Are the Banks doing Foreclosures properly?

by Tom Tousignant

in Blog

Recent MSNBC clip highlights another mess with housing – Banks are foreclosing on homeowners without accurate paperwork or sometimes without even notifying the homeowner:

Transcript Highlights:

>> Most mortgages are backed by the government. in order for a bank to get that sort of backing, it must fit two criteria. one, borrowers must be verified by the banks and their agents, as qualified. and two, the lenders must fill out paperwork accurately, and make sure that when the home’s title changes hands, so, too, does the documentation. but during the past two decades, a whole lot of the time, that never happened. why is that? for the banks, the motive is simple — money. banks profited by packaging and selling the toxic home loans and profited again, by betting against those same securities. a bet in essence that a fraudulent loan they made wouldn’t be paid back. but why would politicians allow this? the simple answer? to stay in office. giving people houses makes them happier. and makes local politicians more popular. at the same time, the financial services sector, the banks, making all the money, were donating to the political campaigns. in 2008, the financial sector was the top donor to both democratic and republican candidates. so where are all of these fraudulent loans now?

>> you own them, at the federal reserve, fannie mae and freddie mac. the banks and politicians will do whatever it takes to prevent a legitimate foreclosure proceeding, one that would easily reveal the lack of qualifications and bad documentations in the loans the banks have been selling and giving to the government for years. and finally, the last and most important why — why isn’t our government dealing with it now? perhaps because that would reveal systematic criminal and civil fraud at the highest levels of america’s banks and political corridors. we know who’s fighting for the banks with all the money going to our politicians. again, from the president on down the line. no one has given more money to all of our politicians than the financial services industry.

Carl Denyinger author of the “the market ticker” who caught my attention today, with his fiery open letter to california democrats on this very topic. one of the founders of the tea party movement going back to this original issue a few years ago. jennifer, i’ll begin with you. can you give us a sense of what you see as the problem on the foreclosure side right now in your own state?

>>This is clear evidence that these securities, the core of all the foreclosure and housing mess, are fatally defective. you say there’s no solution to this problem that is both lawful and yet preserves the fiction that all is well with this edifice. and yet at the same time protect the chain of title in housing and the rights of both homeowners and securities buyers. it’s almost as if you’re saying we can keep the system we have, but then we have to forfeit our sense of property rights in this country. or if we want to reestablish property rights in this country, we have to deal with the fraud or the malpractice that is at the core of this, is that a fair interpretation, carl?

>> yeah, that’s essentially the problem. what’s happened here, dylan is that these people at the inception of all of these loans, knew they weren’t any good. we now have this, it’s been discussed in fcic hearings and yet, these securities were packaged into these specific types of conduits. the problem is the irs regulations saying you have to convey the paperwork. and in addition to that, there are specific standards for the amount of nonperforming assets or things that you could foreseeably see a default on, that can go into these structures. you can’t get there from here, when 30 to 90% of these notes are found not to be in conformens. and that’s the testimony we’ve had over the last six months. so you can’t go back and unbreak this egg. it’s already happened. we now have either a bunch of these structures that were put together with defective instruments, or the instruments were never conveyed in the first place. and because the dates have passed where you can add things into these structures, there is no fix for this without violating the tax preference. i don’t know how you solve this problem. the only thing i can come up with is force this bad paper back on to the originators, repay the mbs holders, who bought these things thinking they were good securities and actually bought an empty box.

>> i’m going to interrupt you just because we’re dealing with — i want to make sure that anybody who is watching this can understand what it is you’re saying. the point is that the people who bought a lot of these securities was your pension fund, the teachers’ pension fund, the judges’ pension fund, the police and firefighters pension fund. and those pension funds were sold these mortgages on belief and verification, both in the ratings agencies, from the banks and implicitly from the government, that those loans were good. and when we find out that the loans were not good, through these foreclosure processes that they’re trying to avoid, you either have to pay back the pension that you’ve raped, or you have to ignore it and continue to drive the system the way that it’s being driven. but that doesn’t seem to be politically viable much longer. if you look at this, jennifer, how much longer can we avoid dealing with the core issue of banks making money by selling nonconfirming loans to the government by the trillion, and then going forward, betting on their collapse and donating to politicians who say it’s okay?

>> well this was part of the reason why i made the referral to the justice department. i knew it was happening across state lines. and i also knew that the notary issue was really the tip of the iceberg. that when you start to look at how sloppy the banks have been at keeping their chains of title in line. they asked consumers and tell consumers they have to follow the letter of the contract between the bank and the consumer. whether it’s a credit card or whether it’s a home loan. at the very least the banks should have to follow the letter of the law. in this case i knew that we would find situations where there was not only sloppy notarization, but actual lapses and gaps that really leave the final person who is bringing the foreclosure action in a position where it may not even be good and where clearly, you’ve got a homeowner who may want to find out who really is the party in interest. or have an attorney for them looking into the predatory lending and it’s very difficult to get to the bottom of that.

>> karl, if you were to look at the core issue, that the savings of america was the piggy bank that this type of product was being sold to. that the savings of the america whether it’s new york state pension managers. are the ones that got stuck with a lot of this paper. not to mention fannie, freddie and now the federal reserve. if you were to look at that core issue, and then you were to look at the understandable anger, not just from the tea party, which i know is, a constituency that you were catalytic to at its beginning. but across the entire political spectrum. why do you think we haven’t seen the organized focus from the tea party on this issue in a way that is effective, and for that matter, an organized focus from anybodylse who is pissed off, whether they’re a tea partier or not?

>> dylan, you have to look at it from the standpoint, you don’t present false documents if you have real ones. the real ones are gone, they were intentionally obscured. if we stant to look at this and what if we find out that of these $6 trillion of securities that are outstanding right now, half or more of them are defective. you put them all on the banks and they all blow up. we have a resolution authority under frank dodd, how about if we use it?

>> can i leave it right there. i would love to see him use it. especially if this is all fraud.

>> i hope you both come back and i hope that the two of you remain as vigilant on this issue of the compromising of property rights in this country as i intend to. and if you’re watching this program, please take the time to either rewatch the segment, or if you can’t believe everything that you have just heard and you’re interested in learning more about it or have the opportunity to reread it, to understand it, i understand it is technical. i advise you to check out not only the market ticker in and karl’s open letter, but a blog that i posted today to the front page of the ” huffington post,” that explains how deep-seeded this problem is in country, property rights gone wrong. if the banks have stuck a bunch of fraudulent loans at the federal reserve, fannie and freddie and are trying to cover it up with foreclosure fraud, please, lets us see the justice department do something to defend the american people as opposed to the largest banks in this country. for a start.

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