Chase Bank: We Took Your House By Mistake - Our Bad

It just keeps happening - the WSJ reports on another erroneous foreclosure, this time by Chase bank.

...last Saturday, [Julio Burmudez and Magaly Cervantes] received a letter saying Chase foreclosed and the condo was sold online.

Just a few minutes after 9 a.m., on Tuesday Ms. Cervantes and Mr. Bermudez stood before the judge. In broken English, they tried to explain the situation. “There’s nothing I can do about the sale,” Judge Deehl says matter-of-factly. “You’re going to have to deal with the bank.”

They tried calling Chase many times, they said, but couldn’t get anywhere. After inquiries from The Wall Street Journal, Chase looked into the matter and discovered they made a mistake. In an email, a Chase spokesman said, “We are working to reverse the sale, and are reaching out to the customer to apologize. We have also been reviewing the application for a permanent modification.” No further detail was provided.

Just picture that, you're paying your mortgage and you get a letter from your lender saying they've SOLD your house.

As in - it's already happened. Just FYI.

I hope they sue. Where are the blood sucking litigators when you need them? Somebody needs a free house.

(Via CJR)

Oh, and Chittum tags an investigation in Florida that finds that mortgage fraud extends to summonses as well.

So, not only are foreclosure mills screwing up the essential paperwork of who owns the loan - but when they use that screwed up paperwork to begin foreclosing on property they may or may not own - they're committing fraud when they notify people they are being foreclosed on.

In [Florida resident Patrick Jeffs's] case, Circuit Judge Frederick Tygart ruled that there were two important problems with the affidavit of service that said papers were served on Oct. 16, 2007:

- The summons was allegedly served to Jeffs' mother, Jeanne Jeffs, at 10:09 a.m., but the lawsuit wasn't filed until that afternoon. "That means the summons served on Mr. Jeffs was not a summons issued by any Florida court," Tygart wrote, "and, therefore, must have been counterfeited."

- The affidavit was signed by the process server, LaTarshag Armstrong, who lives in Jacksonville, but notarized by Ruby Lee French, who lives in Tampa, "which means that Ms. Armstrong was not present when her signature was notarized."

Madness.

What is This Man Thinking?

Answer: Not a hell of a lot. I'm pretty sure this guy is certifiably crazy.

But sometimes...crazy is a hell of a thing to watch.

(H/t Danger Room)

Mortgages from MERS

The Big Picture has a guest blogger with a monster post about MERS - the umbrella corporation that owns (but does not "own") over 60 million mortgages nationwide.

MERS, a transparent means to dodge regulatory expense and delay is swiftly metastasizing into a much bigger problem.

The deposition they quote is absolutely priceless:

As the treasurer and secretary of MERS admitted in a deposition:

Q Does MERS have any salaried employees?

A No.

Q Does MERS have any employees?

A Did they ever have any? I couldn’t hear you.

Q Does MERS have any employees currently?

A No.

Q In the last five years has MERS had any
employees?

A No.

Q To whom do the officers of MERS report?

A The Board of Directors.

***

A That’s correct.

Q And in what capacity would they report to you?

A As a corporate officer. I’m the secretary.

Q As a corporate officer of what?

A Of MERS.

Q So you are the secretary of MERS, but are not
an employee of MERS?

A That’s correct.

***

Q How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?

A I don’t know that number.

Q Approximately?

A I wouldn’t even begin to be able to tell you
right now.

Q Is it in the thousands?

A Yes.

Q Have you been doing this all around the
country in every state in the country?

A Yes.

Q And all these officers I understand are unpaid
officers of MERS?

A Yes.

Q And there’s no live person who is an employee
of MERS that they report to, is that correct, who is an
employee?

[Objection]

A There are no employees of MERS.

A great walkthrough of the MERS situation. And some great snark, too.

Black is Back

Bill Black speaks with Dan Froomkin - and goes all hammer and tongs about the under reported aspects of the ongoing financial mess:

The things I think are critical and badly underreported are:

1. The astonishing amount of mortgage fraud (literally, millions of cases annually) and how it hyperinflated the bubble and led to the Great Recession.

2. The fact that these mortgage frauds were overwhelmingly due to consciously fraudulent lending practices in which the CEOs of seemingly legitimate entities used accounting tricks as their “weapon of choice” to report higher profits and get bigger bonuses. (George A. Akerlof and Paul R. Romer got it right in the title to their 1993 article: Looting: The Economic Underworld of Bankruptcy for Profit.)

Like a refreshing bucket of ice water to the head. It's just a pity we're lost in a blizzard.

(H/t CJR's Ryan Chittum, naturally)

It Gets Better

I'd read a few weeks ago about Dan Savage's YouTube LGBT outreach project It Gets Better Sounded like a flat out great idea.

Using technology to reach out to people so isolated they are willing (even preparing) to die. Savage posted a video of encouragement telling gay teens that life may be hard now, but it does get better. He invited others to share their stories.

I just got done reading a BBC article that points out that lots of people have taken him up on his invitation.

Like this guy:



From the article:

But his video soon went viral, and within weeks, more than 2,000 videos of people pouring their hearts out were uploaded from across the country and the world. The videos have been viewed more than 10 million times...

Young people and old, Mormons, Muslims and Jehovah's Witnesses, have all contributed.

One of the earliest videos posted is from Kitty in London, who admits to having harmed herself when she was younger. She wishes there had been a project like this when she was growing up in a small town.

Although Mr Savage didn't seek celebrity endorsements, numerous stars, including Neil Patrick Harris, Zachary Quinto and Chris Colfer from Glee, have recorded their own videos.

Great stuff, and what a great idea.

Two Boxes, a Bag, and a Chair

It's moving time in CorpWorld. I'm to be relocated to be closer to my project team. In theory, this is a good thing. Project teams that are scattered all over creation have communication issues - and bad communication eats time like candy.

Moving the team to a common area has been discussed ad naseum for so long - I regard the idea like some mythological creature. I'll believe it when I see it.

Well, I've seen it. Out of the blue one day, I get an all-bold-text email informing me that I will be moving in four days. I am to respond with the ID numbers of all office equipment that will be moved, indicate the number of boxes the movers should expect, and add any special needs I may have.

I have only one special need: Where the hell am I going?

This was not in all-bold email - and my manager was not informed that I was moving- so they don't know. My project leader tells me what floor I will be on - but in CorpWorld, that's like saying "Move to Cleveland. Details to follow."

I typically have a light footprint at my desk. I put crap on my walls like any office stiff, but the idea of bringing in anything other than photos from the outside world is just alien to me.

This is work, I reason. Work stuff goes here.

So I email my equipment IDs back and say I'll have two boxes of stuff. I think it's closer to 1, but might as well have a cushion.

Which leaves only three items I give a rip about.

1) Laptop
2) Laptop bag
3) Chair

This seems a bit ungrateful - after all, when I first arrived in CorpWorld, they gave me loads of stuff. I remember thinking I'd landed in Shangri-La. My old gig had small cubes and office gear you scrounged from the abandoned gear of your predecessor.

In Corpworld you got a box of new office swag delivered to your desk. The nicest pair of scissors I've ever seen is the one I got here. Yes, it's just a pair of scissors - but it's clearly a design that's been focus-group tested to seem solid and expensive. It does.

In the same box was a (black) swingline stapler and an assortment of NEW office gear. An impersonable welcome, but a welcome nonetheless.

Now - four years later, I'm shoveling it into a box along with a random collection of paperwork and office printouts.

Because - and this occurs to me only as I'm moving - I've almost never used any of this stuff. The job I do leaves very little physical evidence behind. The sum total of four years work amounts to a series of differently aligned magnetic bits on a network drive. It is entirely possible the reason I'm saving any paperwork at all is because pitching it would destroy the scant evidence I was even here.

The evidence takes up two boxes, with room to spare. These will be picked up by unseen forces and delivered to my new location.

These same forces will be moving the one asset I value above all others: My laptop. Improbably - I was given a good laptop. It has been reliable, durable, and its battery outlasts virtually every other machine I'm around. Even the case is good. Moving my laptop is not my job - so I just leave it behind and hope the process goes well.

-----------------

Not that the early intel from the move is encouraging. My pod-mate, BD, was slated to move yesterday. Being a gregarious sort of person - they went to their future desk and introduced themselves to the neighbors.

What appears to have followed is that these same neighbors smiled, shook BD's hand, and as soon as they were out of sight - ran to their manager to protest BD being stationed in their midst.

The net result was that BD shows up the following morning with pastries for their new neighbors and sees that none of their stuff has been set up: No laptop; no boxes - and the neighbors are saying in no uncertain terms that BD will not be relocating to the desk in question.

BD has no laptop - no desk - and a box full of pastries. Oh, and a meeting to present at in less than two hours. Welcome to limbo. They ended up back at their old desk, sans tech.

There was a happy ending though - I got to eat pastries.

-----------------

Stuff like that makes me think I'm about to pay for any good corporate karma I've experienced. My laptop will get broken and I'll end up with some POS Toshiba (the horror!!).

Or they'll take my chair.

I love my chair. It's a genuine, undeserved luxury item. An ergonomic masterpiece with all the trimmings. Bequeathed to me by a co-worker who had the good sense to bail before the layoffs. They got it by way of an ergonomic need. I have it by way of.... well... having it.

There's a spot on the form to indicate that I want to keep my chair. Rather than entrust my chair to unseen forces - I opt to wheel the thing up there myself.

I have to go up there early anyway. I've collected all my personal items into a single bag - I figure I'll move them myself and if there's no room - I'll just take them home.

So the afternoon finds me wheeling my chair and bag to the new digs, along with a coworker who (miracle of miracles) has a printout that says where we are supposed to go.

As everything looks the same in these buildings, I turn up the wrong aisle and run right into the Client. Now, I consider myself a grown up - but this is not a happy event. The few times I've seen the Client this past year - I have been greeted with an incredulous "Do you still work here?" (To which I always reply "What kind of 'hello' is that?").

The Client sees me and is visibly disappointed. "There goes the neighborhood," they say - but they are obviously not kidding that much.

Honestly I'm thinking I get that we're not friends, but is barely masked hostility the best you can do?.

Turns out, I'm in the wrong row - which relieves both of us, for a little bit anyway.

I roll to my new digs and there the reality is inescapable: I will be sitting at the midpoint between the desks of two other people. One has been my team leader for years - and is awesome. The other I have no idea who they are.

The personalities are beside the point, actually. I will be sitting at a spot that is in the middle of a through route and essentially looking over the shoulders of two people while they work. This sucks for everyone. I used to have my own desk, and now I'm downsized to this non-space - but more to the point even if you would argue that only one out of the three of us deserves a desk, that person should get a desk of their own. Not some half measure with me lurking over their shoulder while they work.

Cube farms are anything but private, and I've learned more about the private lives of my co-workers than I've wanted to - but there's always been some remedy to minimize the intrusion. Earbuds, or just turning more towards your screen. Now I'm literally staring over their shoulder while they work. They want to check their bank statement, they get to feel like I'm spying on them.

Which is just crap. I get the idea of locating project teams together - I'm all for it, frankly - but give them their own space, eh?

I leave the chair and the bag. I have no drawer space for office tools and no place for my files. My team leader volunteers some of their desk for my papers. It's looking more and more like I should have pitched them. Madness.

It's only temporary I remind myself. In a few months we're supposed to move again.

In the morning, I go up to meet the new neighbors - and find that none of them have arrived. It's just me and my team leader - so far. My laptop is there (yea!) and my chair is there also - alongside another chair that the unseen forces saw fit to deliver (no doubt because I said I wanted to keep my chair). I unbox my boxes into my team leader's deskspace. I make a mental note to destroy these items if I haven't referred to them by summer.

The bag of personal stuff is (still) here as well. As my laptop and its docking station take up my entire desk surface - I opt to take all the stuff home. I tape one picture of the kids to my monitor - but there's no place to hang anything up.

My Swingline and scissors go into my team leader's overhead bin - not that I'll miss them - and I put up my nametag.

And that's it. I'm unpacked.

I scope out the network printers, search in vain for a supply room, and resign myself to the new reality that is my workspace.

All set. Buds in. Time to work.

Foreclosure Mess Hitting Critial Mass

Memo to the Wall Street Journal Editorial Board:

Remember how you told us that the whole foreclosure mess was much ado over nothing?

...allowing people to live in homes without paying for them is not cost-free. That cost will be borne directly by investors in mortgage-backed securities and mortgage servicing companies, and ultimately by American taxpayers, who now stand behind 90% of new mortgages, thanks to guarantees by Fannie Mae, Freddie Mac and the Federal Housing Administration.

The bigger damage here is to the housing market, which desperately needs to find a bottom by clearing excess inventory and working through foreclosures as rapidly as possible.

WSJ Editors? This just in:

Shut. The Fuck. Up.

Seriously. Read that article. Or better still, the follow up.

Here's just the first paragraph:

CLEVELAND, Ohio -- Michael and Pamella Negrea have never been late on a mortgage payment in the 15 years they've owned their home in Eastlake. But they've been foreclosed on three times.

Tell me this kind of harm isn't worse than excess inventory cluttering up the housing market.

(H/t Ryan Chittum over at CJR)

Pirate Bay

There’s no doubt that in Somalia, crime pays—it’s about the only industry that does. -Jeffrey Gettleman

Fascinating article in the NYT Book Review about Somali Pirates - and their maddening ability to operate in that small space between what we're able to put up with - and what we're willing to do to stop them.

Once on board, the pirates go directly to the bridge, hold the crew at gunpoint, and typically lock them up in the steamy crew quarters. But Somali pirates almost never intentionally hurt their hostages. Many are governed by a strict code of conduct that fines gunmen for abusing captives. Boyah said that there was even a printed copy of these rules, a so-called “Pirate’s Handbook.” The pirates seem to realize that the minute they start harming or killing captives they give Western powers the rationale to attack their onshore bases. Until then, the world is content to play an increasingly expensive game of cat and mouse.

(H/t The Two Way)

The Baying Hounds of the Foreclosure Mess

Yowza. Lots of "I'm as Mad as Hell" articles making it into the press these days.

(Via Felix Salmon) Here's a full on rant by Joseph Tauke at the Daily Caller, One Nation Under Fraud. He does a nice walkthrough of the issues - and brings a pieces that were new to me:

• A company called DOCX offered its services to "recover." As Yves Smith pointed out - this means they created documents that the banks thought should have existed. Created from nothing - for a set price.
  
• There are tax implications for trust companies who do not acquire the mortgages they will hold within three months. Implication might be an understatement - the payments to the trust go from untaxed, to taxed at 100%. Ow.
• A class-action lawsuit was just filed in California which challenges MERS legal standing to hold mortgages. I'm thinking that might cause some re-valuing of some 60 million mortgages that list MERS as their mortgage owner.

David Kotok is cited over at The Big Picture, where he posts the anonymous rant of one of his sources in finance:

“You can endorse the note as many times as you please…but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.

“If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.

“To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.

“Read that last sentence again, please. Don’t worry, I’ll wait. “You read it again?

Good: Now you see the can of worms that’s opening up.

Put me in the camp that says there is no way government is going to allow defauting homeowners to remain in houses for free in perpetuity. Kotok's suggestion seems the most rational:

An example of a possible fix in a full blown litigation might be for the court to order the mortgage modified to the current equity value of the home, so that it a) punishes the lenders who failed to do their proper legal work on the documents, but b) does not give a home to a defaulted homeowner for free. The odds would be that the homeowner still gets foreclosed on, but does not owe additional monies to the bank. Since these are very often uncollectible judgments anyway, the court’s judgment can mete out justice fairly, not give anyone an undeserved windfall, yet move the cases forward. That is but one “just” solution, and I am confident that most courts have the sophistication to fashion an appropriate remedy.

Homeowners get a shot at staying in their homes based on better terms - lenders get a shot at owning SOMETHING of value - and we take a long, slow walk out of the woods.

Gah.

Also - from the NYT's always ass-kicking Gretchen Morgenson - a story about how Countrywide Financial kept up appearances.

Money quote from their CEO, Anthony Mozilo, describing their 80/20 loan (which allowed borrowers to finance 100% of a home's value):

“In all my years in the business, I have never seen a more toxic product,” he wrote to Mr. Sambol in an April 17, 2006, e-mail cited by the S.E.C. “With real estate values coming down ... the product will become increasingly worse.”

Nice to hear, Ant'ny - but would have been a lot more useful if we'd heard it a few years ago, no?

Window Into a Foreclosure Mill

I know, I'm all about this foreclosure stuff - but mostly because what I read I can scarcely believe.

The NYT's profile of the foreclosure case that first deposed a robo-signer in public was just awesome. CJR's Ryan Chittum says pretty much everything I wanted to say about it.

Except for this bit. There are a lot of statements in mass media and (eyeroll, please) WSJ editorials about how this whole mess is just "paperwork" or about "technicalities." I though this statement from the attorney in the NYT profile is the best takedown of that viewpoint.

He's describing the conduct of the deposed robo-signer (Stephan) - and what his conduct amounts to as a matter of law:

“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.”

That ain't no technicality. That's out and out fraud. When you picture that fraud resulting in someone losing their house, you get a better idea of what is and is not a technicality.

As a co-worker of mine pointed out - "To say that the lender not having the paperwork is a technicality - is to allow homeowners to dispute late or nonpayments by merely claiming that 'the check is in the mail - your not having the money is merely a technicality..."

Then there's WaPo's account of what happens in a foreclosure mill - one of the many law firms retained by banks to process their increasing number of foreclosures. These mills were paid by the unit, rewarded for speed - and even penalized for slow processing. It is not a pretty picture:

The law firm of David J. Stern in Plantation, Fla., for instance, assigned a team of 12 to handle 12,000 foreclosure files at once for big financial companies such as Fannie Mae, Freddie Mac and Citigroup, according to court documents. Each time a case was processed without a challenge from the homeowner, the firm was paid $1,300. It was an unusual arrangement in a legal profession that normally charges by the hour.

The office was so overwhelmed with work that managers kept notary stamps lying around for anyone to use. Bosses would often scream at each other in daily meetings for "files not moving fast enough," Tammie Lou Kapusta, the senior paralegal in charge of the operation, said in a deposition Sept. 22 for state law enforcement officials who are conducting a fraud investigation into the firm. In 2009 alone, Stern's law firm handled over 70,000 foreclosures.

"The girls would come out on the floor not knowing what they were doing," Kapusta said. "Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to the original documents."

It's not just quantity that was the problem:

To keep up with the crush of foreclosures, document processors and mortgage service firms rushed to hire anyone they could - hair stylists, Wal-Mart clerks, assembly-line workers who made blinds - and gave them key roles in their foreclosure departments without formal training, according to court papers.

A number of these employees have testified that they did not really know what a mortgage was, couldn't define "affidavit," and knew they were lying when they signed documents related to foreclosures, according to depositions of 150 employees for mortgage companies taken by the law firm run by Ticktin, the Florida lawyer.

Picture that lady from the Amazing Race who thought London was a country processing your mortgage paperwork. In a hurry.

Ye gods.

MERS, the Black Hole of the Title Transfer World

In reading about the ongoing foreclosure mess, one acronym keeps coming up: MERS. That would be the Mortgage Electronic Registration System, Inc. - a Delaware based company that (for a fee) will agree to be listed as the mortgage owner in county records.

If that sounds odd to you - you don't know the half of it.

By way of Felix Salmon - I started reading a paper by the University of Cincinnati Law Review's Christopher L. Peterson: Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System.

Yeah, yeah, I know - but it's actually fascinating reading.

Here are the highlights. MERS is basically an umbrella corporation that interposes itself between normal title transfer registrations (and their resulting fees), maintains its own records of those transactions, and allows lenders to assume the role of MERS employees when they need to foreclose.

Here's a visual aid (from the paper):

This is a normal series of title transfers for a mortgage.
At number 1 is the original mortage where the homeowner and the loan originator make a deal.
At 2 - is where that bank sells the loan to some other bank or broker
At 3 is where that bank or broker sells the loan to Trust or special purpose vehicle (SPV) so it can be sold to large numbers of investors.

At each of these steps you'll notice that the transfer of the note (the actual contract saying what property is involved and who owes what to whom) is recorded in the county register (each time requiring a fee).

It should suprise no one that county records are frequently written ledgers on dusty old shelves.
But they are public records and rigorously maintained to avoid conflicting claims on the same piece of land.
Prof. Peterson goes on at length about the notoriously anal retentive standards of title registration. Title insurance exists to cover what error remains - but as anyone who as been to a real estate closing will tell you - these folks sweat the details.

This takes time, and annoys bloated financial industry types - who want to avoid paying fees and having to wait for the clerk's office to process their transfer.

So, they created a go between - MERS.

In its ultimate form, picture above, MERS is listed on the mortgage. They track subsequent transfers of the title (which are not recorded by the county) and no further fees are paid to the county no matter how many times the title changes hands. MERS remains on county record of the sale.

This is problematic for lots of reasons, but you can see why at first this system worked. The county and the homeowner see nothing unusual - because from where they are sitting nothing changes. The county records the original sale - and never sees the later deals. The homeowner is told to send checks to a servicing agency at the time of the deal, and that does not change.

MERS has served its primary purposes: cutting transaction costs and speeding up the process. It's been wildly successful:

With the rating agencies' stamp of approval, the use of MERS exploded in the early 2000s. By late 2002, MERS had recorded its name, instead of the actual assignee or mortgagee, in ten million residential home mortgages. As the subprime mortgage refinancing boom took off, MERS registered an average of 21,000 loans on its system per day. Only a year later, the total number of loans recorded in MERS's name doubled to twenty million. By May of 2007, this number had tripled again to sixty million loans. Sixty percent of all new mortgage loan originations are recorded under MERS's name, and more than half of the nation's existing residential loans are recorded under MERS's name.

MERS maintains a database of the subsequent transactions, which is available to its member institutions (but not to the public).

And that's the first problem. State laws require that subsequent sales of a property be recorded in THEIR records - and MERS is making that not happen.
MERS would (and does) say that this is not necessary, that MERS is still on the mortgage of record and that has not changed.

Peterson points out that this is bull$hit - because the laws are looking for the role you actually play - not what you call yourself. In other words, you can call yourself the mortgage holder - but unless you lent the homeowner money, are owed payments, or have the right to foreclose on their property - you're nobody. Here's Peterson again:

In thousands of cases around the country MERS's counsel continues to recite the statement that "MERS holds legal title to the mortgage" as though it were the fmance equivalent of some tantric mantra. Yet any meaningful economic analysis of this claim exposes it as a simple falsehood. MERS does not own the lien because it does not own the proceeds of the sale rendering disposition of the property seized in exercising the lien.

That's why MERS is increasingly in the news these days. The MERS system works well when loans get paid, even when a few don't. But when loans start to blow up left and right - sooner or later somebody's going to ask "Who the hell are these MERS guys? And how come they don't have the note?"

And that's when MERS guys will show up and say they're here to foreclose on a property. What will be weird about them is that they will look exactly like the guys who work for the XYZ Trust that the loan was sold to. This is because the MERS guys aren't MERS guys at all. Oh, they'll say they are employees of MERS, they'll even have paperwork that will say they are a "Secretary and Vice President of MERS" - but they've never been paid a cent by MERS. The opposite is true. They pay MERS so they can (and I'm not making this up - read the paper) enter their names into a web form on MERS's website and print out credentials for the express purpose of appearing in a foreclosure proceeding as agents of MERS.

Why would they do this?

Primarily, because MERS is listed on the mortgage of record. If a foreclosure proceeding was begun by XYZ Trust, they'd have to explain why XYZ trust isn't listed on the county register as owning the property. MERS does.

Better still, XYZ Trust - were they working as MERS legal designates under their own name - would fall under federal regulation for debt collection. Crucially, federal debt collection regs do not apply to original creditors. By pretending to be MERS agents at time of foreclosure, the XYZ Trust can assert they are the original creditor and go at a homeowner with hammer and tongs without fear of federal intervention.

So MERS operates as a flag of convenience for lenders at two critical points in the deal: first, as a way to avoid paying fees - and second as a way to avoid regulations when it comes to foreclosure proceedings.

Peterson points out another unfortunate service MERS affords its less than savory members:

When thinly capitalized originators churned out more and more securitized loans, claims against those lenders accumulated, while their assets did not. Once the projected costs of disgruntled investor recourse demands and borrower predatory lending lawsuits exceeded the projected costs of bankruptcy and reformation under a new corporate guise, originator management would predictably discard their corporate identity. 206 MERS made this easier by . offering a super-generic placeholder that transcended. the aborted life of lenders. MERS reassured investors that even when an originator goes bankrupt, county property records would remain unaffected and foreclosure could proceed apace. By serving as the true mortgagee's proxy in recording and foreclosure, MERS abetted a fly-bynight, pump-and-dump, no-accountability model of structured mortgage fmance.

All of this is over and above the lack of paperwork foolishness> The MERS database of transactions may assist creditors and homeowners in figuring out what loans went where - but only if they are permitted to see it.

More to the point - the appearance of MERS in county records as the mortgage holder of record is essentially a roadblock to public inquiry. Somebody sells you a house and the former owner was listed as MERS - your title insurance company is going to have a harder time figuring out if MERS really holds title, or if they've sold it to someone who has since gone bankrupt or resold it, or god knows what.

Which is not to say the end is nigh, but as Prof. Peterson points out in detail - when a private record system is used to supplant a public one - all kinds of bad things can occur.

I'll leave a summation of some of those things to wiser minds like Barry.

This is Where Things Get Positively Evil

After the housing bubble, the credit crisis, and the foreclosure mess, is there something else looming out there to derail our financial system?

If you believe Felix, the answer is yes - and the money quote in this post's title comes from him:

You thought the foreclosure mess was bad? You’re right about that. But it gets so much worse once you start adding in a whole bunch of parallel messes in the world of mortgage bonds. For instance, as Tracy Alloway says, mortgage-bond documentation generally says that if more than a minuscule proportion of notes in a mortgage pool weren’t properly transferred, then the trustee for the bondholders can force the investment bank who put the deal together to repurchase the mortgages. And it’s looking very much as though none of the notes were properly transferred.

But that’s not even the biggest potential problem facing the investment banks who put these deals together. It also turns out that there’s a pretty strong case that they lied to the investors in many if not most of these deals.

Felix trots out a report by Clayton Holdings that shows the high percentage of mortgages that weren't passing underwriting standards. These were mortgages destined to be part of Mortgage Backed Securities.

Felix points out that Clayton rejected more than half of a set of loans bound for a Citigroup MBS. Rejected sounds good until you realize that this was a mere sampling of the loans involved. Meaning if half of the sample was rejected - there's a very good chance that a similar percentage of the remaining loans deserved to be rejected.

Did this stop the deal?

NoOOooooo

Instead Citi leans on the sellers for a better price - and does the deal anyway. The billion dollar question is did Citi properly inform its investors of this highly important information adequately enough?

Here's Felix (emphasis in original):

Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors, who were kept in the dark about that fact.

Investors? You may now contact the attorney of your choice.

Two More on Foreclosures

Barry goes to town:

The fraud that has come to light [involves legally mandated document verification] is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase).

It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.

This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).

The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).

And here was an excellent summary/overview of the foreclosure mess from John Carney of CNBC:

Get ready to hear the phrase “pig through the python” a lot. For example, “We need to get the pig through the python very quickly so that the market can be free of uncertainty.”

This is the favorite metaphor of bankers discussing the foreclosure crisis. The idea is that anything that slows down foreclosures will unsteady the housing market. There’s a lot of truth to this. Buyers will hesitate to bid on foreclosure sales if they are not confident the foreclosure is legitimate. Other buyers may worry that the lack of foreclosure sales in an area is a false indicator of the health of the local housing market.

Banks concerned about the recovery values of their mortgage portfolios and higher capital requirements, may pull back lending even further than they already have. In short, this could be the beginning of the second leg of the credit crunch.

(H/t Felix)

Show Me the Mortgage

Some really great stuff coming out on the emerging scandal of foreclosure industry fraud.

Rortybomb has a great two parter explaining what has broken down and why it matters. A winning segment:

In the event, with respect to any Mortgage Loan, that such original or copy of any document submitted for recordation to the appropriate public recording office is not so delivered to the Trustee within 180 days of the applicable Original Purchase Date as specified in the Purchase Agreement, the Trustee shall notify the Depositor and the Depositor shall take or cause to be taken such remedial actions under the Purchase Agreement as may be permitted to be taken thereunder, including without limitation, if applicable, the repurchase by the Responsible Party of such Mortgage Loan.

Read that again through to the end and use the chart to follow the chain. If more than 0.01% (!) of mortgage notes weren’t properly transferred, the trust can force the sponsor (in this case, Goldman Sachs) to repurchase the bad mortgages. And this is just one contract for one part of the ~$2.6 trillion dollar mortgage backed securities market. How’s that for systemic risk? Especially if this is found to be widespread….

Ow. (H/t to Ritholtz)

CJR's Dean Starkman brings a foreclosure linkfest our way.

...as [HuffPo's] Mike Hudson...reminds us, the fraud factories on the back end of the mortgage process are only an extension of the mortgage boiler rooms on the front end that generated millions of what turn out to be the financial equivalent of Ford Pintos and Chevy Chevettes.

Manna From Heaven

It's a truism of home ownership that the prior inhabitants of your home were wrong about a great many things. Our last home had lousy windows, bad attic ventilation and drainage issues that boggled my mind. Didn't these people have EYES?? I would exclaim. HOW could they let this go??

The answer of course is, easily. Selling the house is easier than fixing a great many problems. I solved our old houses drainage by band-aiding it until I could sell. Months after we sold, I ended up getting a tour of the old house from the new owner. The guy was in the process of completely renovating the kitchen and wanted me to see the new stairs he'd installed. As an aside he mentioned fixing the backyard drainage (by drilling through over six feet of clay - running two 4" pipes to the front and installing a french drain). He rattled off the numbers on how much water would pile up in the backyard after a typical deluge (something in the tens of thousands of gallons) and mentioned that after he finished, his neighbors no longer got water in their basements.

Then he showed me the table he was making out of the scrap wood of the old kitchen door and leftover stair parts.

I want to be that guy. The guy who leaves a house in a condition where the new owners say Wow, we SO lucked out! The last owners really fixed this place up."

Better than we found it. Just once.

So we've made some reasonable headway with our current place. Did the kitchen - got the landscaping/drainage out of the way - but there's been a looming issue we've been putting off because it's fabulously expensive.

The roof.

Much like our old place, we were told by our inspector that the roof would need to be replaced in the short term (3-5 years) and two winters have demonstrated beyond any doubt that we have inadequate ventillation.

In our heads, a re-roof job was going to cost us twelve grand or more. Not because we'd done any research, but because our experience has taught us that life sucks and twelve large seemed like the minimum number it would take to utterly suck.

We began getting bids. We called The Man (from our kitchen job) and a few others and the numbers were considerably better. Still expensive - but something we could dig deep to do. We joke to our friends how we're praying for a hailstorm before we get going, but we're going to have to get this done. Our roof is not merely old and badly ventilated, it leaks. A leak that was disclosed as a "fixed" issue by the prior owners - but clearly and obviously has been leaking for some time.

I keep picturing dad's disapproval for my having put in a kitchen without fixing the roof first. Roof! FIRST! You want your fancy kitchen to get wet? Somehow, this is the opposite of motivation. I put off scheduling the job until after the Norway trip. Now here we are in fall, and I'm yet to get something scheduled.

And then... magic:

That, my friends - is a hailstone. One of surely thousands that hurled themselves against my house a few weeks ago. Sounded like a freight train, woke us in the middle of the night. I was positively giddy at the thought that this could help defray the costs of a roof.

With our luck, it wouldn't be much (the roof is old) but anything is something, right?

In the morning, I eyeballed the roof and saw nothing out of order. Downer. The roof vents had serious dents, but I don't know if that means they'd pay for the vent replacement or what. Having never put in a claim for this sort of thing - ya kinda expect the worst.

The adjuster came last Saturday - I wasn't going to be home, but he was early so I was there when he started.

"Sir?" He was over on the side of my house.

I walked over thinking of the disastrous state of my side lawn - and waiting for him to tell me "you can't claim this."

Instead, he points to a length of vinyl rain gutter that looked like it had chunks bitten off of it.

"That's hail there. And this siding is totalled."

WTF?

At this point two thoughts run through my head:

1) I haven't been on this side of my house in three weeks?; and
2) Score!!!!!

I'm unsure what the proper decorum is for dealing with an adjuster. Will he be offended if I whoop with joy and ride horsey in a circle right there? Should I wait??

I opt to focus on reaction one: "Wow! If I'd have seen those holes - I would have called sooner!"

The Adjuster takes a piece of chalk and rubs it sideways across my siding. What should (on undamaged siding) look like a wide blue band looks like polka dots with a blue background.

Siding. Not even what I was calling about or hoping for. The back of my house is the same. Blue with polka dots, over and over.

He goes up on the roof and I have to get the boy ready for his soccer game. We're heading out and I call up "How's it look?"

He snorts at me, as if to say: You really need to ask?

"Totalled. Good time for new roof, too, this one's about done. Good thing you have a replacement policy, eh?"

I have a replacement policy? I am soOOOoooo resisting the urge to go all horsey in a circle.

He throws me a few pieces of the shingles to drive home the point that my roof is kaput and there's no better time to get a new one - especially one that my insurance will pay for.

I bite back euphoria and thank him for his time. "Wow," is the best I can do.

Incredibly, my slow rolling on this particular item has paid off. If we'd have done the roof first thing, we'd have been out of pocket and probably had to cut corners on the kitchen.

Instead, we're going to reroof, ventilate, fix the damn leak and reside with insulation.

Procrastination: Boo yah, baby!

Reading the Fine Print

Okay, first off - if you haven't seen this, watch this as a warm up.




Mortgages were written with crap paperwork that are now being used to foreclose on people's houses. Stewart presents this as a "Sophie's Choice" scenario: we could allow the banks to foreclose using BS paperwork - or we could stop foreclosures and blow huge holes in the finances of the companies who sold securities that were supposedly backed by this paperwork.

That's the soundbite version, complete with flashy visuals.

Here's Yves Smith for the dry, analytical version:

That puts a cloud over the entire US RMBS market, the biggest asset class in the world. This paper was sold as secured; the ability to offset the cost of borrower defaults by seizing and selling his house is critical to the value of the instruments. And if no assets were conveyed to a particular trust by closing, an even uglier possibility exists: under New York law, which was elected by RMBS as governing law for the trust, it would be considered to be “unfunded”, which means it does not exist.

But Yves Smith has a marvelous pushback on they way Stewart (and the financial press) are framing this (emphasis mine):

Now the rather sick irony is that this monster screw-up probably affects Fannie and Freddie paper only indirectly; presumably, it will a given that this will be treated as if the government guarantee covers this little mess. The Obama Administration is the last bunch of folks that will look into the fine print to see if Fannie and Freddie ought to eat this liability.

I’ll admit I have not looked into the Fannie/Freddie procedures on this one, but I’d have trouble believing their rules would include having the government guarantee extend to operational screw ups that prevent losses on guaranteed mortgages being relieved by foreclosures. I’d have to believe they have putback procedures which will not be applied because the consequences would be too devastating to Team Obama’s best friend, the banking industry.

So Frannie and Freddie not pushing the losses related to foreclosures back to the banks would be yet another back door bailout.

In other words:

• If a consumer doesn't read the paperwork, they are bound by the unbreakable bonds of the contract they signed. Tough bounce.
• If a corporation is rescued from bankruptcy owes bonuses to is employees - those bonuses must be paid. There was a contract.
• But if a financial institution ignored proper paperwork in a rush to make money, and everything blew up in its face - the contracts that it signed with secondary lenders (like Freddie and Fannie) that require underwriting and due diligence must be ignored - because otherwise it would end up costing a corporation money.

And banks apparently have veto power on contracts that cost them money.

What a crock of sh!t.

Brace for another backdoor bailout.

(H/t Felix Salmon and if you're in the mood to have your mind blown, by all means read the NC posts he links to. They are simply incredible.)

Inside Job

Charles Ferguson: Why do you think there isn't a more systematic investigation being undertaken?

Nouriel Roubini: Because then you would find the culprits.

Added to my list of must see movies... Inside Job



(H/t Felix Salmon)

Frak You, Right Back

If you haven't heard this guy's story - you should.

(From the trailer for Gasland)

But there's a new chapter to this story that's worth telling. One of the offending companies, Cabot Oil & Gas, is being called on the carpet for destroying people's water supply - and they're digging in their heels (emphasis mine).

"We have had people here in Pennsylvania without safe drinking water for nearly two years," said John Hanger, head of Pennsylvania's [Department of Environmental Protection]. "That is totally unacceptable. It is reprehensible. We have given Cabot every opportunity to resolve this matter."

But Cabot has pushed back against the agency, taking out a full-page ad this week in several local newspapers and calling plans to construct the water system "unreasonable, unprecedented ... and unfair."

...

A group of Dimock residents — among them, a former Cabot employee and several residents whose wells had caught fire — filed a lawsuit last year against the company for the contamination and the health risks it could pose to them.

Cabot mentioned the lawsuit in its ad this week, adding that it "does not believe it caused these conditions and intends to fight these allegations through its scientific findings."

(Via ProPublica)

Writing the Great American ePub

There's one less excuse for writing your novel, courtesy of Barnes & Noble.

PubIt! another entry into the self publishing ePub world - dares you to write, upload and sell your work. No start up fees (just a good amount of personal data) and voila! Your work is global, baby!

Just make sure you give it a good editorial pass before you upload. QA is nonexistent.

You wonder how B&N will help users sift through the flood of mediocrity to reach the good stuff.

Still, you wonder who will be the first ePub writer to make a name for themselves outside of the traditional channels....

(Via Crave Blog)

On the List of Sentences I Didn't Expect to Read...

This would appear somewhere near the top:

The New Orleans police officers charged with shooting Henry Glover and burning his body might not be allowed to use the defense that they were just following orders if federal prosecutors get their way.

Ye gods.

The Latest Development in the War on Vampires

Electricity vampires that is...

Behold, Belkin's partial solution to electronic appliances that draw power for no reason when they have been turned off:

It's a plug that cuts off all power after a set interval (30 min, 3 hours, or 6 hours).

The good: Put it on the end of your Wii plug - and save $25 bucks a year.

The bad: Why do I have to buy something in order to NOT use electricity?

(H/t Good blog)

Lies For Sale

I so love this:

In the constantly-contradicting world of tabloid journalism, is anyone reliable? [Gawker] analyzed 20 months of reported break-ups, marriages, and pregnancies to tabulate our first-ever Tabloid Reality Index, batting averages for America's five major celebrity glossies and the rumors they monger.

I just love to see their batting averages virtually never rise above 50% (and usually hang out south of 25%).

(H/t CJR)

Game Changer

Coming to a garage sale near you.

This is a seriously good idea:

To become a credit card merchant, you have to buy the card-reading equipment, which costs several hundred dollars. You generally pay a setup fee, and you commit to a one- or two-year contract with the processing company. You pay $15 to $25 a month, and minimum transaction fees of $25 a month, even if you had no sales at all.

The Square Up system, on the other hand, eliminates that stuff. All of it. It makes the barrier to entry into the credit card world so low, there’s virtually nothing to stop you, the little guy, from taking the leap.

Sir Terry Pratchett is Way Cooler Than You

How much cooler?

This much cooler:

(Via Geekosystem)