miller, the well-respected Iowa Attorney General leading the probe.
Thankfully, we are starting to see signs that taking a hard stand against the banks is right on the policy and the politics. For example, Miller appears to be pulling away from former Steve King chief of staff Brenna Findley, with a 45-34 lead in the latest Iowa poll. With big leads for Republicans at the top of the ticket, anything’s possible, but Iowans appear to be splitting their ticket for Miller.
Another case in point: Ohio Attorney General Richard Cordray. He has been fantastic in this crisis, suing GMAC mortgage for fraud and, more recently, cutting off the banks’ efforts to simply substitute documents with the courts in their foreclosure operations.
In two letters released Friday, Attorney General Richard Cordray criticized a number of banks and loan-servicing companies, including Wells Fargo & Co.; Ally Financial Inc.’s GMAC Mortgage; Bank of America Corp.; and J.P. Morgan Chase & Co. Mr. Cordray said the banks are trying to paper over fraud committed in foreclosures with temporary fixes that don’t address underlying problems in the banks’ practices.
“It is not acceptable for a party who believes they submitted false court documents to merely replace those documents. Wells Fargo and any other banks are not simply allowed a ‘do-over,’” he wrote in the letter to Wells. The other letter was sent to Ohio judges, who were asked to notify Mr. Cordray when banks file substitute affidavits….
“The banks are committing fraud on the court, essentially perjury, and then saying ‘Whoops! You caught me! Here’s some different evidence and use that instead,’ ” Mr. Cordray said in an interview Friday. “I know a lot of judges are not going to take kindly to that.”
Cordray was down to Republican former Senator Mike DeWine according to independent polling in the beginning of October. But in the month since, the foreclosure fraud scandal has burst wide open, Cordray has taken a leadership role, and thelatest polling from the Columbus Dispatch shows Cordray up 50-44. Much like Miller, on Election Day Cordray could end up as the last statewide Democrat standing (although Ted Strickland is closing strong in the Governor’s race).
All of which suggests that the banks are incredibly unpopular, and Attorneys General across the country who hold them accountable will be rewarded at the polls. However, these races are still close, as are several others around the country, and the overall dynamic of the investigation could still change.




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I hope for principal reductions, but what’s to stop investors from simply forcing the banks to repurchase the affected MBS? I see no reason why bondholders would want to stay involved in this mess under any circumstances. That may be what’s making the banks reluctant to admit any error.
Absolutely nothing, and those are happening on a parallel track.
Understandably, it seems that defaulted property owners seek to ‘beat the system’ –a small amount of them do. However, people I relate to are willing to pay rent.
But why / how should property owners be blamed for refusing to cooperate with erroneous and fraudulent confiscation of their homes? Who can blame any reasonable person for not wanting to be homeless if there is a LAWFUL method to avoid it?
Most of the time, the attorneys have made severe errors –sometimes intentionally, since errors help keep the billable tab going, and commit the very frauds that provide basis, defenses, and reasons to attempt negotiating mortgage contracts.
ADDITIONALLY, perhaps thousands of defaulted homeowners have likely already lost –and many others could still lose their homes –NOT to lenders with ownership of “secured interests” in the properties, but to “straw buyers”!
How? As a result of intentionally fraudulent foreclosures –of which there is LOTS of $$$$$$ in the foreclosure fraud / real estate racketeering industry– “simulated auctions” take place all the time!
Moreover, people who scowl at ‘deadbeats’ do not know everyone’s situation. NOT all defaulted homeowners obtained ill-affordable mortgages. Scores of defaults arose from divorce, medical bills, outsourced jobs , and so much more. And should ‘deadbeat’ borrowers with student loans have known how long it would take to get jobs? Is there any compassion for elderly people who were tricked into usurious home repair refinancing?
Also, compare blighted neighborhoods and foreclosure deed conveyances to non-existent mortgage lenders; bankruptcy Lift Stay motions that lack standing, and names on proof of claims different from lift stay movers”; and illegal property deeds. Likewise, foreclosure lawyers’ failure to effect service, and failure at various substantive Civil Procedure requirements made it not lawful to proceed with those cases until those errors are corrected. Too, property owners seeking debt reorganization through Chapter 13 Bankruptcy should not be blamed for contesting lawyers’ falsified proof of claim or false Lift Stay motions that are being filed in courts across the country.
Thick-skulled people say people ought to move out and let banks decide for themselves. But what part do such people not understand; banks are unable to decide ownership. Still, scoffers brush aside the fact that fraudulent court pleadings are being filed by lawyers who are required to know better! And scoffers ignore that ‘the bank’ may not even get that property AT ALL! Meanwhile, if homeowners ‘move out’, the scoffers will be forced to welcome void and blight –and rats and vagrants eventually will also come and go be coming and going. [neighbors detest neighbors while the foreclosure white collar elephant hides in plain sight]</strong> *read: Foreclosure Frauds, Wells Fargo-the Fox in Charge, and Victimization @ http://newsblaze.com/story/20101028181052lawg.nb/topstory.html/
Thank you for the link to the NYT article. I e-mailed it to several friends I’ve been trying to educate on this.
Lisa Madigan AG for Illinois is running commercials on how she found minorities were getting screwed by the banks more for home loans.
http://en.wikipedia.org/wiki/Lisa_Madigan
I think the State AG’s see a way to become very popular with the burbs and minority voters and use this issue to get reelected today and launch bids for higher office next election.
I think we might have found a new crop of Progressives. Nothing builds like success:)
http://www.illinoisattorneygeneral.gov/pressroom/2010_10/20101013.html
I think we found a Progressive in Illinois:)
IMO principal reduction is the ONLY way for banks to get through the mess they created. It will save them and us from the investment tsunami about to happen. The bonds they packaged and sold will not be wiped out and the process will tick along. The only problem for the banks would be lessened profits. But heck, we’ve already given them trillions to get their house in order and they got bonuses!
thank you David Dayen – hadn’t seen this latest polling
Richard Cordray: “a business model based on fraud”
I bet Rahm is wishing Lisa and not him decided to run for Mayor:) I expect after the election for the banks to demand a deal that involves limits on liability kind of like BP wants. I expect them to ask for a cap on damages.
And most of the Republican attorneys general will drop their “investigations” right after the election. Watch.
Of course if the banks are forced to eat mortgage losses they’ll go to their whores in DC and get another bailout. So there you have it. Either the homeowners get foreclosed or the taxpayers get screwed (again).
That will hurt them later they can’t drop the investigations as long as they are investigating voter fraud not without paying a political price later especially if there is a case brought against the banks and their states don’t get any cash because they dropped the investigation.
We can’t afford another bailout though:)
People don’t remember what happened two years ago, much less four. Gregg Abbott could eat a baby the day after the election and by next cycle it will all have been a librul plot.
The banks blame the actions of the loan servicing companies – forgetting to mention they own the loan servicing companies. They blame paperwork problems, forgetting to mention that their servicing fee is a percentage of the principle amount of the loan – so any principal reduction reduces their income, even though the investors that own the loan would be better off getting a hit of a small reduction in principal via loan modification compared to the much larger hit they will have later from the foreclosure.
The government needs to force a break through past this self-interest barrier that is the banks’ servicing fee being based on the loan principal amount – can we say transaction pricing?
Can renters get principal reduction on their car loans, or student loans, or are they just out of luck?
That the only Democrats given more than a snowball’s chance in hell of winning in tomorrow’s election are the ones actually trying to do something about the banks’ crimes speaks volumes about the state of the party. Democrats who refuse to do anything to stop corporate crimes are favored by party leaders, but are not supported by the voters. Unfortunately, this will not necessarily mean a shift in ideological bent in the Democrat Party overall. The Big Lie of centrism winning the day will be promoted, and the Greens and other third party candidates who ran and got stronger showings than in years’ past will be ignored by the corporate-owned media — and the mainstream blogs. It will be interesting to see, though, how races in Arkansas, Illinois, and Massachusetts go.
Barry and Congress will intervene.
Jon Walker has a fresh cross-post up: 2010 Senate Races: Last PPP Polls Show GOP Gains
This is a real problem in California as well. Many immigrant families who were first time buyers negotiated contracts in Spanish and Chinese and then had the docs drawn up for signatures in English. This violates California Law in that a contract must be written in the same language it was negotiated. However, it’s been widely abused and I haven’t seen any Realtors or Loan Officers hauled into court yet. Maybe soon though…..
David,Obama came out with a new program called HAFA(Home Afforable Foreclosure Alternatives).
Seems like another give away to the big banks,anyone know anything about this program ?
MR CALDWELL (Louisiana Attorney General), why are you disassociated from this:
A bankruptcy case filed by Mr. & Mrs. R & L Wilson punctuates questionable operations surrounding a company called “Lender Processing Services.” LPS is the target of numerous lawsuits and is under investigation by various state Attorneys General (AG)–but not by Louisiana AG, where companies whose dealings consist of abusive collection are welcome to operate and pillage here!!! In fact, because LPS is so widely known for fraudulent foreclosure practices, the facts exposed from the Wilson case SHOULD have not only prompted the Louisiana Attorney General, but also U.S. Attorney Jim Letten, and other so-called law enforcements, to now investigate pervasive, longtime Louisiana foreclosure fraud.
The court battle has been going on since 2007, yet it has flown under LOW RADAR! There has been no local news even about the fact that LPS is renown for unscrupulous operations, such as fabricating documents and falsifying statements in furtherance of unlawful foreclosures –which render people homeless even though nothing lawful caused it! It therefore behooves residential and commercial property owners of Louisiana (and any concerned advocates) to be observant of LPS’s functioning with foreclosures here.
MR CALDWELL, why / how should it be expedient and just to continue allowing State Courts of Louisiana to be used for purposes of enriching elitist corporations as well as lawyers who utilize law credentials for unlawful / self-dealing enrichment, and to benefit powerful mortgage and lender affiliated behemoths, while neighbors are pits against neighbors –and people are continually being evicted illegally through NULL foreclosures!? Further, illegal operations in Louisiana cannot thrive without judges signing orders and rendering edicts that enable companies, lawyers, and corporations to violate our laws and our people. How can it be a fair for the Office of the State Attorney General to be utilized to defend State Court judges when they become sued for willful participation in white collar foreclosure, while you concurrently do nothing to help victimized consumers?! Mr. Attorney General, YOU need to do the right thing now! If you even try to whitewash this longstanding problem, be informed that people (including my non-Louisiana sources)who are watching Lender Processing Services, Freddie Mac, Wells Fargo and other foreclosure dealings here, are also watching you. As you must know by now, the Wilson case exemplifies the cliche: ‘what’s done in the dark, will come to light‘. The ‘lights, cameras, action’ is “on” Louisiana; and your performance announces the role you play! . . . *ENTIRE statement & links to court pleadings on the Wilson case: “Foreclosure Musings: New Orleans Case Involving R & L Wilson, Lender Processing Services, others” @
http://www.lawgrace.org/2010/11/01/foreclosure-musings-new-orleans-case-involving-r-l-wilson-lender-processing-services-others/