Sifma’s unhelpful take on the foreclosure mess

By Felix Salmon
October 11, 2010
this statement today:

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Sifma CEO Tim Ryan released this statement today:

“It would be catastrophic to impose a system wide moratorium on all foreclosures and such actions could do damage to the housing market and the economy. It must be recognized that the mortgage market, investors and the health of the economy are all inter-related. Investors in the housing market—including American workers with pension funds, 401k plans, and mutual funds—would unjustly suffer losses in their savings from these actions. Increased uncertainty in the securitization market would further constrain consumer credit and spending, dampening our already unhealthy economic situation. If mistakes have been made in relation to foreclosure processing, SIFMA firmly believes such mistakes should be corrected. It is imperative, however, that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy.”

It’s worth going through this slowly to see just how bizarre it is.

Firstly, it’s Sifma’s own members — with Bank of America taking the lead — who are imposing “a system wide moratorium on all foreclosures”. No one’s suggesting that the government could or should do such a thing: a foreclosure is, after all, a legal action brought by one private entity against another. It makes sense, if you’re going to sue somebody, that you make sure in advance that you have the your legal ducks in a row. Right now it’s abundantly clear that most loan servicers don’t have their legal ducks in a row, so it makes sense for them to stop foreclosing on homeowners, at least for the time being. (In Bank of America’s case, it has even tried to foreclose on houses which don’t have a mortgage at all.)

Secondly, it’s not foreclosure moratoriums which damage the housing market, it’s badly-documented mortgages. A healthy market is one in which title and ownership are clear and legally watertight; in which assets change hands at market-clearing prices; and in which value and market price are generally understood to be one and the same thing. Using these criteria, it’s pretty obvious that the housing market is not healthy now, and that the longer this foreclosure crisis drags on, the less healthy it’s going to be.

Crucially, you can’t judge the health of the market by house prices alone, especially when home sales are plunging and foreclosure sales often take place a good 35% below market values. And what goes for the housing market also goes, mutatis mutandis, for the mortgage market. It’s entirely possible that secondary-market RMBS prices will fall if housing prices drop. But in the medium to long term, what’s really necessary is for investors in mortgage-backed securities to have faith that they really own what they think they own. And the only way to do that is to bite the bullet and fix the mortgage mess.

In any case, it’s far from clear that a foreclosure moratorium would hurt house prices — or even RMBS prices — at all; indeed, it’s pretty hard to see exactly what Ryan and Sifma are worried about. They say that they firmly believe that the mistakes made in relation to foreclosure processing should be corrected, but they don’t bother to tell us how that’s meant to happen.

It would be great if Sifma were to take the lead on this issue, and come up with constructive solutions to a serious problem. Instead, they’re just delivering an inchoate and unhelpful blast of opposition. Sad.


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I sense fear and panic since we have heard almost identical words from the White House and Sifma over the past couple of days.

There are two separate levels to this issue.

The first is a relatively simple documentation error where overworked clerks are bundling documents and “robo-signing” affadavits. This simply shows greedy banks not using adequate staffing to do their job and willing to perjure themselves to cover it up.

The second is that MBS’s and MERS have fundamental issues with the chain of possession and ownership of the mortgage note that may be excrutiatingly difficult and expensive to re-assemble.

The more folks like Sifma nad the White house weigh in, the more likely it is the second layer that is at the heart of the issue.

There are going to be some real estate and securities lawyers that are going to be very busy over the next coupel fo years. With any luck, there will ba a group that could be disbarred during the same period.

Posted by ErnieD | Report as abusive

Ernie, it is also not helpful that we don’t actually know how much is the former and how much is the latter.

MERS is claiming that there is no issue with title. Of course to paraphrase Mandy Rice, “they would say that”. Would be nice to know what the percentage is of the cases that are having fundamental issues and maybe some breakdown of where.

The BoFA announcement about the halt certainly does not imply there is a fundamental issue rather they are going to redo the paperwork and continue.

As for SIFMA I suspect they are more concerned that with all the media coverage that people will start to default and try their luck which as time goes on and there is more media noise becomes more rational.

Posted by Danny_Black | Report as abusive

Letter to Wells Fargo spokesman Chris Hammond,

Dear Mr. Hammon,

In your press release, you declared that “We are working hard to do all that is possible to keep homeowners in their homes,”

That’s a lie. I can say for a fact that Wells Fargo made mortgage loan and foreclosed my home based on hugely inflated and fraudulent appraisal.

Wells Fargo and its army of attorneys knew it is Category C felony to make mortgage loan and foreclose home based on fraudulent appraisal. However they chose to defraud us by foreclosing our home.

For almost a year, we pleaded with Wells Fargo to carry out its promises to us to rescind the loan contract and help us to recovery our finanical losses. Wells Fargo bluntly refused and challenged us to sue it for justice.

Wells Fargo committed prosecutable crime against us. We lost our home. Something is wrong with this picture.

1. it is illegal for Wells Fargo to make mortgage loan to us based on hugely inflated appraisal.
Fact: – Wells Fargo’s fraudulent appraisal valued our home at $718,000
- Wells Fargo’s own review appraisal valued our home at $475,000
- Nevada Attorney General’s office suspended the appraiser’s license for committing appraisal fraud on our home.
- Nevada Appraiser Licensing Board mandated the appraiser to complete appraisal fraud course before regaining his real estate appraiser license.
- Nevada Revised Statue NRS 205.372 states that it’s category C felony to make mortgage loans based on fraudulent appraisal.
- Cases of Attorney General’s indictments against attorneys, loan brokers for teaming up make fraudulent loans to defraud homeowners.

2. it is illegal for Wells Fargo to wrongfully foreclose our home based on fraudulent appraisal and mortgage loan.
You can find all the facts on our website.

Posted by WFMFV | Report as abusive

Of course, the investors in mortgage securities are the pension funds, Federal Reserve, insurance companies, and others who were persuaded to buy the “toxic securities” in order to bail out banks, not the bank servicers who sold off the notes to Fannie Mae and Freddie Mac to be bundled into the securities. The banks themselves usually own second liens and don’t want foreclosures that would wipe out their capital assets. These investors are pushing bad loans back to the FMs and they in turn, starting last year, pushed back to mortgage servicers. Everyone has to rely on MERS, the electronic system set up by the FMs with the big banks. Also, the servicer Ally/GMAC is majority owned by taxpayers. So taxpayers are never going to get out of this mess by having one branch of the government sue another. They will have to privatize the FMs and let the housing market and job market be free to clear and stabilize. Foreclosures and title insurance are matters for state law, not federal investigation. If you don’t want foreclosures, pay cash or mortgage payments on time, and pay your taxes and insurance too.

Posted by joeshuren | Report as abusive

After uncovering the same massive fraud that Bank of America has admitted to in Orleans Parish, and filing suit in federal court, I am now challenging Louisiana State foreclosure law in the US Supreme Court.

Here, you can be sued, and lose, and no one tell you till the day of eviction – when a sheriffs deputy orders you to get out. I’ve talked to many, many families who were still paying their mortgages, still rebuilding their homes. I was the first and only person to tell them that they had been foreclosed on and that their homes were no longer theirs.

The people of New Orleans deserve better, and a moratorium in Louisiana might not be too bad an idea.

Check it out: urt-challenge-to-louisiana-foreclosure-l aws.html

Posted by mcastrillo | Report as abusive

i still do not understand why appraisal fraud is not in the mainstram media. that is what i put in google to find this story. every day mortgage brokers and real estate agents and appraisers are given jail sentneces for this kind of fraud but it seems that mers and wheres the note is taking precedent. what happens if your county in flroida is a victim of appraisal fraud, home prices rose fast then salaries can sustain and now we are all losing our homes. i do not think they should put this on the backs of florida home owners if no one was watching the hen house. it happened and we should be compensated. the appraisers have a class action law suit against wells fargo because if their appraisal did not come in at asking price trhey were black listed.
The appraiser for my house actually wrote it our for the bank. Home on market for 51 days at 225k sold 51days later for 245. uh the house should have been sold for less then asking price in a normal market. then to top it off the added another 19k to even it with my home.. what this is crazy. hope the judge is fair.

Posted by mona47 | Report as abusive

Classic case of one hand not knowing what the other is up to. Though it shouldn’t coe as a surprise to see this kind of uncoordinated behavior by the banking sector. After all it’s exactly what got us into this mess. Someone didn’t get the memo.


Posted by MathieuBCN | Report as abusive