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It’s About the Rule of Law

This needs to be said up-front, and quickly too: the Obama administration’s refusal to deal with the foreclosure fraud epidemic is part and parcel of their refusal to support the rule of law.

First, we had their insipid ‘look forward, not backward’ cowardice, allowing the torturers and murderers of the Bush administration to get off scot-free, and in many cases, like McChrystal, for example, promoting those up to their necks in abuses instead of prosecuting them.

Then we got the radical expansion of assassination and drone attacks overseas, a flagrant violation of international norms and, almost certainly, international law as well.

Next, the Obama administration turned its eye on the independent judiciary, assaulting the very concept of judicial oversight with ttheir outrageous ‘state secrets’ claims, trying to put themselves entirely beyond review, even as they (attempt to) murder American citizens without due process.

But everything old is perpetually new again for Obama supporters, so when David Axelrod went out to argue against a national foreclosure moratorium in light of what may be the largest fraud ever perpetrated on a court, tens of thousands of counts of fraud lined up in a row, we get the usual suspects like John Cole arguing that it’s just common sense to side with the banksters:

That isn’t taking the side of the banksters, that is taking the side of common sense. What possible use could there be for a nationwide halt to foreclosures?

I can understand selective moratoriums where states deem it necessary, but wouldn’t a nationwide moratorium on foreclosures be disastrous? Is there any precedent for this? Do they even have the authority to wave a pen and halt all foreclosures? Or is this where the magical bully pulpit comes in again?

What possible use could there be? How about preserving the very concept of property rights in the face of fraud on a scale literally unseen, prior to this, in all of human history?

We should all be very concerned about the foreclosure situation in Florida. If you are a homeowner or potential homeowner, you should find it offensive that people’s property rights are being violated in such a flagrant way. If you are an investor, either as “bond vigilante” or someone with a generic 401(k), you should be worried that servicers have gone rogue and the incentive structure to maximize value instead of fees associated with foreclosures has broken down.

And if you care about basic Western liberalism–the classical kind, with a Lockean understanding of freedom to own property along with freedoms of speech and religion– you should be pissed off. This is a clear-cut instance of the rich and powerful decimating other people’s property rights, rights that are supposed to protect the weak from the strong, in order to preserve their wealth and autonomy. Unless you think property rights are mere placeholders for whatever the financial sector demands are, this should be resisted. This should be viewed as a problem an order of magnitude larger than Kelo v. City of New London.

The courts are ignoring the law to force people out of their homes on the basis of fraudulent affidavits and forged documents at an unbelievable pace. In some states, like Florida, special kangaroo courts have even been established to make it easier on the banksters to steal homes through fraud.

Why should there be a national foreclosure moratorium? Because only 23 states deal with foreclosures in the courts, and for the rest of us, tough luck. There’s no oversight at all. What little oversight there is in those 23 states has shown the problem, the outright theft, to be on a larger scale than anyone could have conceived. From Ohio:

This is big news. I just got off a conference call with Richard Cordray, the Attorney General for the state of Ohio. He has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.

Got that, Cole? 450k potential cases of fraud on the courts in one state alone. One state! How on Earth are we supposed to deal with this on any level but nationally?

But, you might ask, in the 27 states without judicial foreclosure, there’d be no fraud on the courts, so no problem right?

Wrong. That’s just one tiny facet of the enormous gem that is our mortgage fraud industry. You see, the banksters didn’t just rip off homeowners, they ripped off the investors they sold the mortgages to, in tiny pieces, as well:

The admission by GMAC that it produced improper affidavits, followed by suspension of foreclosures by GMAC, Chase, and Bank of America in 23 judicial foreclosures states, is the tip of the iceberg of widespread foreclosure abuses. Yet comparatively few members of the media have asked the right question: why would servicers and law firms engage in fraudulent activity on such a widespread basis?

The ugly answer, as we have detailed long form in earlier posts (see here and here for more detail) is just as the front end of the mortgage securitization pipeline broke down, with originators increasingly simply pumping any deal through in the interest of pulling out fees, the same behavior spread to the back end.

Evidence is mounting that the various parties responsible for getting the notes (the borrower IOU into the securitization trust, failed to perform a series of tasks that were clearly set forth in the governing contract, the pooling and servicing agreement. These procedures were designed to thread a path through a complex thicket of multiple legal considerations (state real estate statutes, federal securities law, trust law, IRS provisions, to name a few). The failure to do it right means any retrospective fixes run afoul of multiple boundary conditions. Thus to industry participants, fraud, bizarrely, looks to be less bad than admitting to their colossal failures to respect contractual obligations and legal requirements.

So, aside from hundreds of thousands of cases of fraud and countless thousands if not millions of investors stolen from, we’re all good? Guess again, because there are so many mortgages in doubt that the very concept of owning title to a house is beginning to crumble, and we’ve had to invent a new term in English to describe the fallout: ‘blighted title’.

Here’s a big one: Title insurance companies may be scared away from offering “clear title” guarantees on foreclosed homes. That would throw into doubt who actually owns many thousands of houses — those going into foreclosure and those purchased out of foreclosure — all across the state.

Who’s going to buy a home if they don’t have a guarantee that they will legally own it?

If the courts finally acknowledge that many foreclosure documents are inaccurate, people who have bought thousands of foreclosed homes may have to reassert their legal ownership. Some former owners already pushed out of their homes by foreclosure proceedings could find they still own their houses, only to face a second round of foreclosure just to get the ownership documentation right.

So in addition to the courts being spat upon hundreds of thousands of times, and investors cheated out of their legal rights in countless investments, now every single home ever foreclosed upon may be unsaleable because nobody will insure their titles. Is that a big enough problem for you yet, Mr. Cole? No?

How about this then: because of the way the mortgage industry decided, unilaterally, to stop following the law regarding notarization and document filing, there may be no way to determine who actually owns millions of mortgages, in foreclosure or not:

Since the repeal of Glass Steagall, the creation and trading of mortgage-backed securities have become a norm, enjoying less regulatory oversight than for traditional securities trading. Mortgages now became parts of “tranches,” a French word for “pieces,” that back securities sold. Mortgage notes, which must to be recorded to become a lien on real estate are now, through a sleight of hand, secondary to the interests of the mortgage backed securities traders with the advent of Mortgage Electronic Registration Services, Inc. (MERS) which facilitates trading without recording the changing ownership interests in mortgages. Local governments lose revenue from recording those changing interests, and the original note often becomes lost in the brisk shuffle of trading and reassigning them to various tranches that back purchases of them from all over the world.

Let’s repeat that: every time a mortgage changes hands, by law for the transaction to be legal, it has to be locally recorded. Since the advent of MERS, the banksters just decided not to do that, in large part to avoid paying fees to local governments that would go to pay for silly things like public services. Instead, they just made private, unreviewable, unenforceable, illegal sales amongst themselves using MERS to hide. As a result, there is no easy to way to determine who actually owns many of these mortgages. The bank trying to foreclose upon you may not have the right to do so; moreover, even if you’re paid up in good faith, some OTHER bank may claim to actually own your mortgage and demand payment, and you have no way to know if they do, or do not, have that right.

The entire system of land ownership in America has broken down.

How many mortgages does this entail? Well, up to 62 million of them, as it happens. More on that later.

So, to recap: according to the Obama Administration, as well as its online defenders, the fact that an entirely undocumented, private system has been illegally substituted for the long-established state and local system of land-ownership? Not a reason for a national moratorium on foreclosures. The fact that the title insurers could collapse at any time, bringing almost all home sales in the United States to a dead stop in a completely uncontrolled manner? Not a reason for a national moratorium on foreclosures. The imminent collapse of the entire mortgage backed securities market? Not a reason for a national moratorium on foreclosures. The potential for hundreds of thousands, perhaps literally millions of acts of fraud perpetrated on our courts? Not a reason for a national moratorium on foreclosures.

Is there literally nothing these people won’t defend, if perpetrated by the banksters? Here we stand on the verge of a raw financial panic, with tens of millions of Americans having no clear legal claim to their own homes, with the courts clogged with foreclosures, buried in fraud, with title insurance about to implode and investors swindled in violation of their own contracts, and the official Obama line is… we’re opposed to stopping the madness?


Update: Since I started writing this, the White House and Elizabeth Warren both came out in favor of the State AG’s investigating the industry. Apparently 40 states are now involved; I can’t imagine the other 10 holding out forever. So, good news for O-bots: their exalted leader gets to force the hard work off on the tax-starved, understaffed states, and remain nobly above it all so that he can continue to bank bankster checks in his upcoming re-election campaign.

Such moral leadership is truly a blessing on our nation.

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  1. Michael D.
    October 12th, 2010 at 16:02 | #1

    Seriously? Are you honestly this obtuse? It hurt to read this post. Comic books, and not public policy, are definitely more your speed.

  2. Greenlabormike
    October 12th, 2010 at 16:15 | #2

    I agree that a national moratorium makes sense (messy, complicated, painful, but in the end necessary) but in defense of Mr. Cole, he does make one valid point – Obama can’t do it by Presidential Fiat…err..Executive Order. It would have to be done by an Act of Congress (the power to regulate interstate commerce and all that). Arguably, the Consumer Financial Protection Agency will have jurisdiction…when it is set up…but at the moment, Congress is the only way to go, except for the inidividual States to each order its own Moratorium.

  3. Joe Beese
    October 12th, 2010 at 16:33 | #3

    I should thank John Cole for getting all WATB about this post. I like the cut of your jib, sir.

  4. John Sears
    October 12th, 2010 at 17:49 | #4

    I never said he did have the power to do it by fiat; the thing he COULD do is tell his staffers not to go out to the press and badmouth the idea.

    Personally, since Fannie and Freddie own or back 90% of all new mortgages issued in the US, and are, err, federally controlled, I think it’d be doable to get a national moratorium. Simply tell any of the four major banks doing foreclosures, BOA, Citi, etc, that if they foreclose on a single property, Fannie and Freddie won’t buy.

    That’s equivalent to a wrench in the teeth, but it works.

  5. John Sears
    October 12th, 2010 at 17:51 | #5

    @Joe Beese
    Haha. Aww, did I hurt Often-Wrong’s fee-fees?


    I hope one day to be forgiven by as many people as he has been for being as spectacularly wrong as he was. Only, you know, without backing a war that killed hundreds of thousands of innocent civilians. Honestly, the fact that the man can show himself in public is a testament to the power of human ego.

  6. John Sears
    October 12th, 2010 at 18:41 | #6

    @Michael D.
    Hi there! First, let me congratulate you on learning how to read without comprehending, since the little tab of personal webcomic interests at the top of the site (which is two years out of date anyway) contains no links to comic *books* of any kind.

    You generally read those offline. You know, while holding them.

    Second, do you have any actual factual errors you’d like to point out? If you want to talk about my tastes in comics, online or off, send me an email. This isn’t the place per se.

    Third… eh. I’m tired of mocking you. I need a new pet troll.

  1. October 21st, 2010 at 23:49 | #1