People are debating the need for a "systemic fix"to address the foreclosure crisis. What we really need is a systemic redesign, from the ground up. Fortunately, the design was laid down centuries ago -- by 800 years of law, and by the idea that free people are entitled to limit the unwarranted power of others over their persons and property. These principles are a good foundation for structuring future negotiation, legislation, or regulation.
The president wooed corporate executives this week with a Wall Street Journal editorial called "Toward a 21st Century Regulatory System." What we really need is a 21st century banking system, built on ancient principles and not fly-by-night profiteering.
You could encode those principles in a document and call it the Borrower's Bill of Rights. You could even call it the Mortgage Magna Carta, since some of the basic principles involved date back that far.
People are taking action. The Commonwealth of Virginia is debating a law that would restore some basic homeowner rights and would severely restrict the use of MERS, a database and pseudo-company created by the mortgage industry to bypass property law and expedite the buying and selling of bundled mortgages at something approaching the speed of light. Homeowners and investors in mortgage-backed securities are teaming up against the banks (although they'll part way again soon, since their interests conflict in many ways). Attorneys General from all 50 states are conducting a joint investigation and are negotiating with the major banks. FDIC Chair Sheila Bair wants to create a "claims commission" for wrongly foreclosed homeowners, like the claims program for victims of the BP disaster in the Gulf.
These efforts are good, but they lack a unifying principle. Even the idea of a "systemic fix" or "systemic redesign" doesn't go far enough, because it doesn't establish the foundation for redesign. What's needed is a new charter, a new set of rights and principles for people who engage with the banking system (or have rescued it with their tax dollars). These "borrower's rights" would stabilize the banking system and protect both investors and stockholders. That means we're not talking about a socialist revolution, just the rule of law and sound business practices.
Let's not pretend that we live in a system where anyone who doesn't like the terms of a loan can turn it down. Banks operate in close collusion, so if you want to borrow you'll have to do it on their terms. It's an asymmetrical relationship. People can't turn these loans down individually, but they can set the rules of the road as a society, by working through their elected representatives.
What would those rules of the road, these borrower's rights, look like? Let's throw out a few to get the ball rolling:
1. Contracts must be honored. As banks sold mortgages to each other, the new mortgage holder often ignored many of the terms of the original loan. Due dates, penalties, and other provisions were unilaterally changed, often with no notice to the borrower until the penalties started showing up. A contract is an agreement between both parties, and it must be understood that if a bank breaches its terms that bank has broken the contract.
2. State and local laws can't be overruled by private enterprise. MERS was created to bypass the law by naming itself as the "owner" of mortgages that it freely admitted it didn't own. It was a dummy corporation, but we were the dummies for letting it happen. MERS permitted banks to foreclose without proper documentation, without holding the deed to the property, and without giving the homeowner his or her day in court.
From the Magna Carta, 1215 C.E.: "No free man shall be seized or imprisoned, or stripped of his rights or possessions, or outlawed or exiled, or deprived of his standing in any other way, nor will we proceed with force against him, or send others to do so, except by the lawful judgment of his equals or by the law of the land."
3. Real-world assets (like homes) can't become digital gambling chips. They must be backed by deeds and other documents that link them with reality. Mortgage bankers will tell you MERS was created just to make transactions faster and easier. There's nothing wrong with electronic databases and exchanges. But you can attach the digital image of a deed or court record very, very easily. By not requiring that these documents be obtained and registered in county courthouses, it became too easy to flip mortgages in the speculative market.
If this 'digital gaming' system didn't create the housing bubble and market collapse, it certainly made it more likely. The process needs to decelerate a little to stabilize the economy. There's nothing wrong with electronic databases, but it's easy to attach the image of a document to any computer record. That reconnects the economic virtual reality of the bankers with the physical (and legal) reality where actual people live in actual homes.
4. If you break the law, you pay the price. No more retroactive immunity, easy plea-bargain deals, or soft fines for bank crimes. What's more, if a bank exectutive breaks the law, the fine must be paid by the executive, not the bank's shareholders.
And how about a little jail time now and then? If you launder drug money for the Mexican cartels and don't wind up in the joint -- just because you're a banker -- then the criminal justice system needs a "systemic fix" too. Remember: If you can't do the time, don't do the crime.
5. When you cut a plea-bargain deal, or get rescued by the taxpayer, you must admit your wrongdoing. We said no "easy" deals or cushy settlements. There will be deals and settlements, of course. But an admission of wrongdoing should be required in every case. And it should be issued publicly, by the bank's CEO.
(I'm lookin' at you, Jamie Dimon! That Alabama corruption case was really sleazy.)
6. No more clauses allowing the banks to enter "abandoned" homes. Banks have been forcing this provision into their contracts for years. (Remember, it's not a symmetrical negotiation between two equal parties.) This provision has been the source of many abuses, and it should be outlawed. If a bank thinks it has the right to seize a home, let it go to court like everybody else.
(See the Magna Carta quote, above. What is this -- a Monty Python routine?)
7. Auditors must be legally liable if they certify sketchy and/or fraudulent bank programs as financially sound. PriceWaterhouseCoopers just skated on a technicality from an investors' lawsuit over allegedly fraudulent activities at AIG, in businesses which PWC certified to be sound. That's a miscarriage of justice.
If you should've known better -- in PWC's case it was their job to know, and it's impossible to imagine how they could not have known -- you should pay the legal price for your behavior. (Conflict alert: I used to work at AIG.)
8. We need ratings agencies that aren't inept, corrupt, compromised, or beholden to the companies they're rating. And yes, I do mean S&P and Moody's. Their internal emails and other documents showed they were morally compromised at best. They got everything wrong. They rated the worst junk in the world "AAA." They were a fundamental reason for the economy's collapse.
Raters should be able to rate -- and when they call themselves "agencies," that should mean "agency" as in the EPA and not "agency" as in "ad agency." I'm not familiar with the work of Jules Kroll, but his new rating company sounds like a good idea. Rather than just read what the banks give him, he says he'll conduct due diligence and investigate them. What a concept -- it sounds almost like a business. Or an agency.
9. If we rescue you, we call the shots.From now on, anybody who rescues a bank without creating strict rules of conduct going forward shall be deemed to have committed "regulatory malpractice." If one business rescues another -- a manufacturer rescuing a supplier, for example -- it takes a chunk of the profits and sets the terms for future deals. We rescued the big banks, did a victory dance just for getting our money back (they made a bundle off interest), and are still giving them sweet deals. What's more, they're sticking it to the American consumers who rescued them, every chance they get.
That's gotta stop.
10. Nobody gets rich by f*cking up. If you run your company into the ground, so that it will fail without massive taxpayer help, you're a failure in business. Period. If you pay yourselves massive bonuses after we rescue you, you're rewarding yourselves for being lousy at your jobs. (Here's a case in point.) That ends now. If anybody collects billions in payouts, it's us (see above).
And stop telling us you're worried about the deficit -- it just gives us more reason to pay it down with the bonuses you couldn't have earned without us.
11. If you're collecting low (or zero) interest money at the Fed's "discount window," you better be lending it. Too many banks are collected those low-interest loans and investing it in non-productive areas, or flat-out speculating with it. Financial reform slowed that down a little, but didn't stop it. Lending is down, for both businesses and homeowners. So why is there such a long line at the discount window?
12. 'Claims Commissions' are good, but the list of acceptable claims should include fraudulent lending and inappropriate contract changes -- and they shouldn't be limited to defaulting homeowners. Many underwater homeowners are paying loans that were deceptively issued and/or administered. The "claims commission" idea shouldn't be used to convince the public that only a few extreme cases are responsible for the problem. Millions of mortgages are defective, and should be repaired in a just way. Sounds like a job for the Claims Commission.
13. Banks shouldn't make money writing bad deals.Banks make money on bad deals when they own the servicing companies that collect fees and penalties. Even the best underwriting will miss a few risky borrowers. But the book of business at any major bank is saturated with defaulting or struggling homeowners. That means the bank wrote a lot of loans it shouldn't have written. By owning the servicers, banks can make money from their own bad judgment. And it's an egregious conflict of interest.
Banks shouldn't own servicing companies, or profit from their own underperformance in any other way.
14. Underwater homeowners shouldn't be bailing out hugely profitable banks. Sure, bank earnings are down for some banks this quarter (though others are doing spectacularly.) Whatever their margins, they're in a lot better shape than most underwater homeowners. So why aren't banks being asked to renegotiate the principal on some of these loans, especially primary residences? They're being bled dry so that banks don't have to admit they're sitting on a lot of artificially inflated assets. That's just prolonging the inevitable, at a high human cost.
The most moderate approach would be to say that banks and homeowners got into this mess together and should share the cost of getting out. I wouldn't be that "moderate."
15. After you've wrecked everything, don't make me listen to your complaints about regulation. This isn't exactly a "right," unless you count the right to be free from unwarranted intrusion of absurd ideas into a person's brain. But it's inhumane to make sensible people keep listening to whining about regulation -- from executives who ran their own companies, their entire industry, and the complete freakin' world economy into the ground. The President shouldn't be apologizing for regulations in the Wall Street Journal. He should be reminding its readers that on the street for which that paper is named, highly paid executives brought their companies to the brink of ruin and had to be saved by the government they so freely disparage.
In the name of sanity and decency, let's stop hearing complaints about regulation from people whose unregulated actions caused a worldwide economic meltdown. What's next -- gripes about radiation safety from the people who operated Chernobyl?
These aren't randomly selected ideas. Together they re-establish the rule of law, anchor the lending process back in physical reality, reduce the "moral hazard" that lets bankers avoid the consequences of their actions, and restore balance between banks, government, and their trading partners.
As we said, they're mostly meant as food for thought. Better ones would be appreciated. But isn't it time we made the most important "systemic fix" of all -- the one that repairs the broken link between a bank and the society in which it operates?
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
On Friday the Massachusetts Supreme Judicial Court upheld a controversial decision by Land Court Judge Keith C. Long, who ruled in the case of two Springfield, MA homeowners that the foreclosures were invalid because the mortgages were not officially recorded as being owned by the foreclosing banks, US Bancorp and Wells Fargo.
The reaction from Wall Street came shortly after the decision was announced. Within a couple of hours Wells Fargo shares were down nearly 4 percent at $30.92, while U.S. Bancorp was down 1.4 percent at $25.93, Bank of America stock was down 2.8 percent, JPMorgan fell 3.7 percent, and the KBW Bank Index, which includes all four lenders, was down 2.3 percent.
In short, the Supreme Court upheld the March 2009 decision of the lower court that a bank can't foreclose on a home if it doesn't own the mortgage. You can read the 16-page decision here.
This simple statement would seem like a no-brainer, but as a result of fast and loose securitized mortgage lending practices, the ownership of a mortgage could potentially be divided and transferred multiple times by the lenders. As I pointed out in a post back in November, in one week alone there were 808 mortgage transfers in just one county in Massachusetts.
The documentation for these transfers (i.e., the assignments at the Registry of Deeds) on the other hand often lags far behind - in many cases months, or even years after the foreclosure has taken place. This makes it difficult and sometimes impossible to determine who owned what and when.
Add to an already confusing chain of events, and consider that many notes, as well as mortgages, were signed "in blank", shuffled around from one lender to the next and put into trusts well past the legal limit allowed and you've got a mess of epic proportions.
In the past, a bank representative or attorney for the bank would walk into court, point out that the "deadbeat homeowners" weren't paying their mortgage and the family would get kicked out. Many states adopted non-judicial foreclosure policies to alleviate unnecessary paperwork and court time. The premise being that a bank would never foreclose on a property on which the payments were being made and were certain that they owned. That worked fine and made sense when you knew who owned your loan and you owed the money to a local bank or credit union. The bank had your mortgage and your note and the Registry of Deeds has a solid record of it. If there was a transfer - something that might happen once or twice in the life of a loan, if at all, the banks would go down to the Registry of Deeds, file the assignment, pay the fee, and go on with their day. You, the borrower, would start sending your monthly checks to another bank.
Glenn Russell, one of the attorneys to have argued this case and who represented Mark and Tammy LaRace, one of the Springfield homeowners said, "In most cases banks foreclose without any detailed examination of the securitization process of the loan. After all, the homeowner hasn't paid or has missed payments and the foreclosure goes through without anyone really questioning the legality or legitimacy of the foreclosure."
Then the art of securitization came along and mortgages started being traded like baseball cards at recess, sliced up into pieces, and loaded into pools, trusts, and whatever new intricate financial instrument Wall Street dreamed up. Servicers started handling loans instead of your neighborhood bank and MERS (Mortgage Electronic Registration System) was invented to further allow banks to bypass millions of dollars in fees to county registries. Of course with all of these transactions flying around in the hands of people who quite possibly didn't understand what they represented and as we've seen in the recently exposed robo-signing fiasco didn't know what they were signing, there was a lot of room for mistakes ... a lot of mistakes.
Mortgage fraud investigator Steve Dibert of MFI-Miami said, "Seventy percent of the loans we investigate are flawed due to recordation, PSA violations, etc."
As the Boston Globe reported:
During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.
The time-line of the case started, simply enough, back in 2007 when Wells Fargo and U.S. Bancorp began foreclosure proceedings against two separate delinquent borrowers. Neither borrower fought the proceedings; Massachusetts is a non-judicial state in which courts do not oversee foreclosures, so both banks seized the Springfield, MA properties without any trouble or pesky legal challenges.
In the fall of 2008 the banks tried to list the foreclosed properties in the Boston Globe. According to Mass law, like many states, foreclosure sales must be listed in a newspaper of general circulation in the county or town where the property is located, so the Globe asked the bank to get an okay from the Land Court. This is where Judge Long comes in - in March 2009.
Judge Keith C. Long had no problem with the properties being listed in the Globe, but to the shock of the attorneys he also wanted them to prove that they had legal standing to foreclose on the properties they had repossessed in the first place. He gave them until October (seven months) to get the proper paperwork together and come back and show how they had acquired the mortgage and prove that they had legal standing.
In October 2009 Judge Long examined the paperwork the banks came back with and determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off the houses.
Judge Long found that Option One Mortgage Corp., which early in the "chain of title" owned the mortgages, erred in assigning the mortgages without naming who they were transferred to -- so- called "blank assignments."
The Supreme Court agreed:
A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 ("When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them").
Judge Long's decision hit on the sensitive issue of the "assignment of mortgages in blank." In their crazed fury to aggregate and sell and then resell mortgages, many mortgage documents were transferred without explicitly naming to whom the note or mortgage was being sold.
The banks have argued (and tried to with Long) that this practice is legal. The argument being that everyone's doing it and it is standard practice in the industry. Long didn't buy it. "These blank mortgage assignments were never recorded and they were not legally recordable," he wrote in his ruling.
Where it gets interesting, is rather than take a loss and accept the ruling from a lower court - a decision that in retrospect must now seem like a good idea, in their contempt and utter lack of respect for the law, they decided to appeal to a higher authority. The Massachusetts Supreme Judicial Court, who upheld, unanimously, the lower court's decision.
We agree with the [land court] judge that the plaintiffs who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,'' the justices said in their opinion.
Under; Massachusetts law, in order to sell the borrowers home at a foreclosure auction, the foreclosing entity must actually be the "holder" of the right to foreclose contained in a borrowers' mortgage at the time the auction takes place.
"Looking into the not so distant future, I predict Judge Long's ruling will be hailed as one of the great Judicial opinions of all time, with regards to its impact," Attorney Glenn Russell said.
Essex County Register of Deeds John O'Brien, who in November requested that Attorney General Martha Coakley investigate whether major lenders had devised a scheme to avoid paying assignment fees when transferring mortgages from one entity to another, issued the following statement on Friday:
The Massachusetts Supreme Court has ruled that these Major Banks must follow the same laws as everyone else and that assignments are not optional in Massachusetts. It's obviously they didn't want the public to know what they were doing, coupled with their greed in trying to deliberately avoid the payment of the required recording fees, has placed them in the mess that they are in today.
This is a huge win for the taxpayers, this case will send shock waves throughout the MERS community as they now have been exposed, and they are going to have to get their checkbooks out and reimburse the taxpayers. These major banking conglomerates deliberate scheme to not file the proper paperwork together with the "robo-signers scandal" are the major reasons why our housing market is in the economic turmoil it is in today.
Massachusetts Attorney General Martha Coakley issued her own statement making her opinion about the financial industry clear.
We continue to suffer from the fallout of the lending crisis. There are thousands of people in our state who have lost their homes and many more still in danger of losing them. This decision affirms our belief that the onus should be on the banks and other holders of notes to follow proper procedures before initiating foreclosure on any Massachusetts homeowner.
In their careless and hasty stampede to securitize loans, the banks moved at their own peril. Whether by robo-signing or failing to properly transfer title, these financial institutions created this real estate chaos. They should bear the brunt and the cost of the remedy.
As for the spin coming from the banks as they try to deflect this, Attorney Glenn Russell had this to say on his site:
As I represented one of the parties in the Land Court cases (the LaRace family), it is very interesting to listen to the so called "experts" opine on Judge Long's ruling, saying that "at best this will delay foreclosures, but that is about it." These are uninformed and usually self-serving statements made by real estate professionals. Left unsaid is the fact that under G.L. c. 244 Section 14, in order to foreclose, the foreclosing entity must also prove that it is the holder of the borrowers mortgage note as well. The complexity of the securitization process can present difficult issues for lender to overcome.
Generally the parties involved in the securitization process of your mortgage did not follow the mandates under the prospectus supplement and pooling and servicing agreement governing the securitized trust that the note and mortgage are in. Additionally problematic for foreclosing entities, is the situation whereby the lender has already sold a property to an innocent third party (that it didn't really own, according to Judge Long's decision).
Taking into consideration that the Massachusetts Supreme Court is widely considered one of the best courts in the country, there's a good chance that other states will soon follow this decision.
Judge Long and the six jurists of the Massachusetts Supreme Court sent a very clear message to the banks on Friday: This is the law... And the law matters.
Join the hundreds of homeowners and tell your mortgage horror story and help us fight together at ShameTheBanks.org
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People are debating the need for a "systemic fix"to address the foreclosure crisis. What we really need is a systemic redesign, from the ground up. Fortunately, the design was laid down centuries ago -- by 800 years of law, and by the idea that free people are entitled to limit the unwarranted power of others over their persons and property. These principles are a good foundation for structuring future negotiation, legislation, or regulation.
The president wooed corporate executives this week with a Wall Street Journal editorial called "Toward a 21st Century Regulatory System." What we really need is a 21st century banking system, built on ancient principles and not fly-by-night profiteering.
You could encode those principles in a document and call it the Borrower's Bill of Rights. You could even call it the Mortgage Magna Carta, since some of the basic principles involved date back that far.
People are taking action. The Commonwealth of Virginia is debating a law that would restore some basic homeowner rights and would severely restrict the use of MERS, a database and pseudo-company created by the mortgage industry to bypass property law and expedite the buying and selling of bundled mortgages at something approaching the speed of light. Homeowners and investors in mortgage-backed securities are teaming up against the banks (although they'll part way again soon, since their interests conflict in many ways). Attorneys General from all 50 states are conducting a joint investigation and are negotiating with the major banks. FDIC Chair Sheila Bair wants to create a "claims commission" for wrongly foreclosed homeowners, like the claims program for victims of the BP disaster in the Gulf.
These efforts are good, but they lack a unifying principle. Even the idea of a "systemic fix" or "systemic redesign" doesn't go far enough, because it doesn't establish the foundation for redesign. What's needed is a new charter, a new set of rights and principles for people who engage with the banking system (or have rescued it with their tax dollars). These "borrower's rights" would stabilize the banking system and protect both investors and stockholders. That means we're not talking about a socialist revolution, just the rule of law and sound business practices.
Let's not pretend that we live in a system where anyone who doesn't like the terms of a loan can turn it down. Banks operate in close collusion, so if you want to borrow you'll have to do it on their terms. It's an asymmetrical relationship. People can't turn these loans down individually, but they can set the rules of the road as a society, by working through their elected representatives.
What would those rules of the road, these borrower's rights, look like? Let's throw out a few to get the ball rolling:
1. Contracts must be honored. As banks sold mortgages to each other, the new mortgage holder often ignored many of the terms of the original loan. Due dates, penalties, and other provisions were unilaterally changed, often with no notice to the borrower until the penalties started showing up. A contract is an agreement between both parties, and it must be understood that if a bank breaches its terms that bank has broken the contract.
2. State and local laws can't be overruled by private enterprise. MERS was created to bypass the law by naming itself as the "owner" of mortgages that it freely admitted it didn't own. It was a dummy corporation, but we were the dummies for letting it happen. MERS permitted banks to foreclose without proper documentation, without holding the deed to the property, and without giving the homeowner his or her day in court.
From the Magna Carta, 1215 C.E.: "No free man shall be seized or imprisoned, or stripped of his rights or possessions, or outlawed or exiled, or deprived of his standing in any other way, nor will we proceed with force against him, or send others to do so, except by the lawful judgment of his equals or by the law of the land."
3. Real-world assets (like homes) can't become digital gambling chips. They must be backed by deeds and other documents that link them with reality. Mortgage bankers will tell you MERS was created just to make transactions faster and easier. There's nothing wrong with electronic databases and exchanges. But you can attach the digital image of a deed or court record very, very easily. By not requiring that these documents be obtained and registered in county courthouses, it became too easy to flip mortgages in the speculative market.
If this 'digital gaming' system didn't create the housing bubble and market collapse, it certainly made it more likely. The process needs to decelerate a little to stabilize the economy. There's nothing wrong with electronic databases, but it's easy to attach the image of a document to any computer record. That reconnects the economic virtual reality of the bankers with the physical (and legal) reality where actual people live in actual homes.
4. If you break the law, you pay the price. No more retroactive immunity, easy plea-bargain deals, or soft fines for bank crimes. What's more, if a bank exectutive breaks the law, the fine must be paid by the executive, not the bank's shareholders.
And how about a little jail time now and then? If you launder drug money for the Mexican cartels and don't wind up in the joint -- just because you're a banker -- then the criminal justice system needs a "systemic fix" too. Remember: If you can't do the time, don't do the crime.
5. When you cut a plea-bargain deal, or get rescued by the taxpayer, you must admit your wrongdoing. We said no "easy" deals or cushy settlements. There will be deals and settlements, of course. But an admission of wrongdoing should be required in every case. And it should be issued publicly, by the bank's CEO.
(I'm lookin' at you, Jamie Dimon! That Alabama corruption case was really sleazy.)
6. No more clauses allowing the banks to enter "abandoned" homes. Banks have been forcing this provision into their contracts for years. (Remember, it's not a symmetrical negotiation between two equal parties.) This provision has been the source of many abuses, and it should be outlawed. If a bank thinks it has the right to seize a home, let it go to court like everybody else.
(See the Magna Carta quote, above. What is this -- a Monty Python routine?)
7. Auditors must be legally liable if they certify sketchy and/or fraudulent bank programs as financially sound. PriceWaterhouseCoopers just skated on a technicality from an investors' lawsuit over allegedly fraudulent activities at AIG, in businesses which PWC certified to be sound. That's a miscarriage of justice.
If you should've known better -- in PWC's case it was their job to know, and it's impossible to imagine how they could not have known -- you should pay the legal price for your behavior. (Conflict alert: I used to work at AIG.)
8. We need ratings agencies that aren't inept, corrupt, compromised, or beholden to the companies they're rating. And yes, I do mean S&P and Moody's. Their internal emails and other documents showed they were morally compromised at best. They got everything wrong. They rated the worst junk in the world "AAA." They were a fundamental reason for the economy's collapse.
Raters should be able to rate -- and when they call themselves "agencies," that should mean "agency" as in the EPA and not "agency" as in "ad agency." I'm not familiar with the work of Jules Kroll, but his new rating company sounds like a good idea. Rather than just read what the banks give him, he says he'll conduct due diligence and investigate them. What a concept -- it sounds almost like a business. Or an agency.
9. If we rescue you, we call the shots.From now on, anybody who rescues a bank without creating strict rules of conduct going forward shall be deemed to have committed "regulatory malpractice." If one business rescues another -- a manufacturer rescuing a supplier, for example -- it takes a chunk of the profits and sets the terms for future deals. We rescued the big banks, did a victory dance just for getting our money back (they made a bundle off interest), and are still giving them sweet deals. What's more, they're sticking it to the American consumers who rescued them, every chance they get.
That's gotta stop.
10. Nobody gets rich by f*cking up. If you run your company into the ground, so that it will fail without massive taxpayer help, you're a failure in business. Period. If you pay yourselves massive bonuses after we rescue you, you're rewarding yourselves for being lousy at your jobs. (Here's a case in point.) That ends now. If anybody collects billions in payouts, it's us (see above).
And stop telling us you're worried about the deficit -- it just gives us more reason to pay it down with the bonuses you couldn't have earned without us.
11. If you're collecting low (or zero) interest money at the Fed's "discount window," you better be lending it. Too many banks are collected those low-interest loans and investing it in non-productive areas, or flat-out speculating with it. Financial reform slowed that down a little, but didn't stop it. Lending is down, for both businesses and homeowners. So why is there such a long line at the discount window?
12. 'Claims Commissions' are good, but the list of acceptable claims should include fraudulent lending and inappropriate contract changes -- and they shouldn't be limited to defaulting homeowners. Many underwater homeowners are paying loans that were deceptively issued and/or administered. The "claims commission" idea shouldn't be used to convince the public that only a few extreme cases are responsible for the problem. Millions of mortgages are defective, and should be repaired in a just way. Sounds like a job for the Claims Commission.
13. Banks shouldn't make money writing bad deals.Banks make money on bad deals when they own the servicing companies that collect fees and penalties. Even the best underwriting will miss a few risky borrowers. But the book of business at any major bank is saturated with defaulting or struggling homeowners. That means the bank wrote a lot of loans it shouldn't have written. By owning the servicers, banks can make money from their own bad judgment. And it's an egregious conflict of interest.
Banks shouldn't own servicing companies, or profit from their own underperformance in any other way.
14. Underwater homeowners shouldn't be bailing out hugely profitable banks. Sure, bank earnings are down for some banks this quarter (though others are doing spectacularly.) Whatever their margins, they're in a lot better shape than most underwater homeowners. So why aren't banks being asked to renegotiate the principal on some of these loans, especially primary residences? They're being bled dry so that banks don't have to admit they're sitting on a lot of artificially inflated assets. That's just prolonging the inevitable, at a high human cost.
The most moderate approach would be to say that banks and homeowners got into this mess together and should share the cost of getting out. I wouldn't be that "moderate."
15. After you've wrecked everything, don't make me listen to your complaints about regulation. This isn't exactly a "right," unless you count the right to be free from unwarranted intrusion of absurd ideas into a person's brain. But it's inhumane to make sensible people keep listening to whining about regulation -- from executives who ran their own companies, their entire industry, and the complete freakin' world economy into the ground. The President shouldn't be apologizing for regulations in the Wall Street Journal. He should be reminding its readers that on the street for which that paper is named, highly paid executives brought their companies to the brink of ruin and had to be saved by the government they so freely disparage.
In the name of sanity and decency, let's stop hearing complaints about regulation from people whose unregulated actions caused a worldwide economic meltdown. What's next -- gripes about radiation safety from the people who operated Chernobyl?
These aren't randomly selected ideas. Together they re-establish the rule of law, anchor the lending process back in physical reality, reduce the "moral hazard" that lets bankers avoid the consequences of their actions, and restore balance between banks, government, and their trading partners.
As we said, they're mostly meant as food for thought. Better ones would be appreciated. But isn't it time we made the most important "systemic fix" of all -- the one that repairs the broken link between a bank and the society in which it operates?
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
On Friday the Massachusetts Supreme Judicial Court upheld a controversial decision by Land Court Judge Keith C. Long, who ruled in the case of two Springfield, MA homeowners that the foreclosures were invalid because the mortgages were not officially recorded as being owned by the foreclosing banks, US Bancorp and Wells Fargo.
The reaction from Wall Street came shortly after the decision was announced. Within a couple of hours Wells Fargo shares were down nearly 4 percent at $30.92, while U.S. Bancorp was down 1.4 percent at $25.93, Bank of America stock was down 2.8 percent, JPMorgan fell 3.7 percent, and the KBW Bank Index, which includes all four lenders, was down 2.3 percent.
In short, the Supreme Court upheld the March 2009 decision of the lower court that a bank can't foreclose on a home if it doesn't own the mortgage. You can read the 16-page decision here.
This simple statement would seem like a no-brainer, but as a result of fast and loose securitized mortgage lending practices, the ownership of a mortgage could potentially be divided and transferred multiple times by the lenders. As I pointed out in a post back in November, in one week alone there were 808 mortgage transfers in just one county in Massachusetts.
The documentation for these transfers (i.e., the assignments at the Registry of Deeds) on the other hand often lags far behind - in many cases months, or even years after the foreclosure has taken place. This makes it difficult and sometimes impossible to determine who owned what and when.
Add to an already confusing chain of events, and consider that many notes, as well as mortgages, were signed "in blank", shuffled around from one lender to the next and put into trusts well past the legal limit allowed and you've got a mess of epic proportions.
In the past, a bank representative or attorney for the bank would walk into court, point out that the "deadbeat homeowners" weren't paying their mortgage and the family would get kicked out. Many states adopted non-judicial foreclosure policies to alleviate unnecessary paperwork and court time. The premise being that a bank would never foreclose on a property on which the payments were being made and were certain that they owned. That worked fine and made sense when you knew who owned your loan and you owed the money to a local bank or credit union. The bank had your mortgage and your note and the Registry of Deeds has a solid record of it. If there was a transfer - something that might happen once or twice in the life of a loan, if at all, the banks would go down to the Registry of Deeds, file the assignment, pay the fee, and go on with their day. You, the borrower, would start sending your monthly checks to another bank.
Glenn Russell, one of the attorneys to have argued this case and who represented Mark and Tammy LaRace, one of the Springfield homeowners said, "In most cases banks foreclose without any detailed examination of the securitization process of the loan. After all, the homeowner hasn't paid or has missed payments and the foreclosure goes through without anyone really questioning the legality or legitimacy of the foreclosure."
Then the art of securitization came along and mortgages started being traded like baseball cards at recess, sliced up into pieces, and loaded into pools, trusts, and whatever new intricate financial instrument Wall Street dreamed up. Servicers started handling loans instead of your neighborhood bank and MERS (Mortgage Electronic Registration System) was invented to further allow banks to bypass millions of dollars in fees to county registries. Of course with all of these transactions flying around in the hands of people who quite possibly didn't understand what they represented and as we've seen in the recently exposed robo-signing fiasco didn't know what they were signing, there was a lot of room for mistakes ... a lot of mistakes.
Mortgage fraud investigator Steve Dibert of MFI-Miami said, "Seventy percent of the loans we investigate are flawed due to recordation, PSA violations, etc."
As the Boston Globe reported:
During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.
The time-line of the case started, simply enough, back in 2007 when Wells Fargo and U.S. Bancorp began foreclosure proceedings against two separate delinquent borrowers. Neither borrower fought the proceedings; Massachusetts is a non-judicial state in which courts do not oversee foreclosures, so both banks seized the Springfield, MA properties without any trouble or pesky legal challenges.
In the fall of 2008 the banks tried to list the foreclosed properties in the Boston Globe. According to Mass law, like many states, foreclosure sales must be listed in a newspaper of general circulation in the county or town where the property is located, so the Globe asked the bank to get an okay from the Land Court. This is where Judge Long comes in - in March 2009.
Judge Keith C. Long had no problem with the properties being listed in the Globe, but to the shock of the attorneys he also wanted them to prove that they had legal standing to foreclose on the properties they had repossessed in the first place. He gave them until October (seven months) to get the proper paperwork together and come back and show how they had acquired the mortgage and prove that they had legal standing.
In October 2009 Judge Long examined the paperwork the banks came back with and determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off the houses.
Judge Long found that Option One Mortgage Corp., which early in the "chain of title" owned the mortgages, erred in assigning the mortgages without naming who they were transferred to -- so- called "blank assignments."
The Supreme Court agreed:
A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 ("When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them").
Judge Long's decision hit on the sensitive issue of the "assignment of mortgages in blank." In their crazed fury to aggregate and sell and then resell mortgages, many mortgage documents were transferred without explicitly naming to whom the note or mortgage was being sold.
The banks have argued (and tried to with Long) that this practice is legal. The argument being that everyone's doing it and it is standard practice in the industry. Long didn't buy it. "These blank mortgage assignments were never recorded and they were not legally recordable," he wrote in his ruling.
Where it gets interesting, is rather than take a loss and accept the ruling from a lower court - a decision that in retrospect must now seem like a good idea, in their contempt and utter lack of respect for the law, they decided to appeal to a higher authority. The Massachusetts Supreme Judicial Court, who upheld, unanimously, the lower court's decision.
We agree with the [land court] judge that the plaintiffs who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,'' the justices said in their opinion.
Under; Massachusetts law, in order to sell the borrowers home at a foreclosure auction, the foreclosing entity must actually be the "holder" of the right to foreclose contained in a borrowers' mortgage at the time the auction takes place.
"Looking into the not so distant future, I predict Judge Long's ruling will be hailed as one of the great Judicial opinions of all time, with regards to its impact," Attorney Glenn Russell said.
Essex County Register of Deeds John O'Brien, who in November requested that Attorney General Martha Coakley investigate whether major lenders had devised a scheme to avoid paying assignment fees when transferring mortgages from one entity to another, issued the following statement on Friday:
The Massachusetts Supreme Court has ruled that these Major Banks must follow the same laws as everyone else and that assignments are not optional in Massachusetts. It's obviously they didn't want the public to know what they were doing, coupled with their greed in trying to deliberately avoid the payment of the required recording fees, has placed them in the mess that they are in today.
This is a huge win for the taxpayers, this case will send shock waves throughout the MERS community as they now have been exposed, and they are going to have to get their checkbooks out and reimburse the taxpayers. These major banking conglomerates deliberate scheme to not file the proper paperwork together with the "robo-signers scandal" are the major reasons why our housing market is in the economic turmoil it is in today.
Massachusetts Attorney General Martha Coakley issued her own statement making her opinion about the financial industry clear.
We continue to suffer from the fallout of the lending crisis. There are thousands of people in our state who have lost their homes and many more still in danger of losing them. This decision affirms our belief that the onus should be on the banks and other holders of notes to follow proper procedures before initiating foreclosure on any Massachusetts homeowner.
In their careless and hasty stampede to securitize loans, the banks moved at their own peril. Whether by robo-signing or failing to properly transfer title, these financial institutions created this real estate chaos. They should bear the brunt and the cost of the remedy.
As for the spin coming from the banks as they try to deflect this, Attorney Glenn Russell had this to say on his site:
As I represented one of the parties in the Land Court cases (the LaRace family), it is very interesting to listen to the so called "experts" opine on Judge Long's ruling, saying that "at best this will delay foreclosures, but that is about it." These are uninformed and usually self-serving statements made by real estate professionals. Left unsaid is the fact that under G.L. c. 244 Section 14, in order to foreclose, the foreclosing entity must also prove that it is the holder of the borrowers mortgage note as well. The complexity of the securitization process can present difficult issues for lender to overcome.
Generally the parties involved in the securitization process of your mortgage did not follow the mandates under the prospectus supplement and pooling and servicing agreement governing the securitized trust that the note and mortgage are in. Additionally problematic for foreclosing entities, is the situation whereby the lender has already sold a property to an innocent third party (that it didn't really own, according to Judge Long's decision).
Taking into consideration that the Massachusetts Supreme Court is widely considered one of the best courts in the country, there's a good chance that other states will soon follow this decision.
Judge Long and the six jurists of the Massachusetts Supreme Court sent a very clear message to the banks on Friday: This is the law... And the law matters.
Join the hundreds of homeowners and tell your mortgage horror story and help us fight together at ShameTheBanks.org
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People are debating the need for a "systemic fix"to address the foreclosure crisis. What we really need is a systemic redesign, from the ground up. Fortunately, the design was laid down centuries ago -- by 800 years of law, and by the idea that free people are entitled to limit the unwarranted power of others over their persons and property. These principles are a good foundation for structuring future negotiation, legislation, or regulation.
The president wooed corporate executives this week with a Wall Street Journal editorial called "Toward a 21st Century Regulatory System." What we really need is a 21st century banking system, built on ancient principles and not fly-by-night profiteering.
You could encode those principles in a document and call it the Borrower's Bill of Rights. You could even call it the Mortgage Magna Carta, since some of the basic principles involved date back that far.
People are taking action. The Commonwealth of Virginia is debating a law that would restore some basic homeowner rights and would severely restrict the use of MERS, a database and pseudo-company created by the mortgage industry to bypass property law and expedite the buying and selling of bundled mortgages at something approaching the speed of light. Homeowners and investors in mortgage-backed securities are teaming up against the banks (although they'll part way again soon, since their interests conflict in many ways). Attorneys General from all 50 states are conducting a joint investigation and are negotiating with the major banks. FDIC Chair Sheila Bair wants to create a "claims commission" for wrongly foreclosed homeowners, like the claims program for victims of the BP disaster in the Gulf.
These efforts are good, but they lack a unifying principle. Even the idea of a "systemic fix" or "systemic redesign" doesn't go far enough, because it doesn't establish the foundation for redesign. What's needed is a new charter, a new set of rights and principles for people who engage with the banking system (or have rescued it with their tax dollars). These "borrower's rights" would stabilize the banking system and protect both investors and stockholders. That means we're not talking about a socialist revolution, just the rule of law and sound business practices.
Let's not pretend that we live in a system where anyone who doesn't like the terms of a loan can turn it down. Banks operate in close collusion, so if you want to borrow you'll have to do it on their terms. It's an asymmetrical relationship. People can't turn these loans down individually, but they can set the rules of the road as a society, by working through their elected representatives.
What would those rules of the road, these borrower's rights, look like? Let's throw out a few to get the ball rolling:
1. Contracts must be honored. As banks sold mortgages to each other, the new mortgage holder often ignored many of the terms of the original loan. Due dates, penalties, and other provisions were unilaterally changed, often with no notice to the borrower until the penalties started showing up. A contract is an agreement between both parties, and it must be understood that if a bank breaches its terms that bank has broken the contract.
2. State and local laws can't be overruled by private enterprise. MERS was created to bypass the law by naming itself as the "owner" of mortgages that it freely admitted it didn't own. It was a dummy corporation, but we were the dummies for letting it happen. MERS permitted banks to foreclose without proper documentation, without holding the deed to the property, and without giving the homeowner his or her day in court.
From the Magna Carta, 1215 C.E.: "No free man shall be seized or imprisoned, or stripped of his rights or possessions, or outlawed or exiled, or deprived of his standing in any other way, nor will we proceed with force against him, or send others to do so, except by the lawful judgment of his equals or by the law of the land."
3. Real-world assets (like homes) can't become digital gambling chips. They must be backed by deeds and other documents that link them with reality. Mortgage bankers will tell you MERS was created just to make transactions faster and easier. There's nothing wrong with electronic databases and exchanges. But you can attach the digital image of a deed or court record very, very easily. By not requiring that these documents be obtained and registered in county courthouses, it became too easy to flip mortgages in the speculative market.
If this 'digital gaming' system didn't create the housing bubble and market collapse, it certainly made it more likely. The process needs to decelerate a little to stabilize the economy. There's nothing wrong with electronic databases, but it's easy to attach the image of a document to any computer record. That reconnects the economic virtual reality of the bankers with the physical (and legal) reality where actual people live in actual homes.
4. If you break the law, you pay the price. No more retroactive immunity, easy plea-bargain deals, or soft fines for bank crimes. What's more, if a bank exectutive breaks the law, the fine must be paid by the executive, not the bank's shareholders.
And how about a little jail time now and then? If you launder drug money for the Mexican cartels and don't wind up in the joint -- just because you're a banker -- then the criminal justice system needs a "systemic fix" too. Remember: If you can't do the time, don't do the crime.
5. When you cut a plea-bargain deal, or get rescued by the taxpayer, you must admit your wrongdoing. We said no "easy" deals or cushy settlements. There will be deals and settlements, of course. But an admission of wrongdoing should be required in every case. And it should be issued publicly, by the bank's CEO.
(I'm lookin' at you, Jamie Dimon! That Alabama corruption case was really sleazy.)
6. No more clauses allowing the banks to enter "abandoned" homes. Banks have been forcing this provision into their contracts for years. (Remember, it's not a symmetrical negotiation between two equal parties.) This provision has been the source of many abuses, and it should be outlawed. If a bank thinks it has the right to seize a home, let it go to court like everybody else.
(See the Magna Carta quote, above. What is this -- a Monty Python routine?)
7. Auditors must be legally liable if they certify sketchy and/or fraudulent bank programs as financially sound. PriceWaterhouseCoopers just skated on a technicality from an investors' lawsuit over allegedly fraudulent activities at AIG, in businesses which PWC certified to be sound. That's a miscarriage of justice.
If you should've known better -- in PWC's case it was their job to know, and it's impossible to imagine how they could not have known -- you should pay the legal price for your behavior. (Conflict alert: I used to work at AIG.)
8. We need ratings agencies that aren't inept, corrupt, compromised, or beholden to the companies they're rating. And yes, I do mean S&P and Moody's. Their internal emails and other documents showed they were morally compromised at best. They got everything wrong. They rated the worst junk in the world "AAA." They were a fundamental reason for the economy's collapse.
Raters should be able to rate -- and when they call themselves "agencies," that should mean "agency" as in the EPA and not "agency" as in "ad agency." I'm not familiar with the work of Jules Kroll, but his new rating company sounds like a good idea. Rather than just read what the banks give him, he says he'll conduct due diligence and investigate them. What a concept -- it sounds almost like a business. Or an agency.
9. If we rescue you, we call the shots.From now on, anybody who rescues a bank without creating strict rules of conduct going forward shall be deemed to have committed "regulatory malpractice." If one business rescues another -- a manufacturer rescuing a supplier, for example -- it takes a chunk of the profits and sets the terms for future deals. We rescued the big banks, did a victory dance just for getting our money back (they made a bundle off interest), and are still giving them sweet deals. What's more, they're sticking it to the American consumers who rescued them, every chance they get.
That's gotta stop.
10. Nobody gets rich by f*cking up. If you run your company into the ground, so that it will fail without massive taxpayer help, you're a failure in business. Period. If you pay yourselves massive bonuses after we rescue you, you're rewarding yourselves for being lousy at your jobs. (Here's a case in point.) That ends now. If anybody collects billions in payouts, it's us (see above).
And stop telling us you're worried about the deficit -- it just gives us more reason to pay it down with the bonuses you couldn't have earned without us.
11. If you're collecting low (or zero) interest money at the Fed's "discount window," you better be lending it. Too many banks are collected those low-interest loans and investing it in non-productive areas, or flat-out speculating with it. Financial reform slowed that down a little, but didn't stop it. Lending is down, for both businesses and homeowners. So why is there such a long line at the discount window?
12. 'Claims Commissions' are good, but the list of acceptable claims should include fraudulent lending and inappropriate contract changes -- and they shouldn't be limited to defaulting homeowners. Many underwater homeowners are paying loans that were deceptively issued and/or administered. The "claims commission" idea shouldn't be used to convince the public that only a few extreme cases are responsible for the problem. Millions of mortgages are defective, and should be repaired in a just way. Sounds like a job for the Claims Commission.
13. Banks shouldn't make money writing bad deals.Banks make money on bad deals when they own the servicing companies that collect fees and penalties. Even the best underwriting will miss a few risky borrowers. But the book of business at any major bank is saturated with defaulting or struggling homeowners. That means the bank wrote a lot of loans it shouldn't have written. By owning the servicers, banks can make money from their own bad judgment. And it's an egregious conflict of interest.
Banks shouldn't own servicing companies, or profit from their own underperformance in any other way.
14. Underwater homeowners shouldn't be bailing out hugely profitable banks. Sure, bank earnings are down for some banks this quarter (though others are doing spectacularly.) Whatever their margins, they're in a lot better shape than most underwater homeowners. So why aren't banks being asked to renegotiate the principal on some of these loans, especially primary residences? They're being bled dry so that banks don't have to admit they're sitting on a lot of artificially inflated assets. That's just prolonging the inevitable, at a high human cost.
The most moderate approach would be to say that banks and homeowners got into this mess together and should share the cost of getting out. I wouldn't be that "moderate."
15. After you've wrecked everything, don't make me listen to your complaints about regulation. This isn't exactly a "right," unless you count the right to be free from unwarranted intrusion of absurd ideas into a person's brain. But it's inhumane to make sensible people keep listening to whining about regulation -- from executives who ran their own companies, their entire industry, and the complete freakin' world economy into the ground. The President shouldn't be apologizing for regulations in the Wall Street Journal. He should be reminding its readers that on the street for which that paper is named, highly paid executives brought their companies to the brink of ruin and had to be saved by the government they so freely disparage.
In the name of sanity and decency, let's stop hearing complaints about regulation from people whose unregulated actions caused a worldwide economic meltdown. What's next -- gripes about radiation safety from the people who operated Chernobyl?
These aren't randomly selected ideas. Together they re-establish the rule of law, anchor the lending process back in physical reality, reduce the "moral hazard" that lets bankers avoid the consequences of their actions, and restore balance between banks, government, and their trading partners.
As we said, they're mostly meant as food for thought. Better ones would be appreciated. But isn't it time we made the most important "systemic fix" of all -- the one that repairs the broken link between a bank and the society in which it operates?
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
On Friday the Massachusetts Supreme Judicial Court upheld a controversial decision by Land Court Judge Keith C. Long, who ruled in the case of two Springfield, MA homeowners that the foreclosures were invalid because the mortgages were not officially recorded as being owned by the foreclosing banks, US Bancorp and Wells Fargo.
The reaction from Wall Street came shortly after the decision was announced. Within a couple of hours Wells Fargo shares were down nearly 4 percent at $30.92, while U.S. Bancorp was down 1.4 percent at $25.93, Bank of America stock was down 2.8 percent, JPMorgan fell 3.7 percent, and the KBW Bank Index, which includes all four lenders, was down 2.3 percent.
In short, the Supreme Court upheld the March 2009 decision of the lower court that a bank can't foreclose on a home if it doesn't own the mortgage. You can read the 16-page decision here.
This simple statement would seem like a no-brainer, but as a result of fast and loose securitized mortgage lending practices, the ownership of a mortgage could potentially be divided and transferred multiple times by the lenders. As I pointed out in a post back in November, in one week alone there were 808 mortgage transfers in just one county in Massachusetts.
The documentation for these transfers (i.e., the assignments at the Registry of Deeds) on the other hand often lags far behind - in many cases months, or even years after the foreclosure has taken place. This makes it difficult and sometimes impossible to determine who owned what and when.
Add to an already confusing chain of events, and consider that many notes, as well as mortgages, were signed "in blank", shuffled around from one lender to the next and put into trusts well past the legal limit allowed and you've got a mess of epic proportions.
In the past, a bank representative or attorney for the bank would walk into court, point out that the "deadbeat homeowners" weren't paying their mortgage and the family would get kicked out. Many states adopted non-judicial foreclosure policies to alleviate unnecessary paperwork and court time. The premise being that a bank would never foreclose on a property on which the payments were being made and were certain that they owned. That worked fine and made sense when you knew who owned your loan and you owed the money to a local bank or credit union. The bank had your mortgage and your note and the Registry of Deeds has a solid record of it. If there was a transfer - something that might happen once or twice in the life of a loan, if at all, the banks would go down to the Registry of Deeds, file the assignment, pay the fee, and go on with their day. You, the borrower, would start sending your monthly checks to another bank.
Glenn Russell, one of the attorneys to have argued this case and who represented Mark and Tammy LaRace, one of the Springfield homeowners said, "In most cases banks foreclose without any detailed examination of the securitization process of the loan. After all, the homeowner hasn't paid or has missed payments and the foreclosure goes through without anyone really questioning the legality or legitimacy of the foreclosure."
Then the art of securitization came along and mortgages started being traded like baseball cards at recess, sliced up into pieces, and loaded into pools, trusts, and whatever new intricate financial instrument Wall Street dreamed up. Servicers started handling loans instead of your neighborhood bank and MERS (Mortgage Electronic Registration System) was invented to further allow banks to bypass millions of dollars in fees to county registries. Of course with all of these transactions flying around in the hands of people who quite possibly didn't understand what they represented and as we've seen in the recently exposed robo-signing fiasco didn't know what they were signing, there was a lot of room for mistakes ... a lot of mistakes.
Mortgage fraud investigator Steve Dibert of MFI-Miami said, "Seventy percent of the loans we investigate are flawed due to recordation, PSA violations, etc."
As the Boston Globe reported:
During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.
The time-line of the case started, simply enough, back in 2007 when Wells Fargo and U.S. Bancorp began foreclosure proceedings against two separate delinquent borrowers. Neither borrower fought the proceedings; Massachusetts is a non-judicial state in which courts do not oversee foreclosures, so both banks seized the Springfield, MA properties without any trouble or pesky legal challenges.
In the fall of 2008 the banks tried to list the foreclosed properties in the Boston Globe. According to Mass law, like many states, foreclosure sales must be listed in a newspaper of general circulation in the county or town where the property is located, so the Globe asked the bank to get an okay from the Land Court. This is where Judge Long comes in - in March 2009.
Judge Keith C. Long had no problem with the properties being listed in the Globe, but to the shock of the attorneys he also wanted them to prove that they had legal standing to foreclose on the properties they had repossessed in the first place. He gave them until October (seven months) to get the proper paperwork together and come back and show how they had acquired the mortgage and prove that they had legal standing.
In October 2009 Judge Long examined the paperwork the banks came back with and determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off the houses.
Judge Long found that Option One Mortgage Corp., which early in the "chain of title" owned the mortgages, erred in assigning the mortgages without naming who they were transferred to -- so- called "blank assignments."
The Supreme Court agreed:
A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 ("When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them").
Judge Long's decision hit on the sensitive issue of the "assignment of mortgages in blank." In their crazed fury to aggregate and sell and then resell mortgages, many mortgage documents were transferred without explicitly naming to whom the note or mortgage was being sold.
The banks have argued (and tried to with Long) that this practice is legal. The argument being that everyone's doing it and it is standard practice in the industry. Long didn't buy it. "These blank mortgage assignments were never recorded and they were not legally recordable," he wrote in his ruling.
Where it gets interesting, is rather than take a loss and accept the ruling from a lower court - a decision that in retrospect must now seem like a good idea, in their contempt and utter lack of respect for the law, they decided to appeal to a higher authority. The Massachusetts Supreme Judicial Court, who upheld, unanimously, the lower court's decision.
We agree with the [land court] judge that the plaintiffs who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,'' the justices said in their opinion.
Under; Massachusetts law, in order to sell the borrowers home at a foreclosure auction, the foreclosing entity must actually be the "holder" of the right to foreclose contained in a borrowers' mortgage at the time the auction takes place.
"Looking into the not so distant future, I predict Judge Long's ruling will be hailed as one of the great Judicial opinions of all time, with regards to its impact," Attorney Glenn Russell said.
Essex County Register of Deeds John O'Brien, who in November requested that Attorney General Martha Coakley investigate whether major lenders had devised a scheme to avoid paying assignment fees when transferring mortgages from one entity to another, issued the following statement on Friday:
The Massachusetts Supreme Court has ruled that these Major Banks must follow the same laws as everyone else and that assignments are not optional in Massachusetts. It's obviously they didn't want the public to know what they were doing, coupled with their greed in trying to deliberately avoid the payment of the required recording fees, has placed them in the mess that they are in today.
This is a huge win for the taxpayers, this case will send shock waves throughout the MERS community as they now have been exposed, and they are going to have to get their checkbooks out and reimburse the taxpayers. These major banking conglomerates deliberate scheme to not file the proper paperwork together with the "robo-signers scandal" are the major reasons why our housing market is in the economic turmoil it is in today.
Massachusetts Attorney General Martha Coakley issued her own statement making her opinion about the financial industry clear.
We continue to suffer from the fallout of the lending crisis. There are thousands of people in our state who have lost their homes and many more still in danger of losing them. This decision affirms our belief that the onus should be on the banks and other holders of notes to follow proper procedures before initiating foreclosure on any Massachusetts homeowner.
In their careless and hasty stampede to securitize loans, the banks moved at their own peril. Whether by robo-signing or failing to properly transfer title, these financial institutions created this real estate chaos. They should bear the brunt and the cost of the remedy.
As for the spin coming from the banks as they try to deflect this, Attorney Glenn Russell had this to say on his site:
As I represented one of the parties in the Land Court cases (the LaRace family), it is very interesting to listen to the so called "experts" opine on Judge Long's ruling, saying that "at best this will delay foreclosures, but that is about it." These are uninformed and usually self-serving statements made by real estate professionals. Left unsaid is the fact that under G.L. c. 244 Section 14, in order to foreclose, the foreclosing entity must also prove that it is the holder of the borrowers mortgage note as well. The complexity of the securitization process can present difficult issues for lender to overcome.
Generally the parties involved in the securitization process of your mortgage did not follow the mandates under the prospectus supplement and pooling and servicing agreement governing the securitized trust that the note and mortgage are in. Additionally problematic for foreclosing entities, is the situation whereby the lender has already sold a property to an innocent third party (that it didn't really own, according to Judge Long's decision).
Taking into consideration that the Massachusetts Supreme Court is widely considered one of the best courts in the country, there's a good chance that other states will soon follow this decision.
Judge Long and the six jurists of the Massachusetts Supreme Court sent a very clear message to the banks on Friday: This is the law... And the law matters.
Join the hundreds of homeowners and tell your mortgage horror story and help us fight together at ShameTheBanks.org
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Reducing salt in teen diet could have big impact on future health <b>...</b>
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Many Americans are faced with the prospect of job loss. This is especially prevalent in today's economy. If you have already lost your job, are you in danger of losing your home? If so, you should know about the current mortgage foreclosure law program in your state.
How did we get ourselves into this mess? Let me give you a little background into our current situation.
America's housing bubble burst in late 2007. With this bubble burst came a crisis the likes of which our nation has never seen. Appraised values have dropped across the United States. In many western states homeowners are now in a negative equity situation. Simply stated, they owe more on their home than what it is worth.
Mortgage fraud was another component that added to our current problem. Appraisers grossly overstated the value of American homes. Speculators jumped on the market next and built huge homes. Flippers came along and purchased homes, fixed them up, and then tried to resell them. There is now an abundance of vacant homes on the market.
President Obama faced an almost insurmountable task upon taking the oath of President of the United States of America. He dove right in along with his advisors to try and fix the housing problem. President Obama hopes that each American will be able to keep their home and stop foreclosures. Here are some of the things that he has done in order to ensure that this happens:
1. $75 billion has now been set aside to help with the housing crisis. These funds are coming from our income taxes. This money will go to financial institutions and lending companies.
2. Part of the new mortgage foreclosure law will allow for loan modifications. Loan modifications will allow financial institutions to help you stay in your home. Each individual situation is taken into account. Lending companies will adjust payments and lengthen out the term of the loan as needed to help borrowers stay in their homes.
3. States are being encouraged to pass legislation to help local homeowners. For example, Michigan recently passed a law giving residents an additional 90 days to delay foreclosure proceedings. California also enacted legislation allowing for a 90 day moratorium on foreclosures. Contact your local county offices for more information on how to stop foreclosure.
4. Banks and financial institutions are being encouraged to be lender friendly. They are being asked to be patient with borrowers. They are also encouraged to be more understanding of the current financial situation that many Americans are finding themselves in.
Find out your rights as a homeowner regarding the new mortgage foreclosure law program that has been enacted in your state.
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