If our readers understand the title problem correctly, and I have no reason to think otherwise, foreclosures will probably grind to a halt for a while. Maybe a long while. It seems to depend on whether Congress can start writing ex post facto laws that apply to property rights. Maybe they can (it seems like they just tried), but that is a pretty central component of our whole democratic experiment. Imagine a Kelo decision that hoses two thirds of Americans who own a house. Or their lenders! Someone will pay for Goldman’s screwup, and few outside the head injury recovery ward expect it to be Goldman.
The trick is that we do kind of need the foreclosure process. If the bank can’t reclaim failing loans then borrowers don’t have a very strong counterincentive to stop paying their mortgage. Not everyone will gamble right away that the banks won’t come back with goons and padlocks, but a lot of people will. Money isn’t exactly falling out of trees right now.
So. If a foreclosure moratorium has to happen, then the number of people not paying their mortgage has to go up. Maybe way up, depending on how indefinite this moratorium looks.
Think I might invest in hand tools and non-perishable food.
Davis X. Machina
IANAL, but: Ex-post-facto criminal laws, no.
Legislation affecting who has, has not, a cause for civil proceedings, with retrospective force, etc. happens not infrequently, and ditto for administrative law – agency regs and so forth. Limited in scope by the takings clause, due process clause, etc. etc.
Was anyone suggesting a nationwide, federally enforced foreclosure moratorium? Such a thing is theoretically possible through the commerce clause, but I doubt anyone in Congress or the Administration has the stomach for the fight. Individual states have to sort this out, and it is not even clear (to me, at least) that the securitization problems are even very relevant in non-judicial foreclosure states.
Either that or all the times I have seen nominee trusts foreclose on behalf of their unnamed beneficiaries have been invalid foreclosures. I doubt that is the case.
Another way to look at it, from a positive standpoint:
People not paying their mortgages are going to be doing SOMETHING with the money. If they’re paying other bills, that’s all to the good. Likewise, if they’re buying goods instead, they’ll be adding some demand to the economy.
Not much, but it’s something.
Actually in this case I prefer if it’s done at the state level. The state authorities seem more willing to act aggressively on behalf of homeowners than the federal do.
this is corruption on a staggering scale — for the life of me, i can’t imagine why anyone would invest in this country’s markets. and that the squid has walked away is infuriating.
If they enact a nationwide moratorium on foreclosures I’ll strongly consider stopping paying on my mortgage and just bank the cash. Screw these bankers. They wouldn’t hesitate to screw me over if I missed a payment. Turnabout is fair play.
@bkny: Do squid walk?
In truth, a foreclosure moratorium would probably do a lot of good. Yes, the banks would finally have to start recognizing the losses they’ve incurred on properties, and yes, that would cause a great deal of pain to them and to our credit markets.
Problem is, there’s ample evidence at this point that they’ve gone Galt on the need to take that hit, and intend to continue doing so. The only thing which will bring them to the negotiating table to deal with the crisis their past sloppiness created will be a recognition of the fact that the houses they can foreclose upon are valueless.
Good for you! This is the kind of think that has made America Great! Do what is best for me, screw what is right!
Except for the Too Big Too Fail crowd.
Couple of things: no one is saying to completely eradicate the foreclosure process forever and ever. It appears we are heading towards a dire situation here that was not created by the borrower,er, homeowner, but by the banksters and a lot of corrupt and greedy entities. So perhaps we do need a moratorium to stop the bleeding and to catch our breaths.
This I don’t really understand. Sounds like a double negative wrapped around the ‘when did you stop beating your wife’ argument.
What I think you’re saying is: if there is no foreclosure process, then why would we pay our mortgages? Because that is the responsible thing to do and most of us will continue to do so regardless. If I knew my house would not be foreclosed on for the next year if I didn’t pay my mortgage, it would matter not. I would continue to pay as would 99% of homeowners. I really hate this argument. I don’t really need the threat of jail to stop me from committing a crime.
Isn’t the real issue here the fact that banks have learned absolutely nothing from the previous crisis — that cutting corners does not and can not pay? Have the last two years really accomplished nothing?
This is exactly the problem with the deepwater drilling moratorium. All anyone bitches about is the halt to drilling and how that might affect them. Nowhere have I heard any acknowledgment that the moratorium was brought about because the oil companies couldn’t have been bothered to come up with an actual safety plan in the event of a spill.
The other side: One of my brothers was out of work and was nearing foreclosure with only three payments left on his house. The bank would make zero accommodation for his situation and only wanted the house. After close to 20 years worth of payments! Luckily, another brother was able to lend him the cash to pay it in full and be done.
I do understand what a contract is, buy why should anyone honor anything when the other side is nothing more than shyster scum?
I don’t really need the threat of jail to stop me from committing a crime
That disqualifies you from becoming a Republican.
I have a feeling that foreclosure is only a fraction of this problem. As I understand it, the problem with all these foreclosures is the paper trails of clear titles to the homes in question have been lost. Which is bad, possibly catastrophic for the recovery of the real estate market any time soon.
But what really bothers me is what about the paper trails for all the homes whose mortgages have been sliced and diced over the past several years that are NOT in foreclosure. What about their clear titles? I think this situation has a real chance of tanking the nation’s entire real estate market. How can property legally change hands when there’s no clear title to it?
When you figure that homes are–or at least were–the primary investment of most families that could presage an absolutely devastating destruction of wealth at a time when jobs have disappeared, wages are declining, and the nation is on the razor’s edge of depression.
A national moratorium on foreclosures…and banks aren’t lending now. I’m way out of my league here–I know this–but in the spirit of it being irresponsible not to speculate, if there is a legitimate buzz towards such an action, wouldn’t the country’s banks gird their lending loins even more than they’re doing now? How could this impact people out shopping for a first time buyer loan?
“If I knew my house would not be foreclosed on for the next year if I didn’t pay my mortgage, it would matter not. I would continue to pay as would 99% of homeowners.”
That is a big helping of confidence in the honorableness of American Joe Homeowner.
Maybe I just haven’t had enough coffee yet.
I’m having trouble buying that this will be a major catastrophe, but I’m open to correction. It seems to me that as long as there is enough paperwork to show intended conveyances and encumbrances of property, any technical problems with the paperwork can be overcome.
Congress or the states might have to create some kind of steamlined process for clearing cloudy titles. Messy and expensive–maybe. But total catasrophe? My instincts tell me no.
Maybe it’s a good time to get money out of the ‘markets’.
Money will still be owed, bankruptcies will go up and up, many properties will be unsellable, lenders will be wary, consumers will have to come up with large downpayments, many homeowners will lose lots of money, and those who stayed out of the housing market will not suffer that much.
That’s the scenario if there’s a moratorium, if there isn’t a moratorium, if there’s a fast process, if there’s a slowed-down process, and even if foreclosures are banned forever. This housing market was a giant stupid bubble and it’s going to take years for it to pop.
Much of our economy is tied up in houses, much of our consumer confidence is connected to people being contented with home-ownership, and a lot of our banks and lenders know just how fucked up things are right now. This economy is broken, and people are simultaneously demanding a government bail out and a free-market solution. As usual, we’re getting the worst of each.
“Goldman Sachs” is a very non-snarky tag line for you. Shouldn’t it be something like “Soldman Gachs”?
More seriously, this is what I never understood about the housing bubble- when people bought homes at inflated prices with 0 down, it’s not like the excess money disappeared, it went to the sellers or the developer, who then presumably did something with it; same with cash-out refis. Think of it as a giant stimulus that went into effect 5 years ago and now we’re paying the bill- but who’s left holding the bag? Either the gov’t through the GSEs or the banksters through cramdown & blown foreclosures. I know which I’d prefer.
Black powder firearms and crossbows might come in handy. I wonder what suits of chain mail go for lately.
This is also the result of the way the bailout was conducted. Why should the banksters learn anything about running their business on a sound basis? What they learn is that the should run it in a way that maximizes short term profits and executive bonuses, consequences be damned! What they learn, or at least believe at the moment, is that the Federal Reserve and Treasury will be bail them out as long as they don’t piss the others in the club off (see Bear Stearns and Lehman). Not only will the Goverment make good their losses, but will then rig the system so that the can make more money then ever.
However, I note that it starting to dawn on the political and economic elites that one of the prime reasons the Democrats are in trouble is not because our President is an elitist anti-colonialist from Kenay, but because it appears that voting for the bailout is politically toxic when two years after TARP the country has near 10% official unemployment and near 18% U6. And the problem goes back 15 years when the intellectual center of gravity of the Democartic Party on economic issues was captured by Robert Rubin and his acolytes, Summers and Geithner, and with both President Clinton and Secretary Clinton and most of the Congressional leadership trusting these three “wisemen.” But, as Brad DeLong says, the Cossacks work for the Tzar, so Democrats adopted Bush’s, Paulson’s, and Geithner’s baby and made it their own.
The problem isn’t the paperwork issues caused by foreclosure mills.
The problem is the paperwork issues caused by the last decade or so in Bush-era lending practices, and especially by rolling up packs of mortgages into “securitized debt products.”
It’s not that banks don’t know who has the right to foreclose. It’s that banks have no idea who owns the mortgage note for millions of homes right now, period.
Every mortgage loan and re-fi loan written since, oh, 2002 is now suspect. The trust game is over. No insurance underwriter is going to move forward on a real estate transaction right now. The housing market is seized. Demand is effectively zero, supply is unchanged, so home prices as a result must continue to fall.
Also, since all mortgages are now suspect, the asset value of these mortgages to the bank is now also effectively zero too. Does the bank own this mortgage loan note or not? Who knows? If they don’t own it for sure, can’t be counted on the books, right?
So yes. Welcome to the new financial crisis.
@keestadoll: I think some people would be surprised at how many will still continue to do so. Some would continue to pay just in case the situation suddenly changes-they don’t trust banks to not renege on such a deal, and then demand the missed payments in full and immediately. Others will continue to pay in the hope that this would allow them to get sufficient equity to buy the house outright at a discounted price.
I had a daydream about this. I saw people in a giant warehouse like an auction. People were buying and selling houses like the goods at those convention center sales, cash and money orders only. People wrote checks and were instant homeowners-just signed the necessary papers and were handed the keys. Is this our housing future?
So let me see if I understand this. Basically you’re saying because nobody will underwrite a loan, nobody can get a home loan until this is straightened out. Which means the only houses that will get bought/sold are in cash from someone who owns it straight out. Which means the number of buyers will be small because very few can afford to buy in cash. Which means prices would plummet fairly fast.
Does that sound right?
This isn’t exactly to your point, but…
Almost everyone focuses on the “You took a bet you could make the payments. You lost so you lose your house” angle.
Everyone forgets that the lenders made a bet too: they made a bet the borrower was going to be able to pay back the loan. Now a whole lot of them are losing.
The contract states that if the borrower can’t pay back the loan they have to give the house to the lender. In a way there should be no stigma attached to default — it’s exactly according to what the contract says. If the banks made bad decisions and wind up with a glut of houses, then it’s their own damn fault. They made the loans and they drew up the contracts.
Of course, the problem with this scenario is that nobody wins, and there’s a whole bunch of collateral damage to the economy.
Doing a little reading between the lines I think what they think they will find in the files is either no original note (which is not necessarily fatal) or more likely nothing showing it was assigned by party A, the original lender, to party B, who assigned to party C, who assigned to party D, the current alleged holder of the note, and that one or more of parties A, B and C are no more. The note MUST be assigned over and IMO the current holder of the Note must match the current assignee of the Mortgage, a whole nother issue which is where the stories you may have seen on the MERS system comes in with similar problems where in fact you do not have specific instruments being assigned from party to party.
What? No survival seeds?
By the way I suspect that this whole problem really is a symptom of something that is widespread in our country, which is the push to eliminate as many employees as possible and make the ones remaining work harder. What you are seeing are the shortcuts those who remain made in order to finish the work they had on time.
I’m not an economist but I play one on the internet. :-)
If foreclosure is in a SNAFU situation, the issuing of mortgages will really, really shrink. No mortgages means no buying and no selling. The housing industry will come to a screeching halt.
I don’t know how this will work out but I am sure that it’s bad news for us poor slobs in the near future.
@Napoleon: exactly. Corporate America seems to be operating under the delusion that they can keep firing the same people who are their own customers and somehow, magically, spending will go up.
@different church-lady: Even a vicious bastard like Henry Ford knew better than that.
No, in Joe America.
I think most of us basically follow the rules not because of some slavish devotion to The Man. But because we know and understand it’s the right thing to do and it’s what we want to do.
Minor example: back in the day before iTunes, et al, I admit I ‘borrowed’ a few song via Napster and Limewire. I am sure I could still do that today, or rip from friends. But I prefer to pay iTunes .99 for a song. It is the right thing to do for everyone.
Now, if iTunes went up to $3.00 a song, all bets are off.
But I purchased my home with the understanding of what the mortgage payment would be. So it is my obligation to pay that and I want to pay that. NOW, if my mortgage all of a sudden shot up due to some nefarious actions of others, then I may very well be tempted to stop paying.
@Omnes Omnibus: Henry Ford built his company by overpaying the best labor.
But nobody talks about Henry Ford anymore.
The Republic of Stupidity
There… better, no?
But like I said, nobody talks about Henry Ford anymore…
@different church-lady: I just did. So there.
@EconWatcher: These aren’t technical issues, these are contract issues. Banks and their minions didn’t follow contract law and have since turned to fraud to cover up their earlier mistakes. They have hired law firms and documentation agencies that are generating fraudulent documents and using those documents in court proceedings. In the case of MERS, the banks created a secondary land register that has no legal authority. Judges have already started calling them out on this bullshit. There’s nothing technical about this.
The banks created MERS so they wouldn’t have to register property transfers with states and counties so they wouldn’t have to pay the registration fees. That allowed them to make more of a profit, but it means those transfers were not legal. Now the banks are forging documents in order to generate the paper trail that should have existed in the first place. Our Galtian overlords are now asking the same counties they cheated out of fees to recognize their forged documents as the real thing. They are breaking the law.
The banks want the state to enforce contracts, but they refused to follow the rules. Fuck the banks, let them burn.
(This gets even more fun when you read the terms of the MBSs and realize that firms like Goldman may have to eat the losses because the MBSs were misrepresented by the iBanks)
@Omnes Omnibus: touche!
The real issue here is pretty simple. A cartel of large banks, apparently including Fannie and Freddie, decided to simply ignore their basic legal duty to register a change in title when they sold off land. They have simply undermined the entire national data base of who owns what land. MERS is nothing but a fraudulent end-run around the duty to write down who owns what and to pay the county for keeping proper records. Ripping off the counties is bad enough, but undermining the very concept of property rights is incredibly, outrageously damaging to everyone. MERS has no other purpose but to allow mortgage originators to ignore their most basic duties.
There is no way to fix the country without putting a whole bunch of mortgage originators in jail. To me that is the simple, inescapable bottom line. America has the most people jailed in the world, more than China for christ’s sakes, so the lack of consequences for this class of criminals is pretty glaring.
The Republic of Stupidity
On the razor’s edge?
Shiiiii’ite… the nation tripped whilst running with scissors quite some time ago… all we can do now is hopefully stanche the bleeding…
Here’s how bad this shit is. In the banks’ rush to “verify” mortgage documents, they hired hair stylists to review the documents (no offense to hair stylists):
This is a fucking shit storm.
Endless war, CDS and bailouts and bonuses, unemployment, rampant lawlessness and corporate greed – bad stuff indeed, yet people continue to have faith in politicians and listen to rodeo clowns.
But start messing with their homes, and people might just reach for the pitchforks.
Yeah, right? But what I’m hearing now is that my title is probably suspect thanks to the frigging bank that made me use their frigging title company and their frigging loan program. As for the sanctity of the contract and all that shit, what makes it my duty to observe that when the other side has systematically destroyed that? And what’s my moral duty to somebody who is screwing me over without even having the common courtesy to give me a reach around?
Dude, I think I read that 95% of mortgages right now are through Freddie and Fannie. That bank threat is so much hot air.
The other day I proposed a Mencken solution (simple, obvious, wrong). The more I ponder, the more I think it’s actually in part a good solution.
1) Moratorium on foreclosures for one year.
2) During that year, banks can “clean” title by showing correct and complete paperwork — endorsements, chain of assignments, etc. During this period “lost paperwork” affidavits will not be accepted. Original notes (notes from instance of last recording) only.
3) At the end of that year, cleaned notes continue to be secured. Uncleared notes are unsecured from the properties to which they lay claim.
I’ve got fair reason to suspect that a lot of titles and paperwork actually exists but is ‘too hard to dig out’ as it sits in trustee vaults securing various RMBSs. Additionally, the MERS system allows the true holder(s) of the note to remain hidden and ‘lost notes’ allow that to continue. This would force the notes into the open and make them accountable (for several definitions of the term, including taxes).
People would still have to pay for their houses, but if they are unable to do so they’re forced into bankruptcy with the house becoming an asset to which all creditors have access, no priority for the lender who cannot prove the claim.
Yep. The streams get crossed and total protonic reversal ensues. If the underwriters are out of the game, there is no game.
Testing… My comments on this thread have not been appearing.
I doubt if there is any solution. The homeowner was always the designated hosee, but the greed and corruption of the banks seems to be foreclosing that option. Neither the government, the banks, or the investors are going to want to step up.
@Kirk Spencer: Interesting thought. I wonder how something like that would work in practice.
@TJ: Oh, I agree they’re the designated hosee. Thing is that this has hit a lot of areas. So many, in fact, that there is a lot of money plus a lot of people with specific grievance.
Watch the bankruptcy courts, as just one example. I posted details in an earlier thread, but the bottom line is that a major player is in court as a defendant and the federal bankruptcy trustee system just joined as a plaintiff.
Most foreclosures are accompanied by bankruptcy. If it’s determined that the bankruptcies were caused by fraudulent documents there’s a completely different direction of attack.
I would just like to point out how sad it is that Our Sainted No Longer Liberal Judges won’t get off their dead conservative asses and follow the longstanding few hundred years old principles of contract and mortgage law. You know, those principles related to issues of standing and what happens when you sever the mortgage from the note?
It really isn’t hard – the severed note becomes unsecured until you can reduce to a judgment, and the judgment lien goes to the back of the line. For the vast majority of cases, they may wind up collecting at least 70 cents on the dollar, if not more.
No muss, no fuss, and no need to detonate the entire economy (or completely fuck up an entire branch of law) by enacting a moratorium.
All it would take is judges willing to follow the existing law – that way, nobody gets a free house.
Win-win-win, all the way around.
Oh, I forgot to note the other complicit groups – those tasked with figuring out whether the preparation of loan documents and holding real estate closings constituted “the practice of law”, which would have added the layer of a responsible attorney. In my state and a number of others, it was deemed that it wasn’t, and the results were predictable – the slick suited white guys of Fly-By-Night Mortgage Brokerage LLC prepared the paperwork with all the integrity and accuracy I’ve come to expect of them over the years.
Because that is the responsible thing to do and most of us will continue to do so regardless. If I knew my house would not be foreclosed on for the next year if I didn’t pay my mortgage, it would matter not. I would continue to pay as would 99% of homeowners.
You would, but the banks wouldn’t. As always, the stronger, more commercially savvy party to the contract — the banks — rely on the weaker, dumber party to the contract — the homeowner — to fall prey to a deluded sense of moralism in order to act against their own economic self interest.
I really hate this argument. I don’t really need the threat of jail to stop me from committing a crime.
Crime? What crime? Not paying your mortgage is not a crime — the cops don’t show up at your door, handcuff you and haul you away to debtors’ prison if you miss a few payments (though I’m sure some Republicans are introducing legislation to reintroduce this system). This is a civil matter.
And what’s my moral duty to somebody who is screwing me over without even having the common courtesy to give me a reach around?
All this talk of “moral duty” drives me crazy. Let me say it again: a home loan is an arms-length business transaction between two parties. It creates contractual duties but no moral duties. You don’t have a “moral” obligation to pay your mortgage– you have a contractual obligation.
Think of it this way: did the bank have a moral obligation to lend you the money to purchase the house?
@BR: I did that five years ago when we were putting the newspaper together one Wednesday and the publisher remarked that there were five pages of foreclosures in that week’s edition. Generally, we’d have a column or two of them.
Since my wife was getting ready to retire from teaching, and I was getting ready to retire from the weekly newspaper biz, we called in our financial guy and got out of anything having to do with mortgages or the housing industry and went solely into municipal bond and cash funds, guaranteed annuities, and bank CDs. As a result, we lost a couple thousand when the whole house of cards came down, but nothing like most of our friends. Some saw their comfortable retirement incomes cut by two-thirds.
And by the way, my old paper just ran an entire special section of foreclosures, 16 pages worth. Despite what the whistlers past the graveyard might want to believe, things are getting a lot worse, not better, for folks with home loans.
Wish I had had the foresight five years ago…
@Michael: Ah, if only it was so simple as a severed note. See, the banks fucked up in every direction. Not only were they skipping out on filing the correct paperwork with the counties, they also forgot to file the correct paperwork with the investors that were buying up their crap MBSs. So on top of clouded titles and fraudulent paperwork we are going to see investors going after the banks too because the Galtian supermen were too fucking smart to even live up to the terms of the MBSs they wrote.
@RAM: Ah hah! Just as I (sort of) figured. Here’s Meteor Blades over at Kos this morning:
If title insurance companies start refusing to write policies for folks who have a home they’ve kept the payments up on because the titles can’t be verified, maybe someone will decided to do something. But I’m not holding my breath. I don’t think anyone wants to touch this because I don’t think anyone knows how to fix what’s wrong because it’s such a massive problem.
@BR: First, get a sub to your local weekly. Then read the legal notices. Boring but often very informative.
Finally, Emptywheel’s got a pretty good piece on the topic. As she explains, and which I didn’t quite get entirely until I read her piece, the problem is not foreclosures, it’s the underlying mortgage documents, which in large part seem to be fraudulent.
Now I have to go and do something productive.
Here’s a further twist on the foreclosure issue:
It just keeps on getting more and more messy.
Finally someone to point this out!
This is neither a moral nor a criminal matter. This is a financial decision. A very large and important one, but there is no more a moral or criminal dimension to it than there is in deciding not to pay any other creditor who cannot properly document the debt.
AP headline: “Officials in 49 states launch foreclosure probe”
and the winner is …. Alabama!
Mississippi dodges another bullet in the race to the bottom.
They didn’t sell the land, goddamnit, they sold the notes.
Where I live (on the SC coast) there was a ton of speculation, flipping, and outright fraud at the height of the boom. A lot of it was in condos.
The flippers, re-fier’s, and speculators have walked away from their mortgages, and they’re not paying their maintenance fees either. The bank isn’t responsible for paying the maintenance fees until the foreclosure is completed. The condo association is a nonprofit and depends on assessments collected from owners to pay the insurance, maintain the building exterior, fix roofs, all that. If someone defaults, the difference has to be spread out amont the owners who are paying. So the longer a foreclosure drags out, the more it costs a bunch of innocent people who didn’t do anything wrong.
I know that’s not the case everywhere. I’m just sayin’.
IANAL, BUT: Congress can make ex-post-facto laws re property. Civil laws are like that. Then that is the law. HOWEVER: people can then sue the government for damages and win. Whatever changed with the property, that still changed, but if people have a loss related to that change, they can get money. See the Franconia and other Tucker Act related cases.
Congress or the states might have to create some kind of steamlined process for clearing cloudy titles. Messy and expensive—maybe. But total catasrophe? My instincts tell me no.
My instincts tell me that whatever ‘streamlined process’ Congress or the States come up with will, with absolute certainty, screw the little guy and enrich the very bastards who caused this mess even further.
I fear the upcoming “cure” worse than the disease: Especially with our nihilist friends in the GOP about to take over the House.
You know, it wasn’t that long ago that some liberal bloggers and their commenters were sneering at the people who used their houses as ATMs, doing cash-out refis and taking out HELOCs and maxing them out.
“This would force the notes into the open and make them accountable (for several definitions of the term, including taxes).”
Ah Ha! Now all the articles we read a year or so ago about blighted houses where no one knew who owned them – and who should be paying taxes and upkeep – make sense! Thanks.
Our Galtian overlords are now asking the same counties they cheated out of fees to recognize their forged documents as the real thing. They are breaking the law.
I suspect our Galtian Overlords are busy forging documents (and shredding others) for the upcoming Reverse Jubilee even as we speak.
It’s not as if any “authorities” could be expected to arrive at the scene and bother to stop the crimes in progress.
It was all kinds of bloggers and commenters. Not just liberal.
And your point?
Remember the @Judas Escargot: “I suspect our Galtian Overlords are busy forging documents (and shredding others) for the upcoming Reverse Jubilee even as we speak.”
Whenever there were pogroms, the first order of business is to destroy the loan recording books of the Jewish moneylenders. Second is looting other valuables. Third is fire.
The biggest loans were often to the the royalty – and the royals just happened to incite the pogroms.
A member of my family, due to some bad luck out of her control, ended up with a whopper of credit card debt, much of which was not hers. Instead of just declaring bankruptcy and moving on with her life (something I advocated dozens of times), she pretty much scrimped for years, sending a pittance to the companies every single month. Why? Because she wasn’t a deadbeat – she takes care of her obligations.
Sure the companies screwed with her, they raised her rates indiscriminately, they charged crazy fees for not getting the bill in by 8:00am the day it was due (even though they don’t check the mail until 12pm – a practice now outlawed), all that shit. But she still felt like she had a moral responsibility to take care of this debt.
Of course, not much progress was made, and in the end, five years later… there just wasn’t enough money. She declared bankruptcy. Five years down the drain, plus her moral fiber is tarnished in her own mind.
Banks rely on morality plays in order to get your money. Of course, the banks don’t have any morals, they don’t give a shit. Why should I?
Anonymous At Work
Re: Ex post facto angle
The legislation would not be ex post facto with regards to suits not yet filed as the law was attempting to change what courts could and could not accept as valid evidence of perfected liens and paperwork.
Whenever there were pogroms, the first order of business is to destroy the loan recording books of the Jewish moneylenders. Second is looting other valuables. Third is fire.
The biggest loans were often to the the royalty – and the royals just happened to incite the pogroms.
Not surprising at all.
And (appropriately enough), it’s the 703rd anniversary of King Philip IVth using much the same “debt resolution technique” on the Knights Templar…
…but who’s the King, this time around?
It gets worse.
Bottom line: it’s the complexity thing.
Banks used to hold real-estate loans and the docs were easy to access.
But then the Masters of the Universe decided that securitizing mortgages would make them a ton of money (AND provide ponies for all others, we promise). The system to deal with tracking all the transactions involving the mortgages, MERS, was invented but evidently nobody checked to see that the database was working/kept current/used properly/etc. The people who knew what was going on were busy making lots of money and the rest of us had/have little knowledge of the details of this entire mortgage securitization process.
Now that I understand more of the details, it seems obvious to me that the whole mortgage securitization process is/was too fucking complicated to not fail.
Thanks, Tim, for the post. I’ve been wondering when someone here would address this VERY disturbing matter.
no no a thousand times no.
funny how conservative “liberal” people really are at bottom. the issue here is not moral hazard* for individual homeowners–the issue is the continuing viability of the property market in the US as well as the stability of the market in securitized properties. at this point, worrying about people not paying their mortgage is like the tea party people complaining about, well, pretty much anything–missing the forest fire engulfing you because a mosquito bit you.**
furthermore, foreclosure is a process, either judicial or non-judicial, whereby a secured property asset reverts to the mortgagor. the foreclosure per se has NOTHING to do with the debt owed–as a look at what happens in a state that does not have a non-recourse law would demonstrate.
a foreclosure moratorium would not eliminate debts nor would it somehow give everyone a get out of debt free card. what it MIGHT do is give the overclass enough breathing room to negotiate how to distribute the hit between the investors in the trusts and the banks. i assume, the Obama administration being what it is, the UST will ultimately make up the difference to the REITs on the ground that otherwise … well you know, bad things might happen. thus the socialization of market losses will be complete, as the UST already did for equities.
my guess is that as a first step the FIRE folks first simply wipe out the servicers and the US has a judicial do-over. but that’s just an uninformed guess.
*can we just retire that concept? it has no relevance any longer to any discussion, at least WRT FIRE.
**it seems what people who worry about moral hazard are overlooking (and i would be happy to be shown wrong here) is that the foreclosure problems have the potential to crater the whole REIT (& other RE investments) game. in other words, the legal process is illuminating the problems with the entire concept, not just the foreclosures. in other words, the whole segment of the market in securities is, literally, potentially worthless because the investors have no secured claim on anything in an instrument–not just the assets that went south on the debt, but every single bit of property. so the investors could be–note the could–be 100% screwed. and that in turn would or could trigger a real collapse. the analogy here, unfortunately, is what could have happened if say AIG did default on its swaps–not the same way, of course, but similar in that the property market–and the financial engineering atop it–could simply stop. so the question is, is it better to keep whistling past the graveyard and pay more later or to step in now? we already know what Obama will do–come in after there’s nothing but a smoking crater and a lot of suddenly naked investors who will need to be “restored” via the UST. FSM forbid that Goldman make good on what it enabled.
If you have an underwater mortgage, go get it written down in bankruptcy court. DO IT TODAY!!!
The problem is that what were supposedly loans secured by people’s homes are actually not secured loans at all, due to our financial fraudsters’ screw ups. If that’s the case, then not paying your mortgage will have the same effect as not paying your credit card bill. You still owe the money, and can be sued for it, but the lender can’t take your house.
Remember a while back that some democrats wanted bankruptcy courts to have the ability to “cram-down” home mortgages?
Cram-down means that if you are in bankruptcy and have pleged property to secure the loan (common examples of secured loans include: auto loans, mortgages, boat loans) you have the option of lowering the secured loan amount to the actual value of the property.
Our bankruptcy laws state that only one type of loan CANNOT be subject to cram down, the mortgage on your primary residence. You vacation home, boat, and private jet plane, and every other type of loan are subject to cramdown.
Now, because of the banks’ many screwups, we will not need cram down for home mortgages. They wil simply be unsecured loans, which a bankruptcy court can easily write down. There is simply no way for a bank to legally PROVE it has a secured mortgage.
“NEW YORK (Dow Jones)–Officials in the state of Alabama joined the nationwide investigation into the nation’s mortgage servicing industry, a move that could pressure financial institutions to…”
Now that the Alabama AG is on the case, things will get moving.
“The bank isn’t responsible for paying the maintenance fees until the foreclosure is completed.”
The condo association needs to take some lessons from Texas homeowners associations. If you do not pay THOSE dues, they can take your house. (and did to various service members overseas.)
“The N.Y. State Banking Department has suspended home foreclosure actions by mortgage loan servicers, requiring that they conduct internal reviews of their foreclosure practices.”
And the Florida AG is subpoenaing records from DOCX and LPS (fraud purveyors). I’m breaking out the popcorn.
Watching this whole meltdown of basic stuff like chain of title and the rule of law as it applies to property rights, you get a sudden moment of clarity.
You realize: wow, this is capitalism eating itself.
Truth is, the Soviet Union was the only thing that kept capitalism even marginally workable for the last 70 years. Giant corporations allowed unions and paid people decent wages only because they were scared that if they didn’t, there might be a communist revolution in America.
Now that the USSR has imploded and disappeared, the moderator rods have been pulled out of capitalism and the entire capitalist system is melting down.
If you think about it, the end result of the current outsourcing mania + automation of jobs out of existence (coming soon to a WalMart and Taco Bell near you!) + digitization of most of the remaining “knowledge work” economy so people can now download for free the rest of what was formerly a productive lucrative part of capitalism + rampant illegality by financial elites + ever-increasing government assistance for the ever-rising percentage of Americans whose jobs have been outsourced to the third world… Well, the result of all that is that eventually everything will be sort of free, and eventually no one will have a job.
What use are property rights or foreclosures then? If you and all four of your neighbors are getting by squatting in foreclosed houses with portable solar panels, a hand-crank radio and hand-crank cellphone and weekly rations of government cheese, foreclosures and property rights just put sand in the gears. If there aren’t any actual jobs other than dog groomer or nanny and those jobs don’t pay enough to rent an apartment or buy a car, time for a new paradigm.
If I had a pair of dimes for every call I hear for a new paradigm, I would be wealthier than Bill Gates.
What is your version of a new paradigm and how is it going to work?
@mclaren: as is often the case i agree with much of what you say here, with some rather large caveats:
1. capitalism is eating itself within the US. this is not necessarily the case everywhere else. at the moment, i think the best analogy is to pre-2000 Argentina. there are other countries that are at different places on the modern market timeline. Brazil for example, with its resources, may become the next US. does this mean the US will be the next UK? maybe.
2. intellectual property rights are continuing to expand. it may be that the next regime is all about intellectual property rather than old-style (e.g., land) property. after all, with most of the planet despoiled and good locations uncertain due to climate change, all that’s really needed by the asset-holding class (oligarchy or what have you) is the power to exclude, and that’s a police power.
3. not sure i would agree with you on the role of the USSR. what i would agree is that, rather ironically, its collapse doomed the US. not because of the lack of the USSR as a counterweight, but rather because its collapse sealed the religion of the free market as the only game in town, and that, necessarily, that game would be pushed to its ultimate, irrational and self-destructive conclusion.