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Dear States Attorneys General –
In Part 1 of the Mortgage and Foreclosure Wrongdoing Road Map, I explained all the choke points for fraud, forgery and illegal activity that exist in the electronic mortgage registration system and in the Residential Mortgage Backed Securities schemes.
You’ll note that many of these securities were bought by municipalities to fund their operations and by pension funds to fund, well, pensions.
If you found widespread fraud in the administration of the many of the underlying mortgages which were under foreclosure and discovered as well that the document trail for many of these loans has been so severely compromised that the loans may have no value at all, you may be very concerned that the pension funds and municipalities’ investments may be harmed.
This may not be a primary concern as the harm has already happened and you can’t make it much worse. The entire RMBS system — from origination through securitization, ending in individual foreclosures — was all about generating money for the banks and servicers through fees, not about generating money for the investors through repayment of principal and interest.
If you want to help the investors, get the banks to enter into consent decrees involving cramdown, i.e. mandatory write down of principle and interest to produce a monthly payment that is no more than 25-30% of the homeowner’s income. This will put a firm floor under the downward spiraling housing market and restore liquidity to that market; home owners and potential home buyers will feel more at ease knowing that the housing market will be more stable and prices less likely to crash.
It will also allow the investors a much larger return than foreclosure, where most of the auction price is eaten up with fees and expenses leaving the investors with pennies today and nothing in the future.
Forcing foreclosure without any good faith attempt at mortgage modification — not that bait-and-switch con known as HAMP — benefits the servicers at the expense of the pension funds and other innocent investors. Under such conflict of interest, and on such a grand scale, it might even be that the bad faith decision to seek foreclosure itself is chargable as fraud.
Oh, and I hope you are aware this is not confined to GMAC, right?
17 Comments
Hi Cynthia,
I think your advice is too late.
Here it is in plainspeak:
The question is, what in FACT is the policy of the United States? There have been some lawsuits which claimed that, because the U.S. has an ownership interest in HAMP banks, that these banks are in effect the United States, and that therefore homeowners have a Due Process right to modification.
The reason the modifications have failed is that the U.S. has arbitrarily set 31% of net income as the figure you have to pay on your mortgage. But is that in FACT what it takes to successfully modify, and do you have a RIGHT to a modification which in FACT minimizes the risk that you will default?
Other cases argued that since there was language in the legislation appearing to give the Treasury discretion as whether it modified or not, there was no right in HAMP.
However, in Huxtable v. Geithner the judge refused to dismiss on the grounds of having no standing (no right to participate in HAMP), when the plaintiff alleged government ownership share in the banks. It is ownership interest which makes the banks into the United States. If the banks have a policy to modify, so does the U.S., and therefore you have a due process entitlement to a modification which in FACT minimizes the risk of housing loss. I haven’t seen anyone litigating the 31%, but it is clearly much too high. The only problem has been that people have been too timid to insist that part of their due process right is to have a modification which in FACT minimizes the risk of default, instead of accepting, once again, what the United States SAYS is the right figure.
There also now appears to be no question that homeowners have a right to participate on a third party beneficiary theory regarding the contracts between the United States and servicers (there is the Marques) case. Read the Lorenz opinion online. There was some doubt about it, but his reasoning is much the better reasoning. It is very clear now.
Thus, whatever the United States SAYS its policy is (their discretion, not your enforceable right), the FACTS of what the United States has done, say that you have a right to have your mortgage modified in a way which will minimize your ever defaulting on it.
OK. Next, the FACT is that the United States reduces the principal outstanding, if a HAMP loan is approved.
Next, the FACT is that you don’t pay income tax on that reduction.
Next (and here you should look at Reggie Middleton’s chart on his site), the FACT is that the return/chargeoffs line is rapidly descending toward zero.
Reggie’s work really put the icing on the cake, and together with the other facts, lets us know that the U.S. has a policy, and it also has a lot of self-serving BS behind which it hides its policy.
The long and short of it is that the FACTS show that the United States is in the process of forgiving/having forgiven mortgage debt. They have pencilled it out, and the result is that the only policy consistent with the FACTSis that homeowners have no more home mortgage debt.
The U.S. has let itself get into the position of having to keep people in their homes, acknowledging huge losses, and then being in the position of having no interest in foreclosing.
I think the breakthrough is Reggie Middleton’s analysis. He has always been right in the past, and he is VERY careful. If his signs point to zero return for the U.S., there is zero return. And if he knows it, the U.S. knows it perfectly well.
Once lawyers put all these pieces together, they will sue to quiet title, claiming that the United States has in fact–regardless of what the United States SAYS–forgiven their clients’ mortgage debt. So please hand back the title. And ultimately they will win.
This thing is proceeding very rapidly. The U.S. is trying to play a double game. It can’t let all this housing be foreclosed on, and at the same time it can’t grant that it is game over and that there is no money to be made by foreclosing. So what does it do? It hides its policy, trying to hide the bad loans on bank books on the one hand and on the other implicating itself with contracts and ownership stakes in keeping people in their houses.
But that’s not the homeowners’ problem. The question is what is in FACT the policy of the U.S., not, what does the U.S. SAY the policy is. The question now is, how will the U.S. spin this, because if it comes out–which it is already starting to do–that there is no economic incentive to foreclose, then everyone will simply stop paying on mortgages. I suspect the government is now trying to devise some tax policy, either to “force” people to keep paying who can pay, or to set up some “incentive” for them to pay.
But the facts show that it really is game over. Soon every state will have banned home foreclosures, and it is not a matter of simply cleaning up the documents and then we can move forward. In the interim, people are going to put 2 and 2 together and realize they never have to leave and never have to pay another dime in home mortgage.
Get used to the fact that “mortgage” has nothing to do with “economics.”
Guess what you’re saying is the gummint is playing Kal-Toh and not saying so?
Look forward to Cynthia’s response.
misspelled principal.
love u cynthia
Cynthia, you are amazing and your reporting and commentary far surpasses anything in the mainstream media, to their complete shame.
I have been linking your stories far and wide and hope they get the traction and notice they deserve as well as perhaps giving a jolt to start the first little cog turning in the mills of the gods . . .
I’m very surprised by your comment. That anyone is forgiving mortgages is news to me. You mention Reggie something, is that your sole source? Link it please.
Ms. C, Herself, very interesting article(s), & great work, grrrl!
Recently we found and read an article that suggested there is a unique clause in non-agency – not FMac&FMae, but Wall Street investment bank, securitizations, that has immense implications for you, and U.S., too.
What he contended was that buried in the paperwork that created the investment securities was a provision that permitted/enabled the “servicer” to: 1) not have to immediately pay off the owners of the securities after a foreclosure, 2) then be able to “invest” the foreclosure proceeds as they deem fit – wherever & whatever, 3) and then to retain ALL of the profits made on those investments, and 4) to bill the investors/owners for ALL expenses for servicing, foreclosing and investing.
Res ipsa loquitor – the fraud speaks for itself.
As important, to that argument, are a few factoids: 1) most of those 02-07 securitized RE home loans were subprime &/V ARMs; 2) most were made in the sand states = Cal, Fla, Nev & AZ; 3) most of the “originations” were done by Countrywide/BoA, WAMU/Chase & Wichovia/WellsF; 4)many of the securitized RE home loan packages were SOLD by those same bank’s investment units; 5)most of those RE loans are still “serviced” by those same banks; and 6) the banks/servicers with the worst HARP modifications are those same banks.
Add to that record of deceit, MORE than: a) half of ALL underwater RE loan are; b) half of ALL foreclosures are; c) half of ALL bankruptcies are; d) half of all short sales and strategic defaults are, and e)half of ALL current mortgage, credit card & student loan delinquencies are…, in those same sand states.
The loss in home equity to each of U.S. has been estimated at over US$ 11 Trillion. But, that does NOT include the equal or greater loss to the “investor/owners”, which has yet to be booked and written off. Nor does it account for the “Jumbo loan” and above sized RE property losses.
The Good News, Ms C, is that with the new, improved IRS rules for writing off (y)our losses, we can look forward and backwards to never paying taxes again. Was this not a great country, or what!!!
Ms C, Herself, may we proffer you something totally different?
Fraud in the inducement.
While your point about pension fund losses is very important, you need to mention – bcuz we know you are aware of it – the effects of the credit default swaps that were sold to the same pension funds to “protect” them from any possible losses.
When we were cutting taxes and not paying into pension funds adequately, “they” decided to offset the declining contributions with higher yield investments. But, that might involve more risk.
So, the investment banksters “packaged” higher yield RE securized home loans with CDO’s that would insulate the pension plans from ANY and ALL losses. They could NOT loose!!!
To match that fraud, dollar for dollar, they also packaged new, improved lower interest Muni bond offerings with CDO’s that would reduce local govt costs of borrowing. How to do more with less.
That was then, this is now.
Tax revenues are down, and almost all the CDO’s have imploded. Some local Govts owe more on their CDO obligations than the property of the whole towns/districts are worth. And, the “unfunded”, non-dischargable in BK debt is even higher than it was.
As Alfred E. Newman oft told U.S.: “What me worry!”
Thanks for the series Cynthia.
Some interesting comments above.
How would it be possible to address this on this scale? What would be the first step?
It’s at http://www.boombustblog.com. The entry is below. You can forget about 31%. It’s amazing to me that anyone cowtowed to that ridiculous figure up to now. In the end, it will probably be realized (and ordered by a judge) that minimization of the risk of housing loss is 5% of monthly takehome pay, not the absurd, corrupt 31%. But it will go much further than that, because embedded in the minimization of risk analysis, even by HAMP, is the recognition that the maintenance of other important facts have to be taken into account when determining what, in FACT, is the minimization of the risk of mortgage default: medical care and education, among other things.
The litigation on mortgages is just beginning. Suffice it to say that mortgages are no longer part of the economy–they are now social policy.
Bloomberg reports US Home Prices Fall Again:
This should be of no surprise to anyone that reads the BoomBust or follows me regularly. I’ve been warning about the crash for over 5 years now, and those who feel we are nearing a bottom need to take out their spreadsheets and plug in some historical numbers.
Paying Subscribers are welcome to download the mortgage and credit template that was used in the original US (Don’t) Stress (US) tests, otherwise known as SCAP. We have taken the liberty to update the template on a periodic basis for the government, since it appears they are not forcing the banks to do so SCAP Assumptions Updated_09082010 Web Version. This model shows a weakness in the Case Shiller method of following prices in that the CS doesn’t include investment properties (usually the first to go into foreclosure), new construction, and REOs. As a matter of fact, Case Shiller actually looked slightly rosy as of late. The following graphs were generated from SCAP Assumptions Updated_09082010 Web Version..
Notice how the federal numbers show falls where CS doesn’t. Signs on the street tell me the federal numbers are correct.
As a matter of fact, things are so bad that I believe banks will have a perverse incentive to actually walk away. Now wouldn’t that be something??? Next, we take a look into the home builder that makes more money doing distressed investing than it does building and selling homes.
[modnote: please provide a link to quoted material.]
I’m not really sure what you were trying to say. It would help a great deal if you provided links to the sources you cite.
I don’t see the situation as being nearly so evolved as you claim. The mere fact that somebody has instituted suit making various claims against the government, doesn’t mean they are going to win.
I think you are ahead of yourself.
I agree with your entire comment, except it not limited to the sand states. NYS is riddled with it, and Ohio, Penn. lots of places
Nice catch. I love it.
How to address it on such scale? A state AG could bring a criminal case and use the 100 most egregious examples to prove the point.
Or, the state AG could bring a class action suit–like the tobacco litigations.
No, I’m not ahead of myself, you’re behind the times, as I said before. Just go online and look at the Order (the first Order) in Huxtable v. Geithner. Is the Judge’s reasoning sound in finding grounds for Due Process in the ownership interest the United States has in banks? The answer is Yes, so you have a due process right to HAMP modification which in FACT minimizes the risk of default.
Then go online and look at Marques v. Wells Fargo. Is the judge’s reasoning sound? The answer is Yes, so you have the same right on third party beneficiary grounds.
Why is it so difficult to find out what I–and the judges–are saying? It isn’t, you just don’t want to do your homework. Sad. If you’re going to deal with an area which involves the law, you better find out about the law, even if you don’t have a law degree.
You’re one of those people who go along with whatever the U.S. says is policy, instead of looking at the facts behind the policy statements in order to find out what in FACT the policy is. Had it ever occurred to you that perhaps the United States is pursuing a policy different from the one it is telling us it is following?
“What you were trying to say?” What I was trying to say, and did say, is that if you are being foreclosed on, don’t wait. Sue in United States District Court and plead you have the right to a HAMP mortgage modification which in FACT minimizes the risk of default (instead of bowing before the ridiculous 31% number), and in the alternative, plead that the United States has extinguished your debt. And don’t forget to throw in the fraud allegations in even starting foreclosure proceedings against you.
If you know what YOU are trying to say, tell me why you have passed over the 31% figure in UTTER silence. That’s a lying figure to begin with. Indeed, it could well be argued–and probably will be–that the United States knows that at that high a figure, mortgage modifications will not be successful.
Cynthia, fwiw, this was published in one of my areas newspapers:
“HOUSING: Researchers say exotic loans not to blame for foreclosure crisis ”
“But the crisis cannot be blamed on those borrowers, nor on mortgage brokers or real estate agents, according to a report from the Joint Center for Housing Studies of Harvard University, also released Monday.
Instead, authors Eric Belsky and Nela Richardson said that lenders made the mistake of opening up loans to people who had already proven themselves unable to pay.”
“Had it ever occurred to you that perhaps the United States is pursuing a policy different from the one it is telling us it is following? “; that’s standard U.S. policy.
cmon jrysk, i asked you for a specific link. it takes a while to read a whole website. no?