Despite escalating outrage over rampant foreclosure fraud, the Federal Reserve now appears ready to eviscerate a key mortgage regulation in an effort to spare banks the losses from their own wrongdoing. Even as bank executives preposterously claim to have wronged nobody in the foreclosure process, they're pushing hard to unwind the only serious federal rule that protects borrowers from predatory loans and improper foreclosures. As if the last decade of abuse wasn't bad enough, banks are once again mobilizing to screw borrowers in the pursuit of epic bonuses. And once again, it appears that the Federal Reserve has become an accomplice to this nationwide mortgage scam.
Today, top mortgage officers from the nation's largest banks are telling the Senate Banking Committee that they aren't kicking the wrong people out of their homes. This is simply false. Problems at mortgage servicers have been going on for years, long before banks got into trouble for illegally robo-signing foreclosure documents. People are kicked out of their homes without cause in the United States every day. If the top executives at America's largest banks don't know this fact, they lack the competence needed to run their organizations.
Law firms that work with troubled borrowers are jam-packed with horror stories about foreclosures caused entirely by banks, not borrowers. Families who never miss a payment come home to an eviction notice, or a thug breaking down their door.
But it's even more common for borrowers to find themselves in trouble because their bank engaged in blatantly predatory lending. There is only one serious federal remedy for predatory lending, and the Fed is now knowingly trying to gut that remedy in order to help banks avoid losses from their own fraud. The remedy is called rescission, and it works like this:
If a bank failed to make key consumer protection disclosures about a mortgage, the borrower can demand that all of the interest and closing costs on the loan be refunded. Equally important, the bank must also stop all foreclosure proceedings and give up its right to foreclose. Once the bank gives up its right to foreclose, the full amount of the mortgage, minus interest and closing costs, becomes due. This isn't a free lunch for the borrower, especially when the value of her home has declined dramatically, but it's better than nothing, and it does impose real costs on banks.
For this process to function at all, it is absolutely critical that the bank be barred from foreclosing before the borrower has to pay off the remainder of the loan. A borrower can easily owe hundreds of thousands of dollars after winning a rescission. Few victims of predatory lending actually have that kind of money on hand.
This is the whole point of rescission, and it's been on the books since the Truth in Lending Act was passed in 1968. Without it, the consumer protections detailed by that law have no teeth. A bank is barred from engaging in predatory lending, but if it does it anyway, it faces no serious punishment.
Rescission, in other words, is the only federal legal device keeping banks in check on predatory lending (as the last decade proves, it's nowhere near enough). Predatory lending is really bad. If banks engage in it, they should face dramatic consequences. They don't get to foreclose and they give up all of the profit they expected to score from the predatory loan. If the borrower doesn't have all of the money on hand to pay off what's left, the bank has to deal with this money coming in over time.
The bank lobby and the Fed are now trying to completely gut the substance of this regulation. The Fed has just proposed a new rule that would reverse the order of payments and the right to foreclose under rescission. Under the new rule, a bank that has engaged in predatory lending does not have to give up its right to foreclose until after the borrower has paid off the full remaining balance of the loan.
Under the Fed's proposal, if you're the victim of illegal predatory lending, the bank will still get to foreclose on you unless you pony up hundreds of thousands of dollars all at once. And you'll have to pony up what the bank says you owe, which may be very different from what you actually owe. That eliminates the usefulness of rescission, making the new rule a bailout for predators.
The Fed knows full well that it's gutting the law here. The Board of Governors and their staff have met with key consumer lawyers no less than three times about this exact rule proposal, and the Fed is going ahead with it anyway.
Here's what's really going on. The largest banks don't have enough capital to weather a bad housing market. And any process that sheds light on the documentation procedures at mortgage servicers will expose the big banks to investor lawsuits. But investors can't sue without those documents. Rescission judgments create a paper trail for illegal loans. In addition to creating immediate losses for banks, rescission documents that banks sold illegal loans, giving investors who bought mortgage-backed securities ammunition for well-founded lawsuits. Those lawsuits, in turn, could sink some of the biggest names on Wall Street, something the Fed has been trying to prevent at all costs since 2008.
How close to the edge are the banks? Many mortgages that they account for as profitable assets are actually huge losses. The most obvious example of this insanity involves second lien mortgages. There are lots of kinds of second liens loans, but the important thing to remember is that they're the first asset to be wiped out when housing prices decline. Right now, they're in big trouble.
The second-lien holdings of Citigroup, Wells Fargo, Bank of America and JPMorgan Chase are about equal to their total capital. If you wipeout second liens alone, these banks are done. Right now the banks are accounting for these second liens as if they were worth nearly 100 percent of their original value -- even though these loans only trade at only about one-quarter of that value. If banks take the market's value of just one class of assets, they're gone.
This class of assets goes completely under if banks have to own up to the current foreclosure fraud mess. The only real way to fix the documentation fraud problems is a nationwide program reducing the amounts that borrowers owe on their mortgages to current home values. Doing that forces the banks to acknowledge that their second-lien mortgages are, in fact, worthless.
So the big banks and their protectors at the Fed are launching a two-pronged strategy. First, they're trying to prevent investors from obtaining the loan documents that will fuel well-justified lawsuits. Second, they're trying to give banks even greater control over the foreclosure process, in order to allow banks to continue to game accounting rules. This is a premeditated strategy to save banks from losses created by their own fraudulent, predatory behavior. It has no place on the books of the Fed, particularly after the central bank's total failure to prevent the mortgage abuses of the past decade.
It's not too late for the Fed to turn back. It can, in fact, abandon this bailout, and leave consumer-protection issues to the new Consumer Financial Protection Bureau, which is designed to handle exactly this sort of issue, for exactly this reason.
Follow Zach Carter on Twitter: www.twitter.com/zachdcarter
http://www.financemetrics.com/foreclosures-on-homes/
If you're completely sick of the banking system and the elected politicians' inability to truly represent the best interest of the people, I invite you to participate in an online poll to send a message to the government and the banking industry.
The message: "See ya. It's been real. Our turn now. Don't forget to turn of the lights on your way out. We're done. Game over. The End. Have a nice day. Peace."
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This is a fact that is worth some contemplation....knee-jerk defensive partisanship doesn't apply here. What is happening is fully supported by the Team; in fact the banks can do anything that they like.
Now, piece it together alongside the bribes taken in from the financial sector by the senate, along with WHERE it appears that our senators have their financial investments tied to.
And the picture is one of outrageous corruption.
THIS STORY (along with a parallel one on pharmaceutical/health industry and the deals being cut by our so-called "representatives" along side the staggering sums these representatives accept from the pharma/health industries, along with where our representatives are invested - particularly leading up to the BIG FINANCIAL FAILURE 2008 - needs a thorough investigation) and it needs to be reported side by side - along with the investments by our congress in the health industries, energy industries, telecommunications industries, financial sectors - that would EXPLAIN CLEARLY to the American people - HOW the American people are being used as a means through which these industries EXTRACT THEIR PROFITS) and our elected officials profit from the deals they cut that result in undue, unjust, unfair hardships on the American family.
The banking fees being allowed by our congress, the telecommunications charges and fees, the unjust pharmaceutical prices (while denying us options for competitive pricing - in ANY realm), not to mention the restrictions on access to better forms of energy, fuel while skyrocketing costs in every realm crush the working class across America.
THE PRACTICES IN WASHINGTON ARE CORRUPT.
Excellent reporting, Mr. Carter.
Same with these "no look" mortgages: the borrowers repay the loan or lose the house. It doesn't matter who actually owns the house: it's not the people living in it and not paying rent.
To most Americans this is a matter of personal responsibility, not victimization as sold here.
No doc loans were made up by the lenders. Income wage must be verified on mortgage loans and .There never was a law excusing that fact. The incomes were altered and filed unsigned from the borrower (called bait switch). You have every right to review the contract and signature. Your personal responsibility law is BUNK.
If they are so "jam-packed", quote one please. Reports on yahoo and elsewhere disagree with you.
I'm really not interested in ignorant advocacy. I'm interested in facts, not opinion from someone with no financial or even work experience. Has author even ever had a mortgage? I have, paid it off. I once worked as a bank auditor. I have far more relevant experience to write this article.
For the banks only
The Government needs to admit their complicity ... ask forforegiveness ... and request amnesty.
The Lenders to need to confess their crimes ... ask for foregiveness ... and request amnesty.
The Homeowners need to accept these apologies ... as well as a financial reparation in the form of principal reductions to current market values.
And then we need to move forward.
Are you serious? That will NEVER happen.
“The banks brought the world to near economic catastrophe once already. We bailed them out because we had to prevent a worldwide depression. Now we come to find that we are at the same point again. And guess what? The government(both repugs and Dems) don't want to look under the hood of this car before we take it down that winding road once again. Why? Because it will just reveal how insolvent the banks truly are. Essentially, they already know it's bad but don't want any tangible proof to exist to that end. As a result, no one will investigate this sufficiently. Ignorance is bliss my friends. We have the choice of either bringing the true insolvency of all the major banks to light and then EVERYONE(100% of us) loses, or we try to maintain the current illusion in which the banks pretend they are doing great and the government subsidizes the wealthy and (merely 95%) ALMOST EVERYONE loses. I can't help but think that we are all on the Titanic and we are simply making way for the wealthy to get off the boat with as much cash as they can before the rest of us go sinking into the icy abyss.”
That should reduce foreclosures, but how does it cure the chain of title problem? It seems that you would still have uncertain title on a lower value loan. In fact, if no one knows who owns the note, how can a modification be made? Who is authorized to make it other than the note holder and who is that?