Motley Moose – Archive

By the time the robo-signing scandal had spread across all fifty states their attorneys general started looking for a coordinated and comprehensive settlement with the banks:

The current settlement stems from revelations in late 2010 that banks had filed hundreds of thousands of flawed and fraudulent foreclosure documents in their rush to keep up with a tidal wave of delinquent loans wrought by the housing crisis, a practice known as “robosigning.”

Under the proposed deal, the five banks involved – Wells Fargo, Bank of America, J.P. Morgan Chase, Ally Financial and Citigroup – would agree to end those practices and overhaul the often-convoluted way they deal with borrowers trying to stay in their homes. They also would pay about $25 billion that would go toward lowering loan balances for borrowers who owe more than their houses are worth, helping others refinance at lower rates and paying up to $2,000 to hundreds of thousands of people who lost homes to foreclosure.

Brady Dennis – Proposed settlement with banks over foreclosure practices dealt a setback Washington Post 8 Feb 12

The Obama administration also sought some relief for a broad segment of affected homeowners rather than individual prosecutions of specific cases.  Sounds good?  Well, maybe not so much, as the legal ramifications of the settlement are still open to interpretation:

In effect, the White House was willing to sell blanket immunity to the originators and distributors of mortgages over the past decade. The price of this legal protection would have been low. Understandably, bankers are still keen to take the offer.

Simon Johnson – Last chance on mortgage mess Politico 22 Jan 12

Those seeking a tougher stance on bank malfeasance and a broader inquiry, potentially resulting in criminal prosecutions, into the complex mortgage retail and securitisation practices which largely precipitated the 2008 crash have been reluctant to go along with this proposal.

For weeks there has been an emerging story which casts doubt on the validity and provenance of documents used in foreclosure proceedings nationwide:

It is a legal impossibility for someone without a mortgage to be foreclosed upon.  It is a legal impossibility for the wrong house to be foreclosed upon, it is a legal impossibility for the wrong bank to sue for foreclosure.

And yet, all of those things have occurred.  The only way these errors could have occurred is if several people involved in the process committed criminal fraud.  This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.

Barry Ritholtz – Why Foreclosure Fraud Is So Dangerous to Property Rights The Big Picture 12 Oct 10

The use of the Mortgage Electronic Registration System by the majority of lenders, especially for mortgages securitised and resold to investors, inadequate or concocted documents and imperfect ‘due process’ by unqualified loan officers has created uncertainty regarding the status of mortgage-holders and their standing as plaintiffs at foreclosure:

“If people say that you cannot prove that you own the loan, it could be really cumbersome to untangle,” said [Jeffrey Gundlach, chief executive officer of DoubleLine Capital LP], whose firm manages $5.5 billion in investments, mostly mortgage-backed securities.  “It has the potential to spiral into much, much more.  There have been many twists and turns to the foreclosure process since the credit crisis started and this is one more turn of the wheel, and it can spin out of control.”

John Gittelsohn – Securitization Flaws May Lead Investors to Fight Mortgage Deals Bloomberg 14 Oct 10

In spite of the volume of foreclosure actions, 100,000 in the past month alone, the crisis emerging as securitised mortgage documentation is presented in court has led major institutions to declare a self-imposed moratorium on foreclosures, at least for properties ‘held’ by MERS.  

There is more to the problem, however.  The process by which these mortgages were originally transferred to trusts for sale to institutional purchasers is questionable and may be found to be defective, rendering them essentially worthless and exposing the banks who sold them to liability at par with their original value, roughly $1.4 trillion dollars.