I read that Angelo R.Mozilo of Countrywide Financial fame is paying a $67.5 million fine of which Countrywide is paying $20 million. It reminds me of the old story that lawyers are wont to tell. A petty thief is charged with stealing a watch. He vehemently denies it. He is convicted and sentenced to probation. As he is walking out of court, he turns to his lawyer and says: "Does this mean that I can keep the watch?" I expect that Mr. Mozilo turned to his lawyer and asked: "Does this mean that I can keep the remaining $100 million?"
There is now talk of a foreclosure moratorium and a criminal investigation, because it appears that papers submitted in support of foreclosures have been submitted without verification or valid notarization. Let us start with the obvious. Foreclosure is a devastating event for anyone. Being forced to move from one's home because of the inability to meet payments must be one of the most devastating experiences. However, the reaction to the foreclosure process seems to be a little overblown.
Whoever certifies or swears that a mortgage is in default undoubtedly relies on some computer printout indicating how much is due and how much has been paid. It is difficult to envision how there could be any independent verification, particularly since the mortgages have been bundled, resold and resold. Furthermore, foreclosures do not start with a forced sale of the premises. They are preceded by notices of default, threats, court papers, notices and numerous opportunities to object or defend. The foreclosures of the wrong house or paid mortgage are rare. Borrowers know whether or not they are in default. How much may be a matter of dispute, but not the fact of default.
I certainly do not want to appear as an advocate for mortgage foreclosures in these dire times, and I certainly do not intend to condone the use of false notarizations of signatures nor the submission of inaccurate information to obtain foreclosure judgments, but a moratorium may not be warranted and could make matters worse. If it serves to prompt mortgage holders to renegotiate loans and permit persons to remain in their homes it is a good thing. But if it permits persons to remain in their homes without paying or if it permits abandoned homes to remain unsaleable, it is a bad thing. Although foreclosures bring down surrounding property values, abandoned, unkempt and trashed houses do so likewise. Further, allowing millions of mortgages to continue without payment or foreclosure is certain to cause further economic disaster and possibly more bank failures.
Mortgage holders must strive for accuracy and honesty in foreclosure proceedings. Congress should not stoop to "touching up the X-rays" by making illegal notarizations easier to accomplish, an effort which President Obama pocket-vetoed. It is easy to feel no sympathy for the "evil" banks who granted mortgages to people who could not afford to maintain them. But a person who purchases an auto on time should not be able to keep it without keeping up the payments no matter what the sales pitch, and the same must be true for homeowners. While our hearts may cry out to those who are forced to lose their homes because of their inability to make payments, our economic (and legal) system will collapse if promises made are not required to be kept. If purchase money mortgages were involved (loans made by the seller to the purchaser) we would not hesitate to uphold the seller's right to foreclose. It cannot be different, no matter how angry we are at the banks, because it is an institution rather than a person that holds the mortgage.
Maybe lenders convinced borrowers to take out mortgages they could not pay, or maybe borrowers took out mortgages they knew they could not afford. In either instance, absent a modification by agreement, the right to foreclose cannot be foreclosed. We should do everything humanly and economically possible to aid those who are in danger of losing their homes, but failing that, the dire and sad consequences of a foreclosure are inescapable. A promise is a promise even if made by the good guys to the bad guys.
In the meantime, the guy who stole the watch shouldn't be allowed to keep it, except possibly in the company of some fellow inmates.
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This sounds like two sets of rules, why should the banks be allowed to roll-on with their foreclosures when valid legal questions have been raised, and why should they now be allowed to "refile paperwork" without question? If I sent in false paperwork to the IRS and they caught me, would I be allowed to "refile" and move on as if nothing happened? Isn't this what the banks are trying to do?
If any particular banks or servicer's business is grinding to a halt, it's grinding to a halt because of THEIR actions [same argument they use against homeowners], why are we now, planning to bail them out again ... oh, its because it's business, we love our capitalism, even at the price of ethics and morality. I forget sometime :(
Which is not an indictment of those who did. And to what degree anyone is or is not the culprit is still a tangle for me. I just came looking for the article because I thought it was really brave of you to tackle it and I'm going to read the other posters thoughts.
I too think there are 2 categories, those who took on mortgages (willingly?) through devious lenders and those who did their homework but were hit broadsided by the economy in general...I always compare it to credit cards. There are people who approach credit cards as though it's free money.They purchase as though they are wealthy people and then when they find themselves in bankruptcy - it's the credit cards fault. ("Credit cards don't kill people's finances. People kill their finances") But they're not the same as people who used credit cards reasonably and then found themselves in a life situation - through no fault of their own. (I think there need to be hardship laws - still required to pay, but renegotiated terms.) But then you have actually have a 3rd category, people who were duped by contracts that didn't spell out the hidden charges.
The fact is though, both sides have to be credible. The banks and lenders have to be regulated - they should not be in the loophole business, with profits coming from "gotcha!". But the borrowers have to own their own responsibility too. If I'd decided to go for the mortgage, I'd have no one to blame but myself right now. But then I'm a suspicious person by nature and frankly, I'm not sure that's such a bad thing when it comes to business.
http://www.huffingtonpost.com/judge-h-lee-sarokin/who-are-the-culprits-in-t_b_765739.html
One is that with the collapse of the bubble, created by top-level financial institution machinations, the productive economy came to a near dead-stop and the same top-level institutions, stimulated by government gifts of (borrowed) money to loan to businesses, instead loaned to the government, not to businesses so the businesses could continue to employ and the employed could continue to pay mortgages.
Millions of payment-makers were made unemployed or took drastic income cuts. Most were not "marginal risks" loaned to for government programs twisting arms. They were good risks before the big financials screwed the economy they depended on.
Another is that the top-tier financial firms encouraged "refinance" mortgage sales, and sold, themselves, very aggressively and dishonestly: Customers were lured and not told their interest rates would be manipulated. If they asked they were told they would not, or were, promised further "refis" that would offset.
How much "due diligence" are the inexperienced responsible for when dealing with a financial professionals taking their money and so presumably acting for them?
Third, you fail to recognize there were shysters, up to top levels, who took advantage of securitization to make and selling synthetic "Ponzi" mortgage securities, "synthesizing" payments to buyers while selling more copies, then at the end letting the synthetics "default". Ones left with such junk are who hired mills to get "foreclosures" on them.
When we were ready to sell that home and buy our second, a brand new four bedroom home on a hill a mile from the beach in California I remember thinking “Wow – this house is four times as expensive as our old one only ten years ago”.
Now this house has gone to well over a million dollars and along the way to this sixteen times evaluation I remember thinking over and over “Wow – my home made more money than I did last year”.
Along with these thoughts I also remember thinking “Wow – this can’t continue”. I was right about that of course. Now I hear people saying “just hang tough and pay your mortgage. The value of your home will come back”.
That same voice say’s to me “Don’t bet on it”
If your underwater you should bail out.
People lost jobs because of the gambling practices our banking institutions undertook. Banks gamble and then profits are private while losses are public? Talk about irresponsibility!!
There was a push by HUD and other organizations (ACORN) to lend to lower income customers. There is HUD’s involvement in requiring Fannie Mae and Freddie Mac to expand their purchases of mortgages held by low-income and moderate income homebuyers, and Bill Clinton’s “National Homeownership Strategy” that made financing more available and flexible. Deliberate or ignorant of the consequences?
A quick look at some Board of Director members of Fannie Mae reveals these folks come from the likes of:
City Group
Ernst and Young
JPMorgan Chase
UBS AG
Credit Suisse
Federal Reserve Bank
These institutions are rackets in most American's eyes.
I agree that halting foreclosures will create more financial difficulties; however, the root of the problem cannot be shoved off onto the people. You know the root of the problem, yet we are going to be the ones to pay for it? Pfft! I would rather see the economy crash and then perhaps we can build it back up without usury, and prevent the biggest scam in American history from ever happening again.
Who sets and determines the actual lending standards?
It starts like this Goldman,Sachs had his lobbyist bribe some of our legislators to "repeal" the Glass-Steagal act which protected us from the early days after the depression. They bundled bad and good mortgages and took them to Moodys and bribed them to grade them all AAA, Then they went to AIG and convinced them that they could make a lot of money insuring these bundles CDO...When it became evident that Lenders could just about do anything and it would be approved and graded AAA the sky was the limit. ..well you all know now the house of cards collapsed and the Taxpayers paid the price. All in all though Bernanke only had to turn up the speed of the printing press to about 6000rpm and spit out those FIAT dollars which today are nothing but paper backed with nothing...what a departure from the old days when they were backed by GOLD and then SILVER
Of course, no one wants to encourage late payments, so make it conditional on getting back within the 30 day payment period for maybe 90days before enjoying relief on their scores.
This ability to approve easier and BUY would release so much money back into the economy, bringing back jobs into the best private sector of all, smack dab in middle of the economy, the home industry.
Almost 30% of Americans're now under 600 fico scores . It's killing us... And MUST be repelled against strongly in our war against a dysfunctional economy.
This would give people something to work towards; Too many people have simply been just GIVING UP.!!!.
Lenders would see less people walk away, so it'd help them too
If you want to buy a three year old used car, a prudent financial decision, you have to get bank, not dealer, financing. Checking out several banks to find the best interest rate will get you several "hits" thus lowering your credit score.
If you have well performing investment properties with a five year documented history of positive cash flows which are underwritten by mortgages, and this is has been your business for the last 30 years, your score takes monumental hits due to the number of mortgages unless you choose to incorporate as an Inc. and not an LLC.
If you have a payment arrangement with your dentist which you have paid in a timely manner for the last 18 months with less than a $50 balance and the doctor joins a "group" which immediately sends your account to a collection agency in violation of your written agreement, your credit rating takes a hit.
This works in favor of banks and insurance agencies allowing them to charge you inflated interest or premiums based on your lowered FICO score.
When your leveraged 50 to 80 times your reconizable toxic asset base ie. lending money you didn't have, you Stamp, Securitize & Sell...reposition appropriately (short).
One finds the common, desperate refrain of self-preservation and unearned entitlement from all elite castes: Our record is abysmal and embarrassing; we've been wrong about everything; we never admit error or account for the destruction we cause; but we still are inherently superior and have an intrinsic right to shape and dominate the conversation, because we've been anointed for that role, and those who haven't been have no right to participate...you are invisible.
The cardinal rule of fairness is surely that one person should not achieve a gain by simply imposing an equivalent loss on all the others.
In today's times (i.e. after the repeal of Glass-Steagall), we know that banks and many other financial institutions had =strong= motives to engage in practices that henceforth had been outlawed. We know that they thought that they could make vastly more "profits" by selling a security than they ever could by servicing a loan.
The wisdom of Glass-Steagall is that the two parties could never be the same company. The insanity of repealing it, then, was that they now could.
If my company is a "two-headed Hydra" that, on the one hand, can make (say) $1 million profit over the next 30 years (maybe) by selling and servicing a mortgage, -OR- on the other hand could make $500 million profit in one week by selling this and 500 other mortgages as a "security," then ... which head =IS= going to win?
"We have a duty to our Shareholders," you see, "to SELL THAT SECURITY." And of course, if the left-head loses because that security turns out to be worthless ... hey, they're out $1 million. Which means the other head (same company, remember...) only made $499 million. After paying the left-head for its "paper loss," The Hydra still books a $498 million (guaranteed) paper profit.
The mortgage holder? "Frankly, screw 'im." I just flim-flammed my way to a $498 million guaranteed paper-profit whether he defaults or not.
(Signed)
Rumpelstiltskin
Well... that statement is actually "not quite right," come to think of it. They're ready to sell you "insurance" (supplied by the Third Head of the Hydra, of course) to the effect that, if the security you bought (from the Second Head, originally sold by the First Head) turns out to be worthless, "you are covered."
Extending the flim-flam only slightly further, they persuade you that "you are covered" merely by the fact of POSSESSING this "insurance (sic) policy." That the house of cards could never, ever fall down.
Lurking in the shadow, of course, is The United States Government. A.K.A. the Defender of Truth and Justice. Why, they've got a "securities and exchange commission!" Watching out for you! Uh huh...
The Government? What if they aren't? The house of cards? What if it does?
That "priceless" tulip ... what if it's REALLY something that you put on a sandwich instead of an onion? Or that you plant in the ground merely to look pretty?
Still, no Journalist has asked Pres. Clinton if he'd like to explain for history's sake what prompted him to sign the catastrophic bill that opened such a huge and cavernous Pandora's box of greed and destruction on our nation. . Was he over-confident, since he'd balanced the budget? What will he say about it now? Is there regret? He can't run away from the fact that he signed it into law, and Republicans can't hide from the fact that they owned the moment with their whole ideology perfectly brought to life by Phil Gramm of Texas.
Bankers insisted then as they now insist to the Obama administration that they need the ability to compete globally, so don't even think about bringing "Glass" back; ... You just can't get the genie back in the bottle...
And it leaves a horrible landscape of dysfunction and desperation that will last for generations. A very sad chapter in our country's history.
And if there was any doubt about Obama's allegiances, look no further than Larry Summers.
Regarding his views on derivatives in the context of commodity trading deregulation (from Wikipedia):
On July 30, 1998, then-Deputy Secretary of the Treasury Summers testified before congress that "the parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies."
Only a Jury can decide that. Therefore, let us bring forth the Juries.
I believe, as many million others do, that there is "probable cause to believe" that these banks, and a great many others, were not acting "in good faith," but were acting "with intent to defraud." The good old phrase, "knew or should have known."
There are many Trials that need to be held. Depositions that need to be taken. Oaths that need to be sworn.
And now, I'm not plugging for a reply. ;-)
I too get much out of such exchanges, both intellectually and for the intrinsic entertainment.
Your comment above called this classic to mind:
"It is the mark of an educated mind to be able to entertain a thought without accepting it."
-- Aristotle
Your essays remind us all that sound public policy takes all parties' perspectives into consideration.
It is great to have the perspective of a real judge on such matters rather than the "armchair" judges (self included!).