Tag: banks

Ilana hasn’t given up yet:

UPDATE IV (Oct. 19): STILL ABOUT DEADBEATS. From all the reports so far, FBN’s Gerri Willis’ being the latest, it is as I said. The defaulters owe boatloads of money. The bankers bungled the paper work in a manner that verges on the criminal. The reality, in as much as property rights go, comports with my distillation on this post and the one linked to it, “Financial Paperwork Crisis (No Conspiracy Thinking, Please).”

Here is the evidence of a large-scale conspiracy that Ilana was requesting. Needless to say, there is plenty more that can be presented if necessary, since this doesn’t even involve Bank of America: “In mid-2006, I discovered that over 60 percent of these mortgages purchased and sold were defective,” [Richard M.] Bowen, former chief underwriter for Citigroup’s consumer-lending group testified on April 7 before the Financial Crisis Inquiry Commission created by Congress. “Defective mortgages increased during 2007 to over 80 percent of production.”

I’m still waiting for Ilana to explain how the defects in these “defective mortgages” which made up over 80% of the $1 trillion in mortgages being purchased and sold each year by Citi, have anything to do with “deadbeats”. And at what point does it become irrational to decry “conspiracy thinking” when more and more people within the banking industry are being forced to admit that both the law and the chain of title were intentionally broken literally millions of times? How many billions of dollars in put-back claims must be filed and/or settled before skeptics are compelled to admit that a) there was a large-scale conspiracy to break the law, and b) it is not about deadbeats and the foreclosure fraud is merely a consequence of the preceding mortgage transference fraud?

Moreover, I note that the definition of “conspiracy” is “a combination of persons for a secret, unlawful, or evil purpose.” Note that the conjunction is “or”, not “and”. There was nothing “secret” about what the banks did in creating MERS or securitizing the mortgages; these were matters that explicitly involved public filings as well as expensively tasteful brochures. We can set aside the question of whether what they did was “evil” or not; there is no need to dive into the tangential morass of a morality debate here. But there is no question that what a rather large combination of people in the banking industry are confirmed to have done was “unlawful”. So, to describe the mass mortgage fraud as a genuine and proven conspiracy is correct and it is logically incorrect to make a rhetorical appeal to “Conspiracy Thinking” in order to argue against the observable facts of the matter. There is nothing theoretical about this particular conspiracy when it is already a matter of public record.

One can quite reasonably argue about the eventual economic and political impact of the fallout from the exposure of the conspiracy. Karl Denninger and I think it will be serious and near-term, Mike Shedlock and Calculated Risk believe it will be moderate and play out over time. But at this point, no one informed on the situation can pretend that there was not a large conspiracy to illegally transfer mortgage titles and sell fraudulent securities that preceded the consequent foreclosure-related frauds.

No doubt it’s very satisfying to pontificate about the sanctity of contracts and the moral importance of paying one’s debts when considering the weighty question of whether mortgage bank fraud is outweighs the pecuniary sin of a defaulting homeowner in borrowing more money than they could reasonably afford. They didn’t make the payments, they should lose the house to somebody, right? What does any of this have to do with you? After all, you have always made all of the necessary payments on your mortgage because you are a fine, morally upstanding, and responsible debtor.

Of course, you may look at the matter just a little differently once you discover that not owing money to a bank doesn’t prevent it from home seizing and selling your home. R sent the following email:

Tonight, my girlfriend comes home to her house in Honolulu Hawaii only to find a foreclosure notice and public auction notice on November 19th, at the First District Court of Honolulu Hawaii.

Only problem is that Bank of America posted the notice. And her mortgage is with Wells-Fargo Bank.

And she’s never been served notice at all. Neither has her attorney.

But her home is going up for sale on the 19th of November.. just like that. Perhaps this fraud needs to be known more, just before election day on November 2nd, 2010, because I really believe that most Americans do NOT know what is going on.

Of course, this can’t possibly happen to you. Surely this guy’s girlfriend has somehow done something to justify having her home put up for auction. She’s probably late on her payments to Wells Fargo or perhaps Wells Fargo sold the mortgage to Bank of America and she should have been paying them. Or maybe Hawaii still has some crazy property laws left over from the reign of Queen Liliuokalani. Because everyone knows they can’t do that, and anyhow, your bank is a really good bank, they aren’t like the evil giant banks, and they were so nice and helpful when that last little detail came up before closing. So obviously nothing like this could ever happen to you….

There are four economics blogs which I follow on a regular basis, the Market Ticker, Mish, the Mises Institute, and Calculated Risk. They’re all considerably different, but CR is arguably the most useful in keeping track of the mainstream perspective because he does such a great job of publishing statistical updates and because he subscribes to more conventional economic theory than I do. So, I was curious as to why CR had been paying so little attention to the Great Mortgage Fraud, especially since he places particular importance on the housing sector as an engine for driving an economy out of recession. After reading his first post on the matter which indicated an opinion which appeared to downplay the issue, I shot him an email suggesting that he might not be quite as up on the burning issue du jour as is his usual wont; he was well ahead of the curve on both the housing bubble and the bank failures. So, it was with more than my usual interest that I read his latest post on the subject:

I fully support these investigations, but I’ve downplayed “foreclosure-gate” because I thought the impact on housing and the economy would be minor – depending of course on the length of the foreclosure delays. Many other people disagree with my view – and please remember I’m not always right.

It is important to separate out two other issues. The first is MERS (the “Mortgage Electronic Registration System”). There are many interesting issues with MERS – and plenty of litigation – but my feeling is that the defects are curable, and these issues will have little impact on the economy. Since I think the impact will be minor, once again I’ve mostly been ignoring these issues.

The third issue is repurchase requests based on Reps and Warranties for mortgages. This is an important story for the banks. I’ve been mentioning the increasing push-backs from the GSEs (Fannie and Freddie). That isn’t a new story. The important development today was that several major bond investors are pressuring BofA to repurchase defective mortgages. Although I’ve been following this story, I haven’t mentioned it – and some people think I’ve been “behind the curve”. Could be.

CR is completely correct to note the multiple facets of the situation. Unlike most of those who have minimized the issue or taken the banking industry’s defense line, he clearly recognizes that the issue is not limited to foreclosures and deadbeat borrowers. And his reasoning is perfectly sound, for as he adds in a comment: “I know others think the impact will be huge… I think they are wrong, especially about foreclosure-gate and MERS. The push-backs will take time and I expect the losses will be spread over several years, and just doesn’t seem like a “blowup” event.”

The reason I disagree with CR’s conclusion is three-fold. First, because his econonomic perspective is essentially a mainstream Samuelsonian one, he doesn’t take the economic impact of the continued decline in bank credit into account even though he is the Internet’s primary chronicler of bank failure and the latest FDIC shenanigans. (NB: I use CR as the source for updating my own bank failure spreadsheets.) Not being an Austrian, he is looking at economic indicators that are presently much less dire than credit indicators such as TOTLL and Z1. The economic environment is already precarious, which reduces the probability of the consequences of the mass bank fraud being contained to the financial sector.

Second, I don’t think the security push-backs are going to take time and be spread out over several years because the big banks are not only on the verge of bankruptcy, they are already insolvent. More importantly, all of the counter-parties to whom reimbursement are owed already know this. Therefore, they are not going to be content to wait and see the matter resolved slowly by federal regulators in the manner preferred by the big banks and their managerial staffs because every victim of the grand securities fraud is going to want to be first in line to get their money back lest they not receive anything at all.

And third, the amount of criminal wrongdoing here is far too excessive, far too obvious, and far too jurisdictionally widespread to permit it to be ignored under the banking industry’s usual “get out of prosecution free” card. (There is no other word for it, not when Wachovia got away scot-free after admitting that they laundered billions in Mexican drug money.) While there is no question that the federal agencies are not going to aggressively prosecute a series of frauds that they clearly permitted and even abetted, the same is not true of the agencies of the states whose tax coffers and pension funds were ripped off by the voracious banksters. And the states have more investigators as well as more autonomy than the SEC and other federal agencies. In short, I suspect the situation is beyond Wall Street-owned Washington’s ability to firewall it.

But, we will see. This is a complex matter and intelligent minds can reasonably disagree. If CR is ultimately correct, I won’t hesitate to congratulate him on his perspicacity. But I have to admit, I expect to be congratulating the Market Ticker instead.

Which is why it is totally inexplicable why the New York Fed and PIMCO are now requesting a repurchase of mortgages sold to them by Bank of America. And why the Federal Home Loan Bank of Chicago is suing BOA:

According to a letter to investors from President and CEO of the FHLBC, Matthew Feldman, the securities listed in the complaint totaled more than $4.3 billion and were all rated triple-A when purchased. “We contend that the quality of the loans that comprise the pools of securities cited in today’s complaints was inconsistent with the description in the pre-purchase documents prepared by the underwriters and issuers of the securities,” Feldman wrote.

I suspect it is probably safe to declare that the big Wave Two rally that began in March 2009 and was led by the financial stocks has passed its peak now. This should also mark a surge in USD strength contra nearly everyone’s expectations.

From an anonymous mortgage broker: “There are blatant efforts by several of the giant mortgage-security selling institutions to intentionally “fail to find” the relevant loan documentation. We have seen multiple clients in September and October who either face foreclosure or had been foreclosed and WERE NOT EVEN LATE on their mortgage payments!”

After looking into these serious allegations, I have been reliably informed that these sorts of unfortunate accidents are bound to happen from time to time given how many millions of mortgages are outstanding.  I have no doubt these isolated incidents were mere clerical errors and that the bank(s) involved will be pleased to sort out any mistakes that were made as well as making all appropriate restitutionary actions that are required by the law.  Which, I hasten to note, the mortgage banks totally respect.

In completely unrelated news, I would like to announce that I recently decided to begin accepting blog advertising. The cost for a Sponsored Post begins at €1 million.

In which we discuss the Great MBS/Foreclosure Fraud. Keep in mind that Ilana and I are not only WND colleagues, but like-minded libertarians as well, so please note that this isn’t the least bit personal on either side. I think Ilana’s objections are important and illustrative of the challenge in accepting the existence of an institutional fraud of this magnitude, hence this detailed response.

It must be obvious to readers of this site that I would strongly disagree with the case my colleague Vox Day makes against the strict rule of law and for grand-conspiracy….

Distilled, the argument for all-out sweetness and love for the foreclosed upon is that, because the banks are embroiled in the fractional reserve system, they should suffer the worst of fates.

That’s like saying that because the legal system is generally corrupt, murderers should go free; or because an owner who sells a parcel of land partakes in the property tax theft, the buyer should not have to pay him. Or because businesses often act like exuberant idiots during a phase of the business cycle—some as offenders; others as victims—their customers need not pay them. And on and on.

This is chaos theory; create chaos, and out of it, something good may come. And never mind that not all bankers are crooks; that not all of them understand the theoretical aspects of the system in which they are embroiled; and that not nearly enough bad things are said about the defaulters.

As to Vox’s point, it does not follow from “the mere fact of their focus on the borrowing parties rather than the banks,” that this “is proof that they are intentionally evading the real issue.”

Not in logic, at least.

Finally, the laws of economics are natural laws. Whoever is involved, it is categorically good that responsible buyers get to pick up foreclosed properties, and that the mortgage miasma is cleared and cleansed away.

To be honest, I completely missed her statement about my supposed opposition to “the strict rule of law”, otherwise I would have addressed that in my following email by pointing out that the “strict rule of law” completely forbade everything that the mortgage banks did in ignoring the land title system in favor of pushing 65 million mortgage transfers through MERS in only six years instead. But here was my actual response to her:

With all due respect, it is clear you don’t understand the issues at stake in the “foreclosure fraud” issue. You’re missing the relevant point because you’re only looking at the second wave of the frauds, rather than the first. The greater portion of the fraud occurred long before the very first defaulting homeowner was late on his first payment. There is absolutely no question – none – that the banks are
guilty of massive amounts of criminal and tax fraud prior to their subsequent commitment of the foreclosure-related frauds.

What happened was that the banks wanted to create mortgage-backed securities, but selling the securities legally required transferring the notes and titles as per the land title system. But that would have cost a lot in filing fees and all but eliminated their profits, so they simply ignored the law, created an electronic registry called MERS, and thereby ripped off large financial investors by selling worthless paper. The foreclosure-based fraud about which you have such doubts is merely the cover-up that resulted from the way in which a need to foreclose exposed the initial fraud.

I haven’t gotten permission from Ilana yet to post her email verbatim, but I will summarize it as follows, (and either replace the summary or correct it depending upon her preference.)

“We have a 3-stage process, not a 2-stage process. Bankers, most of whom really don’t know squat about Austrian theory, were compelled by law to grant rotten loans to the protected species of the politicians. They invented a product to do that.

Sounds quite creative; sounds like the unintended consequences of politics.

I began reading the column you recommended. It begins with a one-case study as its proof. This is statistically worse than insignificant. It graduates to assertion. Then adds another one-case study. You may be right, but the data in the column you provided does not prove your case.

Understand: I am not a partisan here; I’m not pro-banker. So far, I just don’t see good evidence for your case.”

This was my response:

I’m afraid you’re still a little too under the influence of the banking industry’s defense theory. You are repeating some of their talking points and focusing on some irrelevant side issues instead of the salient matters. What is irrelevant about the “one-case study” and the anecdotes being “statistically worse than insignificant” is that they are merely illustrative examples of an easily provable fact that applies to more than 60 million mortgages. It is quite clear that you do not know what the local land title laws are, (and being a Canadian by way of South Africa, I certainly wouldn’t expect you to; I’ve been in Europe for a decade and I have absolutely no idea what the local property laws are), so your attempt to use general principles to try theorizing around that gap in your knowledge is doomed to failure.

It’s not even possible for you to suggest that “the unintended consequences of politics” compelled the bankers to provide the loans to the favored classes because a) most of the relevant land title laws involved are older than the United States; they derive from the English common law, b) the MBS-selling preceded most of the laws that “compelled” them, and b) the number of loans that were fraudulently transferred far exceed the number of mortages sold that required any compelling. To quote Wikipedia: “What the case law is consistently holding is that MERS cannot do what it has purported to do (and has done in what appears to be over sixty (60) million mortgage transactions nationally).” The lawyers for MERS have even admitted this in court! “During the course of the hearing, the Court repeatedly raised the “MERS as nominee” issues to counsel for the Defendants, [MERS and OneWestBank] with said counsel finally admitting, upon repeated inquiry by the Court, that MERS cannot transfer promissory notes.”

So, this isn’t a case of bad politicians causing bad behavior by the banks. In fact, the bad politicians, the bad bureaucrats, and some of the bad state and federal courts have been repeatedly attempting to cover for the bad behavior by the banks. The banks are absolutely not on the side of freedom and capitalism here; they are deeply and actively involved in the corrupt politics themselves. Natural law also points to the guilt of the banks; they forgave the mortgage debt through their actions, then attempted to retroactively claim they had not forgiven it.

On a related, note, Jim Sinclair shares some interesting information.

I had dinner with my former partner, then lead director of and CEO of Bear Stearns. I could not contain myself so I asked him why he did so much business in OTC derivatives which were certain to bankrupt them. The answer I got was it was more than 50% of their profit. The right answer should have been it was more than 80% of their earnings.

UPDATE I: Ilana wrote back to note that she intends to further contemplate the matter. She added:

“You know very well that my problem with your argument, Vox, is that it teeters on grand conspiracy. One of your readers in the comments section picked this up quite well. The state and its cronies preside over the disintegration of civil society, but they do so reflexively, rather than as a matter of collusion and conspiracy.”

Perhaps it does teeter on grand conspiracy. But as I have pointed out in the past, calling something conspiracy doesn’t make it go away and the undeniable fact is that 65 million mortgages were transferred through MERS since 2004. Furthermore, it is highly probable that many of them, and perhaps even all 65 million, were transferred illegally according to laws that predate the Carter administration by decades, if not centuries. My skepticism is well known to readers and critics alike and it NEVER occurred to me that the mortgage fraud could possibly run this deep and this wide. I was sure that the reason the banks were mysteriously reluctant to foreclose upon properties in default was because doing so would expose their accounting irregularities with regards to the book value of the defaulting properties. It almost defies imagination that any bank would ever knowingly destroy the paper trail that is the only security for its interest in the loans it has made. And yet, we now know that many of them, including all the big, bailed-out banks, did.