Tag: moratorium

Do The Banks Have Proof Of Ownership?

On By southwerkIn business ethics, ethics, Government Failure, Philosophy of Business, White Collar Crime

I’m not the only one who has suspicions that the banks might not have the necessary proof of ownership. Read the following from the Wall Street Journal –

Under a far gloomier scenario, the problems created by using robo-signers may be irrelevant if, instead of being lost, mortgage documents weren’t ever properly transferred during each step of the securitization process, says Adam Levitin, a professor of law at Georgetown University. If that happens, “the whole system comes to a halt,” he says. Investors could argue in court that they never owned the mortgages backing their money-losing securities.

Banks and their attorneys say such fears are overblown. Procedures for transferring loans into mortgage-backed securities “are sound and based on a well-established body of law governing a multi-trillion dollar secondary mortgage market,” said Tom Deutsch, the executive director of the American Securitization Forum, in a statement Friday.

I love that second paragraph. Here look at the key phrase, “Procedures for transferring loans into mortgage backed securities are sound and based on well established law…” Wow, you’d think the founding fathers were doing it! Well, this vast body of jurisprudence has existed since that grand old year of history, 2002? I doubt if any of it has been tested in court. His statement is more hopeful than true. You see the transfer of property is one of the most important procedures in the law. It’s surrounded over and over again by legal protections many of them requiring specific procedures. Now, you might ask me if during the Go Go years of financial mismanagement, the mid years of the first decade of this century, that the banks and their mortgage creating boiler rooms did all that proper procedure? Not a chance. Not even a little chance.

Some of the mortgage companies were giving out mortgages with NO capital of their own and Wall Street still bought them. If you’re giving people mortgages with not a single cent of your money on the line, how much do you care about good paperwork?

James Pilant

4 things buyers need to know about robo-signing and the foreclosure freeze (via Keyproperties’s Blog)

On By southwerkIn business ethics, ethics, White Collar Crime

I really like the advice this web site gives. Its explanations are wonderfully clear. Some of you may be thinking of buying homes or have purchased a home that has been foreclosed on. You’ve got some questions and their answers seem to me intelligent and well phrased. So give them a look!

James Pilant

from Tara @Trulia.com NOTE: This post will be continually updated, below, as more foreclosure freeze news breaks. I double-dog dare you to watch a TV news show or spend more than 5 minutes on the web without hearing about the massive "robo-signing" foreclosure scandal that is rapidly encompassing the biggest banks in the country. Here are 4 things home buyers need to know about this breaking real estate news, and how it impacts them. (Hint: I thr … Read More

via Keyproperties's Blog

What I’m Beginning To Suspect About The Mortgage Fiasco?

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime

At the moment, the mortgage crisis occupies a considerable amount of space on the web and the regular news, both popular and financial. I have been observing problems in the process for a long time.

The first thing that I observed was that banks were almost never re-negotiating their mortgages which struck me as extremely odd. Since the homes were priced during the housing bubble, the bank made much, much more money extending the loan then they did foreclosing, when they could only resell the house at its current market value.

The second thing was a constant drumbeat of stories where the banks were making foolish mistakes, foreclosing homes they didn’t own, or re-negotiating home mortgages and having done so, then foreclosing the house. Pretty strange stuff to see from well financed and lawyered up organizations.

As the crisis began to develop, I noticed that the high speed processing involved lying to judges perhaps several million times with false affidavits. I pointed out in postings that it would be hard to get lawyers to sign off on these things, Judges being the way they are. Then, of course, we found that they had hired every kind of person to sign off on these documents. Why would you want to do that?

I recognized that speed increased profits but you can get speed without incompetence. Considering the threat of later lawsuits and the chances of getting caught, we’re back to the question, “Why would you want to do that?”

One of the background issues that has been reported on a good number of times is that a high proportion of these mortgages were created at the height of Wall Street speculation in mortgage based securities. It was pointed out that in some of the reported cases, when challenged for the actual documents showing ownership, the banks have on occasion, been unable to do so.

Look guys, only a very small proportion of mortgages have been challenged in court. If you’re getting hits in those few cases (you’re finding properties without actual ownership documents), you are looking at the very tip top of the iceberg.

My suspicion is that the banks don’t have proof of ownership not in dozens, or hundreds or thousands of cases but in the tens of thousands. I am beginning to believe that all these bank assurances that the process would not have been any different if they had done their work is PR staving off inquiries as long as possible.

I believe the banks are desperate to get these matters settled before the deluge, to get as many foreclosures out of the way as possible so that when the eventual revelation occurs they can claim that the damage to the larger economy does not merit prosecution.

I suspect we are about to go into a second banking crisis similar to the one in 2008.

I hope I am just over suspicious and jaded.

If my scenario is accurate, we and the economy are in for a rough ride.

James Pilant

The Human Touch

On By southwerkIn business ethics, Capitalism, Government Failure, Philosophy of Business, White Collar Crime

The word, home, has powerful meanings for Americans. Who can forget, Dorothy in the Wizard of Oz, saying over and over, “There’s no place like home.” How many of us “want to go home?” How many of us when overseas, look back at the U.S. and think about going “home.”

Home is a human concept life love, caring, kindness,.. those kinds of things.

It’s hard to quantify.

For most of American history, homes were very simple, often one room, generally little more than shacks. But as time went by and with urbanization, homes became larger and more complex … and more expensive.

For most Americans, purchasing a home all at once became impossible. A market for mortgages developed and people bought their homes over time.

Banks were small and deeply embedded into the fabric of the community. Social fabric is a fancy word for multiple relationships. A local bank with small resources depended heavily on the success of its loans, even the smallest, for its continued success. So, the bank exploited its connections, it knew a great deal about a creditor, may have known him personally, probably his family as well. They knew what he did for a living, not in the sense of the job title on the application, they knew what he did.

The bank was also well known. It’s officials were church goers, customers, friends, etc. The locals knew the bank by its continuously developing reputation.

Thus, there was social pressure both ways. For the homeowner, it was a disgrace to fall behind on payments. For the bank, it was dangerous to its moral authority to foreclose without consideration of many factors. Generally, speaking there was a great deal of pressure, rightfully so, to work out the problem rather than seize the home.

That’s gone. Beginning roughly in 1999, banks began selling their loans as assignments to investment banks to be bundled into “securities” to be sold to the foolish and the more foolish.

There is no knowledge of the community or the borrower beyond the thinnest veneer of computer data. The bank might as well be orbiting Pluto for all the effect of public opinion.

Human and business are both relegated to key strokes.

This limited knowledge is probably entirely adequate for “World for Warcraft.”

Taking a process developed from a community developed series of relationships has been disastrous. Banks were given the benefit of the doubt because as community citizens they could be trusted. This made the process of mortgage foreclosure easier for the banks, streamlining a difficult problem in the community to be as painless as possible.

Maintaining that level of trust in bank integrity has been disastrous in an age where banking has become more a world of bonus obsessed, financial buccaneers than respectable community bankers.

The human recipients of the mortgages have suffered terribly. They have very often expected that their loans could be modified as since they were making what in the past were reasonable offers only to be tossed from “the gates of the temple.” What was reasonable no longer mattered. What was the best decision no longer mattered.

The only thing that mattered was the process. Humans need not apply.

We can no longer pretend that banks are reasonable, that they will act intelligently, or that they have the interest of the community or their nation in mind, when they make decisions.

James Pilant

Foreclosure Speed Made Loan Modifications Impossible

On By southwerkIn Philosophy of Business1 Comment

Why would a bank modify a loan rather than foreclosing? Loan modification is usually more profitable.

Let me explain. Take a typical home mortgage that has run into trouble. The purchaser owns a home that he bought at a price of 350,000 dollars in early 2006. He has fallen behind on the mortgage. He can pay each month but not as much as the mortgage is worth. However and it is a big however, the real estate boom has collapsed. The home valued now is worth only 270,000 dollars. His mortgage payments, his salary and the other facts point to him being able to pay a mortgage of that size. So, the bank would accept a loss on the mortgage reducing it to 270,000 in value. The bank now has a workable agreement with the homeowner. He can now pay on the loan regularly.

There is a 80,000 dollar loss for the bank. That would be a big deal if the bank had any way of getting it. If they foreclose on the house, they will be attempting to resell quickly a home now valued at 270k, and at the additional expense of the time and money of the foreclosure process. That 80,000 is not recoverable. Why not renegotiate a lower mortgage with the current owner who is already making payments?

This key questions here are, “How much is this property worth?” and “Can I get as much by foreclosure as I can by modifying the mortgage?”

Everyone watching the process of foreclosures over the last few years has been struck by one fact – there have been very few loan modifications. Almost every homeowner was foreclosed on. It did not seem to matter whether a modification was profitable or not.

As a society, we had never seen that before. People had been foreclosed on before in every kind of economic crisis. But in all these situations if the banks profited more by modifying the mortgage, the mortgage got modified. Now, it doesn’t matter if the bank profits from a loan modification or not. It’s easier and quicker to foreclose.

Also, it was easier to measure success by foreclosure rather than by re-negotiations. You could count the scalps on the wall. Negotiations that resulted in greater profits over longer periods of time didn’t count well.

The system is tilted against homeowners. The speed and number of foreclosures made it impossible for lenders to renegotiate.

From the Washington Post –

The financial incentives show that the problems plaguing the foreclosure process extend well beyond a few, low-ranking document processors who forged documents or failed to review foreclosure files even as they signed off on them. In fact, virtually everyone involved – loan servicers, law firms, document processing companies and others – made more money as they evicted more borrowers from their homes, creating a system that was vulnerable to error and difficult for homeowners to challenge.

“This was a systemic problem. It’s not like a few renegade employees made mistakes,” said lawyer Peter Ticktin, who defends Florida homeowners facing foreclosure. “It was industry-wide and pervasive, and everyone knew about it.”

The need for speed neutralized any attempt at judgment. No human intelligence could be allowed to interfere with number and speed, a total victory of the abstract over the concrete and real. Loan modifications are better for long term profits but they are not fast.

Understand this. In any long term profit making analysis, you have to apply human judgment, and from that you can maximise profit. The foreclosure system we have now does only one thing well – foreclose quickly. Everything else is does badly.

James Pilant

Could A Foreclosure Freeze Damage The Housing Market?

On By southwerkIn business ethics, Capitalism, ethics, Philosophy of Business, Teaching, White Collar Crime

Well, of course, it will. Massive wrong doing has consequences for the innocent. That is the nature of illegal acts. That is the nature of speculation and greed. People without fault are injured.

So, we have competing values here. Should the health of the economy and the suffering of the innocent be a bar on prosecuting thousands upon thousands of mortgages done outside the rules of the law.

I’m going to come down on the side of the rule of law.

I teach business ethics. You can’t have business ethics just through teaching and exhortation. They have to be backed up by penalties. If the suffering of the innocent is a bar to prosecution, it sends a clear signal that cutting corners, skirting the law, deliberately disobeying the law, have little or no consequences as long as the perpetrators can point at economic hostages and say, “Oh, but we can’t harm them.”

You cannot avoid prosecuting the guilty in the business community over and over again without them getting the message that there are no consequences. They will realize (or have realized) that the law does not apply to them.

Once they know this, what will happen to the rest of us?

Here’s the CBS News Story – Beware it has a commercial.

James Pilant

Mayor Of Lansing, Michigan Came Out For Moratorium In 2009!

On By southwerkIn business ethics, ethics, Government Failure, Philosophy of Business, White Collar Crime

On the Ed Show, the Mayor of Lansing, Michigan explains why he favors a foreclosure freeze. Well, fortune favors the brave. The mayor knew something was wrong and called it like he saw it. Kudos to the citizens of Lansing for electing a fighter!

He’s calling for a two year freeze!

Kansas City Mayor Calls For Foreclosure Moratorium

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime

I’m sorry you have to watch a commercial before it gets going, but it’s good of coverage. The local news station’s take on these is different from the national media. The beltway bloviators are usually out of touch with public sentiment.

James Pilant

Texas Attorney General Calls For Foreclosure Freeze

On By southwerkIn business ethics, Capitalism, ethics, Philosophy of Business, White Collar Crime

“Foreclosure Freeze”

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime

Well, it has alliteration. I guess that’s better than a moratorium on foreclosures. It lacks rhythm.

Foreclosure Freeze is the phrase I’m hearing more and more in the news.

Words are the way we design our thoughts. Strangely enough, this simple change of title probably is a significant turning point in the debate.

It was probably easier to argue against a moratorium, all legal and unfriendly, than it it to argue against a freeze, all simple and temporary sounding.

I suspect whether you call it a moratorium or a freeze, it’s become an avalanche and it’s going to happen.

The White House is as usual about a mile behind public opinion. While every elected official who could walk, run or crawl has got themselves to a microphone to declare something must be done, the White House is trying to cut a deal with the villains. They look like fools. Forgive me, the look is not just a look. It is apparent that political wisdom is not a resident at the White House – apparently it’s not even allowed to visit.

Now, I want you to understand. I don’t attack the White House with any joy in my heart. I’m angry, very angry. I mean look at the situation. Nobody had any concern for the homeowner. The government provided the banks with 700 billion dollars and gave the homeowners a program so pathetic it has virtually no participants. The mortgage companies acted totally irresponsibly and illegally for at least two and probably the better part of three years. So, the President’s press secretary announce that a moratorium is unnecessary, we’re going to have the mortgage companies take a second look. Okay, what do they have to do, run kittens through a blender? sacrifice virgins to satan? What gets these guys in trouble? I promise you if I went to court and told the Judge I looked over the paperwork and I am ready to proceed and I’m not, hell is coming to breakfast. I would probably be found in contempt of court and my case thrown out. These guys didn’t lie about that just once but hundreds of thousands of times.

So, I wait for the President to punish the wrong doers and he negotiates with them. I’m sorry. I don’t get it.

James Pilant