Blog on the Run: Reloaded

Sunday, June 20, 2010 11:43 pm

Foreclosing on foreclosure

Filed under: Evil,I want my money back. — Lex @ 11:43 pm
Tags: , ,

One obvious potential problem with the “securitization” — the packaging of mortages and selling them as financial instruments — is: Who really owns the mortgaged property?

Oddly enough, a lot of judges want to know and are not entertaining kindly attempts by banks to fudge their answers:

The backlash is intensifying against banks and mortgage servicers that try to foreclose on homes without all their ducks in a row.

Because the notes were often sold and resold during the boom years, many financial companies lost track of the documents. Now, legal officials are accusing companies of forging the documents needed to reclaim the properties.

On Monday, the Florida Attorney General’s Office said it was investigating the use of “bogus assignment” documents by Lender Processing Services Inc. and its former parent, Fidelity National Financial Inc. And last week a state judge in Florida ordered a hearing to determine whether M&T Bank Corp. should be charged with fraud after it changed the assignment of a mortgage note for one borrower three separate times.

“Mortgage assignments are being created out of whole cloth just for the purposes of showing a transfer from one entity to another,” said James Kowalski Jr., an attorney in Jacksonville, Fla., who represents the borrower in the M&T case.

Now, I should point out that I am not arguing that lien holders shouldn’t be paid what they’re owed. But I’ll argue all day that if property “owners” have to have their paperwork in a row, so should lien holders.

Cynthia Kouril of Firedoglake comments:

You know, if banks had just dealt honestly with people about modifying the mortgages to reset the principle [sic] to reflect the post bubble value of those houses, and the post bailout interest rate, a whole slew of home owners could have been kept in their homes, with a payment they could afford. By doing this, using the money that the TAXPAYERS gave them for this very purpose –Hello, remember TARP?—housing prices would have stabilized, neighborhoods would not be in freefall and bankers, and the investors in those mortgage backed securities, would be enjoying a steady stream of income for years to come. The pittance they will get for the house at foreclosure auction is a tiny fraction of the amount they would have collected over the life of those modified mortgages.

That’s the point nobody wants to talk about now: TARP was intended to help banks extend credit, keep home owners in their homes and write down the values of the bubble-priced assets on their books without having to go bankrupt. But, of course, the money came with no regulatory or oversight strings attached, as federal money always seems to do when it’s going to corporations, and so the money went elsewhere, like proprietary trading and executive bonuses.

Moreover, when the emphasis changed from originating profitable mortages to originating mortages, period, collecting the origination fees and then selling them just as fast as possible, any idiot could have told you what was going to happen:

What really gets me, is the audacity of the greed. The entire system is set up to generate fees, rather than income from the repayment of the mortgages. So, not only is the homeowner suffering, but the municipalities and pension funds that foolishly invested in those mortgage backed securities are losing, too, because the trustees and others who owe them a fiduciary duty are ripping them off for more servicing fees and foreclosure costs instead of taking proper steps to secure an ongoing, though somewhat diminished, income stream.

Those of you who are fond of Big Questions might like to ponder this one: Why does no one take his fiduciary responsibilities seriously anymore? And this one: Why are there no serious real-life consequences for breach of fiduciary responsibility?

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