Foreclosure Fraud For Dummies, 1: The Chains and the Stakes

[Joanne98]

The current wave of foreclosure fraud and the consequences for the economy are difficult to follow. As such, I’m going to write a few posts to simplify what is going on so you can follow stories as they unfold. This is very 101 level, and will include a reading list of blog posts and articles at each stage to help provide depth. (Special thanks to Yves Smith and Tom Adams for walking me through much of this.) Let’s make three charts of the chains involved in the process. The first is what is currently going on with foreclosure fraud (click through for larger).



As you can see, in judicial review states like Florida the courts require that servicers, or those who administer the bonds that are full of mortgages (securitization, residential mortgage backed securities, RMBS, are all phrases for them), say that they have everything necessary in order to have standing to bring a foreclosure. They need to have the note for a mortgage, which is supposed to be in the trust – part of the mortgage backed securities – that they administer.

What is breaking down here? In Florida, a judicial review state, it was found that one person was notarizing documents far faster than anyone could reasonably have. Forged documents necessary for the foreclosure process like the note were found. A separate court system was set up to resolve these foreclosures faster at the expense of allowing serious challenges to the documents. Here’s Smith on how kangaroo these courts look up close. Here’s WaPo on one individual and the nightmare of trying to challenge an invalid foreclosure. Keep him in mind when you hear about deadbeats and whatnot: the current system is designed to make it difficult for anyone to challenge their case.

Meet the robo-signer who kicked it off here at this WaPo story. I almost feel bad for this patsy; the real battle here is between junior and senior tranche holders, and this doofus could end up in jail in order to keep John Paulson rich. After reading about this guy I’m asking our elites to take care of their patsies better. (Can we get a Financial Patsy Fordism social contract movement going? If you are going to be a patsy for GMAC, you should be paid enough able to be able to buy GMAC’s services or something.)

http://rortybomb.wordpress.com/2010/10/08/foreclosure-fraud-for-dummies-1-the-chains-and-the-stakes/

[WhiteTara]

1. I have friends in Dallas who just lost their house in

this very same manner. With Elizabeth Warren at work, maybe they will have some recompense.

[Warpy]

2. The fallout from this is going to be a lot of housing stock

with unclear title, making it nearly impossible to sell at market value, since people will only be able to get quitclaim deeds. A lot of people who have already bought foreclosures will be notified that they have quitclaim deeds.

In turn, this will affect all other housing, driving prices down even when there is clear title to the house and the mortgage resided with either Fannie or Freddie in it entirety.

The whole system is fraud built on fraud, with people at all levels simply not doing the jobs they were supposed to do for the past 10 years or so.

The only good news is that the fraud was so blatant over the past 3 years that it was picked up relatively quickly, at least as far as bank fraud goes. The bad news is that we'll all have to pay for it and like the OP says, only the patsies will go to jail.

[fasttense]

3. Wow, what a mess.

Be very careful before you buy a home today. Make sure you get a title search and/or title insurance.

Now, I'm looking to refinance my mortgage. I'm not delinquent and have never made a late payment. But, I'm worried about the can of worms I might be opening up by trying to refinance.

[ThomCat]

4. Every bank that is eventually found to have participated in this

massive fraud, rubber stamping documents that should have been notarized, forging documents to claim ownership of loans when they have lost track of who really owned them, pushing though foreclosures without the paperwork that should have been necessary and then completing the paperwork afterward and backdating it, should all lose their corporate charters.

Every one of these banks should cease to exist because they are proving that they cannot be trusted to exist within the rules, to serve the people without becoming predators.

And Every Judge who pushed through these foreclosures focusing solely on whether payments were made, never, ever allowing people to ask if the banks were following the rules and doing things properly and correctly, they should all face serious punishments for violating the requirement to be neutral and impartial. Every one of them failed to enforce rules equally, and in fact failed to enforce any rules at all upon the banks! Those judges acted as if they might as well have been working for the banks. x(

Damn It, people should be disbarred for this shit! People are homeless because these judges didn't do even the very minimum to let people protect their rights, make sure that the banks were doing things the right way, or check that the banks even had a right to foreclose upon them.

[Doctor_J]

10. Yeah, that's going to happen

:eyes:

I'd be floored if there were even fines assessed. There will be no justice applied until we the people decide to take it.

[ThomCat]

13. I know. You are right.

I don't have any faith that the government (even this administration) will stand up for us. What they SHOULD do, isn't what they will do.

But despite that, sometimes you really do have to say what should happen, just because it is what should happen.

[South End Liberal]

5. It wasn't just the banks committing fraud!

Living in SW Florida, I watched the real estate boom - bust first hand.

When the lenders came out with 100% financing, the real estate market took off like a rocket. Soon lenders such as Bank of American, Chase, Wells Fargo and Countrywide were doing No Doc (no documentation to qualify) loans, 103% loans (add in your closing costs) and even investors were buying homes with no money down. Some mortgage brokers were faking documents or fudging information to get people qualified that had no business buying a home. Those people that shouldn't have been buying knew they were bending the rules, buy EVERYONE wanted to get in on the BIG REAL ESTATE STOCK MARKET and make a killing. So nobody said anything about what was going on.

It wasn't just the mortgage brokers at fault. Appraisers were giving more and more unrealistic appraisals so people could buy now, flip (sell) 2 months later for a big profit. Appraiser complained they had to do the unrealistic appraisals or the banks would blacklist them and they'd be out of work. At one point in late 2004 people were closing one week and flipping the homes within a week. People were writing contracts on the hoods of their cars when a new listing came on the market. Builders were holding lotteries as potential buyers were fighting to put down deposits on yet to be built homes. Everyone wanted a piece of the action, to make the big bucks off of the real estate market. Still, no one was complaining about the shoddy practices of the banks and lending system that were going on. Not a word from the various auditors and regulators that were supposed to be watching the lenders. Local governments were reaping the benefits of ever increasing property taxes and were flush with cash. Nobody complained about how this money boom was being created.

GREED RULED.

Then.......somebody pulled the switch and the 100% financing dried up. Why was behind the switch being thrown? The Federal Reserve? Not much has been printed about who actually flipped the switch. Prices started deflating, slowly at first, then rapidly as people could no longer find financing to purchase these overpriced properties. Soon people that had paid $425,000 for a home they planned to flip were stuck with a mortgage they couldn't pay on a home now worth only $260,000.

So these buyers who couldn't really afford the homes in the first place, many of whom were gambling on the real estate "stock" market, starting walking away from their mortgages. A few at first, then thousands, hundreds of thousands in SW Florida. Prices dropped to below bubble prices or even lower. The courts became clogged up with foreclosure and bankruptcy filings. People that had put no money down to buy homes basically had nothing to lose, so they packed up their belongings and mailed the banks the keys to their underwater homes.

Banks as well as home owners were now dealing with the fallout of the real estate bubble - short sales, foreclosures, REOs. Many condo complexes and homeowner associations were now dealing with abandoned properties in their communities. Special assessments had to be levied against the responsible homeowners that remained to cover the maintenance of the homes of those who had gambled and walked away.

Does it surprise me that the same big banks that created the mortgage boom with their wild west lending practices are now faking documentation to speed up the foreclosure process? No.

Banks that consider themselves too big to fail also consider themselves too big to be regulated. It's too easy for them to buy influence in Congress to "fix" their problems.

So, in the end, who really pays? Responsible homeowners like myself. People that put money down, that pay their mortgages faithfully even though their properties are no longer worth what we paid for them. People who faithfully pay their property taxes, hazard insurance and HOA fees. Because we believe you should BE RESPONSIBLE for your actions and deeds.

We are also the responsible tax payers that will ultimately pick up the tab for the irresponsibility of everyone involved in the real estate boom - bust.

So while some of you feel sorry for the homeowners that are being foreclosed upon by the banks, don't forget how those homeowners got there. And while you're at it, think a few minutes about the real victims of this entire mess - the ones who will have to pay to clean it all up.

[Po_d Mainiac]

8. Very well written...welcome to DU

Your example is a sobering reminder of what happens when there is a systemic collapse of all morals.

Those that played by the rules, were prudent, lived within their means and maybe put money away for retirement have been brutally hammered.

There will be no bailouts for those that play fair. :grr:

[Po_d Mainiac]

9. read

http://www.zerohedge.com/article/gonzalo-lira-coming-middle-class-anarchy

[maryf]

11. Yep, let's blame the people...

those who wanted to live the chimeric "American dream". How many of those suckered were really just playing the market? Not as many as you would imply...especially in less lucrative markets. You seem to say all those people were playing... are you trying to take the responsibility from the banks/brokers? Who are the experts anyway?

[Po_d Mainiac]

12. That wasn't SEL's point at all

The banksters and their shills have all gotten attention in the press (IMHO prosecutions are long overdue) but the extent of the fraud wouldn't have gotten to the stage of collapsing the economy without ready and willing accomplices.

The housing bubble was created by crooks, liars and stupid people. FED chairmen, elected officials, and banksters top the list. The fools that allowed themselves to be accomplices are still exactly that. Accomplices.
YMMV

[Dr.Phool]

6. Right now, Florida is trying to switch to Non-Judicial Foreclosure.

The banks are buying the legislation they need to cover their asses, and perpetuate the fraud.

[Po_d Mainiac]

7. You gotta be shitting! Please say it's getting ripped in the local press. n/t