This WaPo piece on the foreclosure crisis and the complete and total mess the banks have made of things is infuriating:
Kevin Matthews, a Gulf War veteran, was initially rejected when he applied to his lender, USAA, for a modification of the mortgage on his Baltimore rowhouse. But when a housing counselor contacted USAA on his behalf, the lender invited him to reapply, Matthews said. The counselor filled out a 70-page application for Matthews in early May.
The lender did not respond to this new request until after his home was taken away in a foreclosure sale two weeks later, he alleged. He was evicted in June while he was away on school-related travel.
Roger Wildermuth, a USAA spokesman, said his firm was no longer responsible for Matthews’s loan because it had been sold to GMAC, though GMAC employees in his case would have identified themselves as USAA workers “to create a seamless customer experience.” James Olecki, a GMAC spokesman, said his firm “put forth every effort to pursue all alternatives in this case.”
Matthews is now suing the foreclosure attorneys. If he loses, the tab for his defaulted loan would fall on taxpayers because his mortgage is guaranteed by the Department of Veterans Affairs.
No one knows who owns what.
Cat Lady
Heckuva job Wall Street!
Mnemosyne
Yep. Just wait until we get to the stage where you have Wells Fargo and Bank of America trying to collect on the same note.
We only know about this shit because of the mortgages that have gone bad. Imagine how much of this is hiding out in “good” mortgages that people won’t find out about until they try to sell their house or buy a new one.
PeakVT
How to have a day, USAA. Maybe. Who knows?
WyldPirate
It’s because of the MERS system–that fucked up registration system for titles that the banksters set up. It is a shadow corporation with no employees intended to evade fees of registering at country courthouses—and leave no trail of responsibility.
I read a horrifying article about it the other day. I’ve gotta hunt that down.
It’s pretty clear that the banksters set this up to cover their tracks. They get to make money on the front end with their bogus MBS’s and stealing homes on the back end in foreclosure.
It’s the biggest theft in human history….so far.
Mumphrey
“To create a seamless customer experience.” Yeah, because when somebody takes my house, it’s so much more satisfying if it’s “seamless”. That has to be the dumbest thing I’ve ever read.
Linda Featheringill
My house went into default largely because the mortgage company kept saying, “Oh, buy the way, you owe us for this and for that and etc.” I couldn’t do it.
Then when the house went into default, I got a letter from the mortgage company saying, “Come, let us reason together.” Okay, I was interested. But the next thing they said was “We haven’t received a payment for 18 months. You owe us X amount of dollars.”
There were 2 lies right off the bat. My payments stopped about 4 months before the letter was sent and I had [have] the canceled checks to prove it. The second lie was that the amount they said I owed was more than twice as much as 18 months of mortgage payments would have added up to.
So I rented a place, packed my bags, and got the heck out of there.
Forget that.
morzer
This really does begin to look like the fall of the Ancien Regime, with Wall St and the banks playing the role of the speculators, and Geithner/Summers playing the role of Necker.
mclaren
Yes, exactly right. And what’s really infuriating is that no one knows because it’s unclear in any sense. It’s not just a matter of technicalities, or paperwork. In a fundamental sense it’s just totally unclear who owns what.
The reason is simple: securitization. A mortgage got chopped up and sold off as little bitty parts that got combined with itty bitty little part of other subprime mortgages, then the firms that bought those parts went bankrupt and re-sold the parts to other parties. Eventually the last man standing (six or seven or eight steps of bankrupt firms re-selling and re-reselling those itty little bits of the securitzed mortgage down the line) decides to foreclose on the homeowner, and uses the MERS entry as evidence of ownership of the mortgage.
But does that last non-bankrupt owner of that tiny itty bitty little sliver of a securitized piece of the mortgage actually own the house?
That’s totally unclear. MERS isn’t even owed any money on that mortgage. It’s legally unclear, it’s financially unclear, it’s just undefined…like the financial equivalent of dividing 1 by zero.
This all resulted from those goddamn quants who cooked up these absurdly overcomplicated financial instruments to securitize everything. They were unemployed ex-physicists who drifted into Wall Street work, and their attitude is the same as the Los Alamos physicists faced with photos of the burned brown babies in Japan roasted to death by the atomic bomb: “We just built the bomb, we didn’t tell anyone to drop it.”
WyldPirate
Ok, found the thing on MERS:
What Is MERS and What Role Does It Have in the Foreclosure Mess? (Hint: It Holds 60% of All Mortgages, But Has ZERO Employees)
There’s too much to quote and it’s put together from a shitload of sources, but it’s horrifying to say the least.
WyldPirate
@mclaren:
I agree that the quants cooked up the securitization. I don’t think they laid all of the other groundwork for this huge ripoff.
Lawyers and lobbyists did that. This is a good link for the comparison of the fraud that caused this crisis and the Great Depression.
MattF
I think calling it a clusterfuck is generous. The quants figured out a way to hedge their bets on mortgages that would probably fail, they made their odds and got out, years ago. The mess that was left behind is someone else’s problem.
Maude
@Linda Featheringill:
Smart move. To stay would have been foolish.
NickM
aw the documentary “Inside Job” last night – excellent, nonpartisan enough to be convincing to the 4 remaining Repub moderates, and totally infuriating.
mclaren
As an example of the massive fraud that went on in the mortgage business consider the following examples:
Bank of America forecloses on man’s house even though he has no mortgage.
Mortgages were fraudulently pledged to multiple buyers at the same time.
Banks Caught Hiring Hair Stylists, Factory Workers, And Burger King Kids To Sign Foreclosure Documents.
There is no bottom to this cesspool. Soon, we’ll hear that dogs signed foreclosure papers. We’ll learn that houses were sold to cats. We’ll eventually find out that these bogus subprime mortgages were actually held by underpasses and stop signs. No level of fraud is too grotesque for this saga of gross incompetence and rampant criminality, no con job too depraved to be true.
PurpleGirl
In a blog entry this afternoon, Krugman highlights a reader comment from an article about Ireland and austerity. The reader says the the cause of the crisis is 22-25 yr old MBAs wanting to make money for cocaine and prostitutes. I didn’t read the original article but this long comment is very relevant to our bankster culture.
http://krugman.blogs.nytimes.com/2010/10/30/sex-and-drugs-and-markets-role/
Jared
Know what would fix this? Deregulation.
General Stuck
Anybody else notice that when wingnuts go out of their way to create a catchy, sometimes Orwellian word or phrase describing a previous wholesome activity part of the American Dream, not long after that dream turns more into a nightmare.
Such as President Wingnut GWB and his “Ownership Society” push for folks to own their own plan, whilst at that very moment a bunch of other wingnuts were hatching a scheme to make billions off of bad mortgages, and then gambling with those bad mortgages to make more billions, nearly causing, or still could cause, the entire economy to melt down into a puddle of piss.
It is uncanny, and I am un sure it was not planned that a way. I just hope one of them doesn’t voice the term “Testicles of Liberty”. {{shudder}}
Mnemosyne
@WyldPirate:
Honestly, I don’t even think they thought that far ahead. They didn’t think about what would happen if even 10 percent of those homes went into foreclosure, and they probably thought they could absorb whatever small number of mortgages did go bad and re-sell them after foreclosure.
Now you have the banks sitting on a huge inventory of foreclosed houses that they can’t sell because they’re never going to get the price that they mortgaged them for and if they short-sell them, they take a huge loss on their books. So they have a bunch of “assets” that they can’t do anything with because they aren’t actually worth anything close to what they claim they’re worth.
General Stuck
@General Stuck:
own home. jeesh.
JWL
The government loves to make examples of celebrities.
How hard would it be for the Attorney General to order his department to seek out, prosecute, and jail some bankers? Show trials, in other words.
bkny
did that nyt story on spain’s debt slaves get covered earlier this week. property owners who default not only have their property seized — but the original mortgage, plus interest, plus late fees will haunt them till their dying days.
it’s a horrifying situation:
http://dealbook.blogs.nytimes.com/2010/10/28/in-spain-homes-are-taken-but-debt-stays/
Mark S.
Is that what the kids are calling it these days? I’m going to stick with calling it fucking.
General Stuck
@Linda Featheringill:
Wow, what a nightmare that must have been. I no longer day dream about buying a home, and am just thankful to have a roof over my head renting a not so great apartment, though in a great location.
El Cid
In modern capitalism, the capitalist class is no longer limited by quaint notions about them actually owning the means of production and of capital itself, under traditional notions of being able to say that they actually own these things.
The capitalist class can now operate under the assumption that they just own things because they say they do, and no one will stop them from carrying out what they want, as long as the biggest financiers work closely enough with governing officials to keep their hazy declarations unchallenged.
KG
@Mnemosyne: the “good” mortgages won’t have this problem. You buy a house on an equity sale, the old mortgage gets paid off, the servicer and investors are satisfied and everyone goes on their way.
@WyldPirate: the courts are starting to get wise to the MERS bullshit. Especially since they keep showing up in different venues claiming to be whatever is in the best interest of the servicers in that particular case. State Supreme Courts don’t like it when a party tells them they are X and are telling their sister Courts that they are obviously not X in identical circumstances.
Mnemosyne
@KG:
How do you know you paid the right servicer, though? If banks are foreclosing on houses they don’t own, I’m sure they’re selling houses they don’t own, too.
azlib
I am surprised USAA screwed this up. My home loan is with USAA and I have found them to be excellent at customer service. My loan servicer is GMAC, BTW which is not that unusual. Sorry to see the mess this guy is in. Hope it gets cleared up.
Ian
“…would have identified themselves as USAA workers…”
Wow, they’re using impostors now? Awesome.
Mnemosyne
@Mnemosyne:
Sorry, swap in “mortgages” for “houses” in that last sentence, or it doesn’t make sense.
srv
USAA is the most awesome bank in the US, if you can get it. But they’ve whored the mortgage unit out since, well, forever.
srv
PROTIP: when you call the USAA mortgage unit and they have a Gujarati accent, you’re not in San Antonio anymore. This isn’t rocket science, folks.
Seriously, years ago I called USAA at 9pm one night for an emergency signature loan, got approved over the phone. She was nice enough to send me an email confirmation. Her sig was Vice President.
WyldPirate
@Mnemosyne:
You make a good point with that. They probably didn’t think that far ahead. They do and have made a shit load of money on the fees from the late mortgages, transaction fees, commissions on bundling and selling the MBS’s.
One thing that pissed me off about Obama’s interview with Stewart was him saying that we would make our money back on TARP and that itt cost less to bail them out than it did the S&L crises if the late ’80s. That’s horseshit. The Gubmint is aiding them because they aren’t giving a true value of the assets. NAd they aren’t counting the3 ripple effect of all the other damage their shenanigans did to the rest of the economy. This post at Naked capitalism pretty much puts Obama’s lie about this to rest.
WyldPirate
@KG:
This is true, KG, but the problem is that a lot of people are going to get fucked over in the process and most of them are going to be the little folks that can’t afford the legal representation.
All of this shit is wasted energy and capital going to unfuck fraudulent activity that will likely never be prosecuted in a criminal court. Plus, the penalties will likely be insufficient to recoup the loss from the thievery even if, by the offhand chance that what was done was found to9 be illegal.
WyldPirate
@General Stuck:
This sounds like some Frank Luntz shit.
I rarely wish people die a slow and painful death, but if there were ever anyone deserving of that fate, Frank Luntz would rank right up there for some serious suffering, IMO.
mclaren
@JWL:
Very hard. Since it would put essentially the entire Obama White House economic team in prison.
mclaren
@El Cid:
You know who else operates this way?
Stick-up men.
“Gimme your wallet.”
“Why?”
“Because IT’S MINE, you fuckin’ fuck!” (pistol-whips the victim, walks off with his money.)
lacp
GMAC employees identified themselves as USAA workers to create a “seamless customer experience?” Is that the euphemism for “fraud” nowadays? Or perhaps it wasn’t transcribed correctly and he actually said a “ream-the-customer experience.”
mclaren
@lacp:
Gang rape: a seamless customer experience.
WyldPirate
@mclaren:
No shit. Check this little bit (all quoted below the “++++” because my browser fucks up blockquotes) of horror from Washington’s Blog:
+++++++++++++++++++++
“Christopher Whalen previously explained how the banks got away with pledging mortgages to multiple buyers.
Today, Whalen provides further details:
The short answer is “innovation.” In her column, “One Mess That Can’t Be Papered Over,” Gretchen Morgenson of the New York Times reveals the practice in FL and other jurisdictions of destroying the physical note. We really like the 4th from last paragraph, the one about the standard practice of Florida bankers to destroy the original note when an electronic form was created, to “avoid confusion.” If you know anything about the checkered history of FL real estate over the past century, this one bites you in the leg.
Is it just possible that creative Florida bankers discovered they could “sell” mortgages many times by conveniently delivering a “copy” of the electronic note for each subsequent sale? By delivering a “good” electronic note to each purchaser, the seller/servicer could kite the Ponzi scheme to the sky — using the proceeds from each sale to pay interest to each new group of investors. As we told [Washington’s Blog] in the failure of First National Bank of Keystone , management hid a Ponzi scheme in the loan servicing area for years, fooling regulators and internal auditors (See ‘Audit Risk: Grant Thornton & The Keystone Saga’, January 29, 2007) .”
*************************************
These motherfuckers were intentionally muddying the trail of titles so they could sell them to multiple people.
Unless all of this shit gets unfucked, our economy will never recover.
Jim, Once
@WyldPirate:
Sorry, all – this is one of those things I copied and saved, and forgot to include attribution. Thanks to whomever wrote it:
daveNYC
@mclaren:
Minor but very important thing though, they didn’t slice and dice the mortgages, they sliced and diced the cash flow from the mortgages. Someone out there is still supposed to own the note. A pretty basic and pretty important thing, who owns the note, and they completely fucked it up.
mclaren
@Jim, Once:
As I’ve been saying for years now, capitalism is eating itself. The fall of Soviet Union pulled the moderator rods out of capitalism and it melted down. Now there’s nothing left but financially radioactive slag.
Why would anyone want to invest in America when you know that any giant American corporation’s balance sheets are likely to be an Enron-style lie covering up some outlandish scam?
Why would anyone want to buy property when you know the property deed is probably the fradulent confection of some former Burger King cashier hired to robo-sign some bogus title document?
Why would anyone want to buy an American product when you know it’s better than even odds it’ll poison you or trash your computer or burn down your apartment due to faulty wiring or suddenly accelerate out of control while you’re driving down the highway and kill you?
Capitalism was a phase civilization went through, like feudalism and the hunter-gatherer civilization and the rule of the god-kings. Like all those other phases, capitalism got pushed to its logical extreme and blew up, and now we’ve got to move on to something new. What that something new is, no one knows: it won’t be communism and it won’t be socialism and it won’t be any kind of laissez-faire jagoff libertarian wet dream. Maybe it’ll look like wikipedia, maybe it’ll look like the grameen bank…who knows. One thing we know for damn sure: capitalism ain’t cutting’ it.
Like a machine that has spun out of control, global capitalism has blown up with increasing ferocity like clockwork, every decade since the 1970s, and right now this latest blowup looks like it shot the pistons out of the engine and cracked the block and tore off the rocker arms and now capitalism is wrecked for good. Time for something new.
Jim, Once
My bad . . .
Maybe it should read: dare them to find the note. But don’t hesitate to correct me on this.
+3
mclaren
@daveNYC:
Thanks for the correction. That’s a detail I didn’t know.
PaulW
This has been one of the more grievous problems with our mortgage mess: the bank that was the original guarantor on that loan was no longer the ones holding the mortgage. They kept selling and trading these mortgages about like they were commodities when in fact they should have been held as contracts between two specific parties (the lender and the lendee).
Do we see any other business contracts treated in such a manner? Are service or supply contracts between businesses shuffled about like so many Monopoly cards? No they are not.
The second we lost the sacred status of a bound and signed contract between parties, the second our mortgages were used between banks like shared pants at a frat house, was the second our housing bubble was gonna to be the worst economic implosion in our nation’s history. This is going to get a whole lot worse… and not just because a GOP-controlled House is going to go witch-hunt Fannie Mae and Freddy Mac.
Origuy
Property rights were the reason that William the Conqueror was able to compile the Domesday Book. William needed to know who owned what so that he could tax it and raise money to hold off the rebellion led by his son. The reason his nobles put up with what they probably felt was an invasion of their privacy was that it gave them clear title to their property. They wouldn’t have some upstart coming around and claiming to own the land that they had been holding since they took it from the Saxons.
mclaren
@Origuy:
Yes, but when William the Conqueror exercised his liege right to torture and kill subjects, he at least agreed that his nobles were entitled to an accounting of why and how, after the fact.
Our current president has asserted that he does not even have to give anyone an accounting of why or how he is murdering and torturing people without a trial and without charges…so why shouldn’t property rights also go away?
We’re back to the jungle, baby. Before the Magna Carta. Before the Domesday Book. America in 2010 is now Hobbes’ state of nature, where life is nasty, brutal and short, and little picayune details like property rights and the rule of law are for wusses and pussies.
mclaren
@PaulW:
What bathysphere have you been living in for the last 30 years? All of ’em.
This is how all contracts get treated nowadays.
Example: some poor schmuck sitting next to me in the wifi cafe spent $700 on an HP computer and then another $200 on extended warranty. When his computer went bad after 3 months, they gave him the runaround and told him the company that did the extended warranty was a completely different company than HP, so HP wasn’t legally responsible when they didn’t repair his laptop. Guy wound up out $900. Screwed, blued, and tattooed.
Everyone in business is “not responsible for that area.” You buy software and it blows up, they blame the hardware. You buy hardware and it burns out, they blame the software. Your accountant fucks up, and the IRS blames you and duns you for the money. Your cars goes berserk on the freeway and accelerates out of control and wrecks, the company that built the car blames the chipmaker that built the electronic ignition. You pay for health insurance for 20 years and get sick and the insurance company refuses to pay, and they blame your doctors by claiming it’s an “experimental procedure.” Everyone blames everyone else. No one is responsible for anything. And every contract to do anything has been securitized. It’s all been parsed out and tranched and no one can track down who’s supposed to be responsible for any of it.
In today’s c[r]apitalism, that’s not a bug: that’s a feature.
Jim, Once
Aaaagh. I shouldn’t be reading unbelievably aggravating shit like this at this time of night. I’m going to bed.
Cain
@srv:
Wow, you can tell a gujarati accent? I usually know when a hindi speaker is talking though since they put an accent on the second syllable.
cain
Ruckus
@Jared:
I see the solution as deregulation and tax cuts. You can’t fix it with one or the other it has to be both.
Doesn’t it?
J. Michael Neal
@PaulW:
Actually, they are. Routinely. You just described the entire commercial paper market. As daveNYC said in #41. They didn’t actually sell the mortgages as part of the securitization. You can’t slice up the contract, and no one ever pretended that they could. What they did was sell the whole mortgage to someone who collected a whole bunch of them, and then put together a security obligating the person who owned the mortgage to pay out the cash flows to the owner of the security as they arrived from the mortgage debtors.
That’s more complicated than the commercial paper market, but it’s functionally the same thing. There’s even a secondary market in commercial paper, so the stuff keeps getting shuffled around.
The problem didn’t come from securitization itself. There really isn’t any reason that that can’t be done with proper paperwork. What happened is that the paperwork got screwed up in the chain of ownership of the actual mortgages. They were often sold a couple of times prior to securitization, and often traded some more times after securitization. Every time it’s sold, the actual physical piece of paper that you signed when you bought the house, saying that you owed a certain amount of money and would pay it off in a certain sequence, is supposed to be endorsed and notarized and then physically transferred to the entity that bought them. That’s what got screwed up. Had the original mortgage lenders made their own securities and never sold the actual loans, the paperwork on the houses would be fine. (The paperwork may also be screwed up in the securities, but that’s a completely different problem and has nothing to do with this question.)
Really, it’s an archaic system. There’s no reason that selling a house should involve transferring pieces of paper with signatures on them. Had the mortgage industry wanted to create a real and useful electronic system, the whole thing could have been transferred to it. Instead, they wanted MERS in order to save some money and cover their ass.
There are some things about securitization that need to be examined. Mostly, they revolve around the principal/agent problem of the entity deciding who makes the loan not carrying any of the risk of them.* Even this could have been avoided had the purchasers evaluated risk properly, but they didn’t.
In the end, THAT is the underlying problem to all of this: people mispriced risk. You really aren’t going to come up with a system that isn’t crisis prone if they don’t evaluate it properly, and if they do, even the system we had would have functioned tolerably well. There are a lot of structural changes we need to make, but they all revolve around this, either forcing banks to price risk properly, or simply limiting how much they can take on. There’s no reason securitization can’t be a part of this world.
Completely tangential to that, people in finance have to care about the paperwork enough to make sure it gets done right. That’s not a problem of the structure of the market. It’s a problem of people just not giving a shit about following the law.
*Even this isn’t really accurate. The business model for lenders depended upon selling the mortgages they made in order for the business to pay off the warehouse loans they had used to make the mortgage loans. This process wasn’t instant. All of those mortgages spent time on the books of the originator. What happened to them was that, when the market for purchasing those loans collapsed, between early 2007 and late 2008 depending upon the originator, they got stuck with a lot of mortgages on their books, trying to pay the warehouse loans which generally had higher interest rates than the mortgages themselves. Throw in some defaults, and you had mortgage originators going bust everywhere. Look up names like New Century and Fremont.
You want to prevent a housing bubble? Regulate the warehouse lending industry.
liberal
What struck me about the article was that someone paid $3,000/month for a house in Centerville VA.
Even if it was purchased at the height of the bubble, I find it hard to believe that’s not a pretty big house.
So while I definitely think the banksters should be hanging from lampposts, I find it hard to sympathize with someone who bought that much house and now is in financial trouble.
Nutella
And yet someone was quite sure that it was OK to throw a citizen out in the street and take his house. Who owns it now? Does anyone know?
And add this to your liar’s lexicon: Telling the customer the shameless lie that you are an employee of USAA when you are really employed by GMAC is all for a seamless customer experience.
Diomedes
This has been one of the more grievous problems with our mortgage mess: the bank that was the original guarantor on that loan was no longer the ones holding the mortgage. They kept selling and trading these mortgages about like they were commodities when in fact they should have been held as contracts between two specific parties (the lender and the lendee). Do we see any other business contracts treated in such a manner? Are service or supply contracts between businesses shuffled about like so many Monopoly cards? No they are not.
Actually, they are. We do see other contracts treated this way. Bank debt is also securitized, traded and chopped up into a million little pieces, as are trade claims (which can involve service and supply contracts between businesses).
Say Microsoft, for example, takes out a bank loan for $1 billion from a syndicate of four banks and owes each of them $250mm plus interest. Each of those banks takes part of its share of the loan and then sells it to several other banks or hedge funds, which then take their share and sell it to other financial institutions, etc., so by the end instead of Microsoft having four lenders it has forty.
Cheri
http://www.nakedcapitalism.com/ Best explanations of this big, fat cluster!
Rene Beloeil
Either they stop the foreclosures to save Americans financial security which will kill the Banks or they save the Banks by letting the People go bankrupt. So what do you do ? You save the People, storm the Bastille {Banks} and throw the Banksters in jail.