This action might not be possible to undo. Are you sure you want to continue?
By DAVID SEGAL Published: October 17, 2010
Amid a rising uproar over slipshod bank foreclosure practices, members of the Obama administration on Sunday expressed anger about the revelations, but urged caution as multiple investigations into the crisis unfold. In a piece posted on the Huffington Post Web site, Shaun Donovan, the secretary of the Department of Housing and Urban Development, wrote: “The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating — it’s shameful.” But, he added, “a national, blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and home buyers alike at a time when foreclosed homes make up 25 percent of home sales.” It was the second effort in two weeks by the administration to deflect pressure for a national moratorium on foreclosures. In televised comments last Sunday, David Axelrod, a senior White House adviser, urged moderation, saying there were foreclosures with valid documents “that probably should go forward.” Given the outrage over the foreclosure revelations in the last two weeks, the administration’s comments Sunday sounded like an appeal for calm and restraint. They may also signal an attempt to defuse the potential for a party rift on the issue. Some Democratic leaders, including Harry Reid, the Senate majority leader from Nevada, have supported a nationwide moratorium. On Wednesday, all 50 state attorneys general promised to conduct their own inquiries into foreclosure abuses, which center on accusations that banks cut corners in a rush to get signatures on thousands of documents required for the proceedings. That move came after a number of the country’s largest banks announced partial or total halts to foreclosures. Bank of America last week announced a moratorium on foreclosures in all 50 states, while JP Morgan Chase halted action in 41 states.
With no clear idea of the financial implications of this legal morass, bank stocks have swooned. Shares in Bank of America, for example, were off by 9.1 percent last week. Some analysts have suggested that Bank of America failed to set aside enough money to cover any number of potential liabilities — including buying back loans that were not appropriately processed — raising the prospect that it and other banks could face bigger losses related to foreclosure transactions. As the foreclosure abuses have come to light, the Obama administration has resisted calls for a more forceful response, worried that added pressure might spook the banks and hobble the broader economy. But members of the administration who weighed in on the subject on Sunday signaled that there were no plans to alter their tone or tactics. In an interview on C-Span, the chairwoman of the Federal Deposit Insurance Corporation, Sheila C. Bair, suggested the fallout from this issue might not be as severe as many now predict. “If it turns out this is just a process issue, then I don’t anticipate the exposures to be significant,” she said on “Newsmakers.” “If it turns out to be something more fundamental, then we’ll have to deal with that,” she said. “But I think we need to get all the information before we jump to any conclusions.” The full extent of the foreclosure mess is still coming into focus. Congress has called for a hearing on the subject, and the housing market in certain parts of the country has come to a near standstill. The officials on Sunday stopped short of announcing a criminal investigation, and did not suggest that one was imminent. Instead, Mr. Donovan wrote that the Financial Fraud Enforcement Task Force — a coalition of federal agencies and United States attorney’s offices — has made the foreclosure issue “priority No. 1,” adding that Attorney General Eric Holder has said that if wrongdoing was discovered by the task force, it “will take the appropriate action.” “Banks must follow the law,” Mr. Donovan wrote on The Huffington Post, “and those that haven’t should immediately fix what is wrong.” If the goal of running the article in the Huffington Post was to win over converts among its liberal readership, it did not seem to work. “We don’t need a diagnosis, Einstein. We would like your department to do something about it,” wrote one reader in the site’s comments section.
Another said that the moment for stern talk had long since passed, writing, “The time to get tough was when it first became evident that the crash was caused by unconscionable greed and criminal fraud, misfeasance, malfeasance, and hubris on the part of Wall Street.”
NEIL’S ANALYSIS & REALITY CHECK!!
DON’T SPOOK THE BANKS?
Posted on October 18, 2010 by Neil Garfield, Attorney –his commentary –not legal advice
COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary
OK, let’s assume that the “paperwork mess” can be seen as isolated in a vacuum — that it wasn’t caused by the absence of assets conforming to the requirements of the securitization documents. Let’s further assume that we waive a magic wand and allow the assignments and endorsements to be done now. The empty pools fill with all the notes and mortgages that were ever represented or claimed to be there (or are we just picking the ones that are performing?). Let’s even assume that the magic of the wand extends back for 5 years. Does that fix the problem?
Unfortunately not. Here are the problems that would still remain:
• • •
• • • •
What do we say to investors who purchased mortgage bonds that NOW the empty pools are filled and the “assets” from which their mortgage bonds allegedly derived their value are filled with receivables from mortgages, many of which have no value or are in default and have far less value than what was offered in the prospectus? What do we do with property laws that require recording transfers in the public records of the county in which the property is located? What will be the effective date of this magical fix? What happens to transactions before and after that? What happens to the taxes, fees, interest and penalties that are now due from the REMICS, securitization players and investors which remain uncollected and if collected would substantially reduce or eliminate most federal and state deficits? How will anyone identify the creditor on the obligations to investors? How will anyone identify the creditor on the obligations from borrowers? What do we do with people who already have had foreclosures dismissed and judgments entered in their favor? What happens to all the cases that were based upon documents previously submitted under the old regime, whether they are concluded or not?
• • • • • • • • • •
How do we account for the bailouts and insurance payments? What do we do with the people who made money on the bets they made having seen the defects that existed? How do we cover the people who will now lose money having made the bets based upon the defects? What do we do with all those assets whose value derived from the bets (i.e., credit default swaps etc.)? How do the banks avoid liability to the mortgage bond investors for violating basic underwriting standards? How do the banks avoid liability to the homeowner borrowers for violating basic underwriting standards? What do we do about the massive appraisal fraud that occurred when the securities were given AAA ratings? What do we do about the massive appraisal fraud that occurred when the property was dishonestly valued higher than the loan principal? Who is liable for predatory lending practices? Even assuming all 50 states want to pass laws that would retroactively and prospectively change the property and contract laws of the state to accommodate the “needs” of the securitization players, under what theory of law, constitutional or otherwise, can that be validated?
The truth is that when fraud is committed, regardless of the scale of the fraud, there is no way out. When forgery is committed, there is no way out. When documents are counterfeited, there is no way out. These illegal things were and are being done because the fundamentals of the assets were defective in addition to the procedural aspects of processing them. It’s painful. But unless you are going down the rabbit hole, you can’t start saying lead is now gold, or that nothing is something. The capital structure of the mega banks is fatally flawed by the inclusion of illusory assets and like the emperor’s new clothes, everyone seems to know it but few are willing to say anything about it for fear of sparking a panic. I hold no illusion of the chaotic implications of accepting the truth here, but we have made it through such periods before and we can do it again.
This action might not be possible to undo. Are you sure you want to continue?