The positive mortgage settlement

By Felix Salmon
February 9, 2012
looks like a good one.

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The long-awaited mortgage settlement is here! And it looks like a good one. The biggest worry was that the attorneys general would give away the shop in return for big headlines. While in fact they seem to have been quite successful at limiting the immunity that the five banks (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) are going to receive:

In the agreement’s expected final form, the releases are mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents, a practice known as robo-signing.

The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud.

Officials will also be able to pursue any allegations of criminal wrongdoing. In addition, a lawsuit Mr. Schneiderman filed Friday against MERS, an electronic mortgage registry responsible for much of the robo-signing that has marred the foreclosure process nationwide, and three banks, Bank of America, JPMorgan Chase and Wells Fargo, will also go forward.

Along with how broad the releases would be, California’s attorney general, Kamala Harris, also pushed for her state to be able to use the state’s False Claims Act. That would enable state officials and huge pension funds like Calpers to collect sizable monetary damages from the banks if officials could prove mortgages were improperly packaged into securities that later dropped in value.

If you’re a bank shareholder breathing a sigh of relief, then, don’t. The only thing you’re protected against, now, is lawsuits over robosigning. Were those likely to cost $25 billion if they had gone to court? It seems unlikely to me that they could have raised that much. Other big-money lawsuits over securitization can and almost certainly will still be brought — which means that the big banks all still have significant litigation risk hanging over their heads.

So why did they do this deal? Well, for one thing, it’s not nearly as expensive as it might look at first glance. It’s not like they’re paying out $25 billion and getting nothing but a bit of immunity in return. A huge chunk of the money will go towards principal reductions on underwater mortgages — which means that it’s not really a cash outlay at all.

Let’s say I lent you $350,000 to buy a house, and that house is now worth only $250,000. I’m holding that mortgage on my books at par, but if I sold it there’s no way I could get $350,000 for it, or even $250,000. I give you a principal reduction of $40,000, so that you now owe $310,000. That’s good for you — which is why the settlement is a welcome development. And it means that I have to take a $40,000 write-down on my balance sheet. But the mortgage is still being held on my books at $310,000, which is still more than I could have sold it for before the write-down.

In other words, what’s happening here is that the mortgage settlement is at heart largely just encouraging banks to bring their balance sheets closer to reality — which is something they’d have to do sooner or later in any case. Indeed, insofar as principal reductions can increase the value of a mortgage, this deal is actually making banks money, over the long term.

So think of this as that rarest of settlements, one which really is a win for all sides. The attorneys general get a big deal, homeowners who got foreclosed upon get $2,000 apiece, and the banks get to do the kind of principal reductions they probably have wanted to do for a while, but while getting significant immunity from prosecution at the same time.

Now, I guess, we just wait and see what happens with all the other possible prosecutions and lawsuits, especially in New York and California. And, of course, from the FHFA.

61 comments

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Does the settlement include an admission of wrongdoing? If not, it is business as usual.

Posted by Curmudgeon | Report as abusive

Trampling on the rule of law with impunity, in fact with subsidies!, is considered a win for all parties involved? Please explain this logic to the countless homeless, and jobless, former [insert 1 of 5 banks] mortgage owner who was fraudulently foreclosed on using false documentation and is bankrupted by illegal service fees. Yes, everyone please go read Yves Smith (link above) and disregard this myopic garbage.

Posted by boshko | Report as abusive

from Yves: “That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.” see link above

Posted by arrgh | Report as abusive

Another vote for the Yves Smith assessment of this settlement. Anyone who has been working with these banks (BofA in my case) knows that they are not dealing in good faith and very little help with come from this for actual homeowners.

Posted by johnnyjr | Report as abusive

Oh, joy. More misleading cheerleading. Another vote for Yves.

Posted by Foppe | Report as abusive

Yves.

Posted by SohoD | Report as abusive

Felix,

Its been five years since the start of the financial crisis. The banks, by law, are required to have their balance sheets “recognize reality”. It is quite obvious no one in the Obama administration has any interest in doing this or they would have forced them to do so long ago. This settlement is an election year ploy to gain more banker campaign cash and fool the public into thinking Obama is concerned about their plight.

Which position in the 2012 Obama administration are you gearing for?

Posted by apataki | Report as abusive

“Its been five years since the start of the financial crisis.”

Absolutely! And financial crisis should never last more than two years, three at the max. Blame the president. He has neglected to wave his magic wand to make everything better.

Posted by TFF | Report as abusive

I was under the impression that the majority of mortgages pre-2008 were securitized. Now it appears the mortgages that were aggregated into the CMOs are eligible for principal reductions, meaning that the CMO holders are paying for the banks criminal fraud.

You say it’s a win for everyone, how do the CMO holders win?

Posted by jpmist | Report as abusive

Jpmist: you are of course right. And lest someone suggest that the banks are too fair to do so, allow me to repeat a very simple formula: “other people’s money” may be used, so it will be used.
Having said all that, since it’s election “season”, it is inappropriate to suggest that the Dems might be rewarding banks for engaging in fraudulent practices. So everything is spun in such a way that the guy who is a lot like Romney policy-wise but isn’t looks like he’s less of a crime-abetter beholden to WS interests than the guy who made his fortune being a locust.

Posted by Foppe | Report as abusive

Felix, Please read Yves Smith and re-write this piece.

Posted by iamamartin | Report as abusive

Update: Fannie and Freddie are exempt from the AG settlement.

Posted by jpmist | Report as abusive

Felix, this piece is as bad as you one on unemployment last week.

We all like to hear good new and we all want to feel good. But the “settlement” is another handout to TBTF banks and does virtually nothing for people that are underwater.

They also avoid serious liability for the fraud they perpetrated on the US public and the world economy.

How about nationalizing the banks, wiping out shareholders and bondholders and starting from scratch with highly-regulated public utility banking?

More of the same fixes nothing. I’m disappointed with you Felix.

Posted by upstater | Report as abusive

“homeowners who got foreclosed upon get $2,000 apiece”

Um, Felix, stop and think for a moment. That’s an insultingly paltry sum, for having had your entire life up-ended by the lazy, fraudulent practices of the banksters.

Posted by Auros | Report as abusive

Ack? Homeowners getting 2k is a win win? This a win only in that no deal might be worse. Is it a good deal when there were no charges laid and the investigations stopped once they realized it was going to be a huge long investigation and lots of banks and servicers involved?

Is it a win when it says go ahead and mess with the law… and see what happens! (a slap on the wrist as usual)

There is a 10-year statute of limitations when it comes to defrauding a bank… how is it the people are not protected as well? RICO could also easily have been used in many cases. States like Florida will be very sorry they didn’t pursue further investigations.

Posted by youniquelikeme | Report as abusive

Auros – you imply that these homeowners didn’t owe the money alleged, since you think that they shouldn’t have been foreclosed on. Provide your evidence, because a lot of reporters would love to profile such cases, and I haven’t seen them.

If banks are lying to courts, that’s not right, and there obviously need to be penalties imposed, and such practices need to stop. That said, though, if some subset of homeowners bought houses using proceeds of a mortgage, didn’t pay those mortgages, and were foreclosed upon, I’m not rooting for them to have the mortgage liens completely invalidated based on sloppy paperwork.

Posted by realist50 | Report as abusive

TFF, my read on the comment from apataki is that it’s been five years, which is enough time for the banks to have marked their assets to market instead of playing the “extend and pretend” game of keeping known bad mortgages at book value, and holding foreclosed upon properties in shadow inventory instead of recognizing losses and selling those properties on the open market at whatever they can get for them.

the current administration could be using their regulatory levers at the OCC, etc. to prod the banks to start dealing with reality instead of more “extend and pretend”, but they aren’t. Various programs put forward by the administration, such as HAMP, are more extend and pretend. This settlement is just another way to delay dealing with reality by refinancing certain borrowers that are going to end up defaulting anyway and doing principal reductions for other borrowers that will end up defaulting.

Posted by Strych09 | Report as abusive

@Strych09, that depends on how bad you believe their situation is/was? The only way they can afford to mark-to-market is if they can replace the lost capital from earnings. “Extend and pretend” can continue for a decade or longer, if necessary, as long as nobody calls the hand.

The default rate appears to be slowing, though. Those who have been making payments for the past five years are likely to continue to do so, unless we see another round of job losses. And new loans (which usually see the highest default rate) have been VERY carefully vetted.

Posted by TFF | Report as abusive

The home loan mess is playing out the only way it could. The big 5 banks are getting hit with headline grabbing fines which are a lot smaller then they appear since the bulk will be paid out over time.

Going forward the settlement changes virtually nothing. The practice of “robosigning” defined as the process by which low level back office employees push stacks of disorginized papers through the legal system to evict people who don’t answer their phone and have been living rent free for 18 months will continue uninterupted. There is no other way. There never was. Math beats law… triangle wins.

90% of non-payers will eventually be dislodged from the homes they cannot afford to live in. 10% (probably a lot less) will get “lucky” and get a “greek” style writedown of their unpayable loan. Those “winners” gets a smaller barely payable loan with a lower principal balance and lower interest rate.

Posted by y2kurtus | Report as abusive

The home loan mess is playing out the only way it could. The big 5 banks are getting hit with headline grabbing fines which are a lot smaller then they appear since the bulk will be paid out over time.

Going forward the settlement changes virtually nothing. The practice of “robosigning” defined as the process by which low level back office employees push stacks of disorginized papers through the legal system to evict people who don’t answer their phone and have been living rent free for 18 months will continue uninterupted. There is no other way. There never was. Math beats law… triangle wins.

90% of non-payers will eventually be dislodged from the homes they cannot afford to live in. 10% (probably a lot less) will get “lucky” and get a “greek” style writedown of their unpayable loan. Those “winners” gets a smaller barely payable loan with a lower principal balance and lower interest rate.

Posted by y2kurtus | Report as abusive

reply to TFF

“Absolutely! And financial crisis should never last more than two years, three at the max. Blame the president. He has neglected to wave his magic wand to make everything better.”
The point @Strycho was making is that it is 5 years after the crisis and the banks continue to publish misleading financial statements which do not portray the true condition of their balance sheets yet the administration has done nothing to enforce the laws against false statements in financial filings. Nobody expects the president to wave a magic wand. But it would be nice if he lived up to his oath of office and enforced the law.

“@Strych09, that depends on how bad you believe their situation is/was? The only way they can afford to mark-to-market is if they can replace the lost capital from earnings.”
It is irrelevant whether the banks can afford to publish accurate financial statements, the law requires them to do so. this argument is typical of the banksters and their defenders who clearly think bankers are above the law.

Posted by chris9059 | Report as abusive

@chris, can you provide me a single shred of evidence that demonstrates that the banks are NOT above the law? I can suggest several examples in which inconvenient laws have been ignored.

In this case, I suspect it is driven by brutal practicality. If the regulators were to force the banks to recognize the losses on their books, then the government would need to step in to recapitalize them. Much easier to practice “see no evil” while subsidizing them with free money to help them paper over their losses.

Moreover, nobody believes those published financial statements. Is it really lying if nobody believes you?

And do you seriously read this as *defending* the bankers? Recognizing reality (a reality that I have no power to change) is different from defending it.

Posted by TFF | Report as abusive

You got this backwards Felix,
This is a politically motivated settlement that benefits two principal groups, the banks looking to cap their liabilities and the President who is seeking re-election.
Why the settlement is bad should be obvious. First banks have been given a huge conflict of interest here. They are permitted to right down first liens held by investors while leaving second liens held by themselves in tact. This is a gross violation and re-write of contract law and hurts our nations pension funds and other groups that hold mbs.
On a second note, having a settlement prior to conducting an investigation and prosecution goes contrary to common sense. If you want to fix what’s wrong, you prosecute, not more of the same stuff the SEC stuff where fake fines are levied and nothing real gets changed.
We don’t have any banks being convicted of mortgage fraud, lawyers getting disbarred for submitting false claims to courts or bankers prosecuted for falsifying loan data or not removing bad loans from pools for failing to meet securization guidelines. There’s no way trillions of dollars of loans go bad by themselves.
The banks are effectively settling for $2000 per mortgage which is a fee that can be incorporated as a business expense. It’s like the doctor being hit with malpractice and charging his patients more to cover the fee.

Posted by Sechel | Report as abusive

y2kurtus, remembering of course that the “victims” of robosigning are people that under any fair legal process should have been out of their homes yesterday. Despite massive coverage of the subject by everyone and their dog, the number of people who got hit by this when they were in full compliance with their loans is negliable, rather it is people who have defaulted on freely entered into loans and are trying to use a technicality to get out of paying the consequences.

Yet another case of how in out morally upside down world that paying back loans with exorbitant interest early is evil and anyone defaulting deserves a handout.

Posted by Danny_Black | Report as abusive

realist50, you beat me to it.

Yves Smith is upset because this was meant to be the end of the world as we knew it and it turned out to be a storm in a teacup as was utterly predictable when the story broke end of 2010.

Posted by Danny_Black | Report as abusive

Realist50: there are more than a few cases in which banks have foreclosed on homes they did not own, if that’s what you’re asking for. And then there are similar cases in which banks foreclosed on active duty service-members, for which they were recently chided and let off by Cordray. The banks don’t care, as nothing will be made into a “systemic abuse”-accusation, since nobody (except Masto) cba to investigate.

Posted by Foppe | Report as abusive

Danny: No, Yves is upset because this is a PoS deal, and is unwilling to, like you here do implicitly, say that no investigation may occur, since anything more than this would (have) implode(d) the system. Because that’s bullshit. Moreover, this deal ensures that we will be seeing more elite crime in years to come, since it only affirms that this is crime without punishment.

Posted by Foppe | Report as abusive

Foppe, there were a miniscule number of cases, less than a fraction of a percent and each one was generously compensated. If it had truly been the case that the banks were foreclosing systematically on people who were in complete compliance it would crowed from the roof. In virtually every case, it turned that actually the person in question hadn’t actually kept up to date with his or her payments, for various reasons.

As for the case of ownership, the one person that is absolutely should not be owning it is the person who defaulted on the secured loan. A fairer process would be to kick that person out and let the people who claim to be owed money argue over the house.

Again, people who are claiming that the defaulters should get to keep their homes based on a technicality are usually the exact same people who would simply be outraged if a bank took away a home it had zero right to based on a similar technicality.

Posted by Danny_Black | Report as abusive

Foppe, it would have had no effect whatsoever except to draw out the foreclosure process. It would have raised the cost for servicing mortgages, increased losses to investors, made the property moribund for years longer whilst all these homes worked their way slowly through the system, occasionally rewarded someone who had no right to the home because the paperwork was done sloppily several years earlier and made sure you pay more for your mortgage in the future.

Again, the number of cases where there was a fundamental issue with the liens – as opposed to someone rubber stamping documents – was tiny.

Posted by Danny_Black | Report as abusive

“We cheated you, we’re sorry. We fired those responsible and it won’t happen again.”

Anybody read this yet? Anywhere? Anyone? Bueller?

Sad that we didn’t even get the “neither admit nor deny” boilerplate. . .

Posted by jpmist | Report as abusive

They aren’t going forward with foreclosures anyway, since that would mean having to write down second liens, and that would blow holes in their balance sheets. So why think this will make the market less moribund?
Moreover, the issue was not “sloppiness”, the issue (in case of the securitizations) was overwhelmingly that notes simply never were transferred. Which, if recognized as such, would either mean putbacks (they don’t want to go there), or fraud claims of one sort or another by investors (not very rewarding because, if i recall, this has to be proven in each and every case, making it nearly impossible to afford the litigation necessary).

Anyway, how do you know that the “number was tiny” when there have been no meaningful investigations apart from self-reporting by banks?

Posted by Foppe | Report as abusive

“This was a relatively cheap resolution for the banks,” said Simon, the mortgage head at Pimco, which runs the world’s largest bond fund. “A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that,’” Simon said yesterday in a telephone interview from Newport Beach, California.

http://news.businessweek.com/article.asp  ?documentKey=1376-LZ6ITW1A74E901-22H0K2 OAFFO0L6DSIT4QPQ0GL3

Posted by Sechel | Report as abusive

Foppe, given the media frenzy about this if there were more than a handful of people who were in full compliance with their homes getting foreclosed on it would have been all over the papers. Are you seriously suggesting that there is some media-wide conspiracy of silence on all these people who are happily paying their mortgages on time who the evil banks are trying to kick out of their homes so they can sell those homes? Reporters just picked people who didnt pay their mortgages because they make a better story than a guy losing his home despite being back up to date?

As for the notes “not being transfered”, the majority of investors in MBS products are large, sophisticated buysides with armies of lawyers. The idea they just threw up their hands rather than put back the mortgages that are not paying out is laughable and there have been plenty of cases of putbacks but again the number due to issues with the lien are trivial. The securitization procedure regularly passes muster in the courts with the occasional case going the other way – which almost always gets overturned on appeal. The FHFA made a large claim a little while back, albeit on different grounds.

The issue absolutely was people rubber stamping docs that they had a legal obligation to investigate thoroughly. That was the “fraud” and that is what they are settling for now.

Sechel, I have absolutely zero sympathy for the “investors” who bought this stuff without bothering to do any real due diligence. They bought crap and now their customers are paying for their failure to do their very highly paid job. In a world where fixing problems mattered, these portfolio managers would be the ones in court for failing to carry out their fiduciary responsiblity to their investors. Rather than headline chasing, the regulators should be making sure that there are consequences for people pulling down 2 and 20 whilst piling their customers money into the FICC equivalent of ratemypoo.com.

Posted by Danny_Black | Report as abusive

By the way, this is the guy who came up with the “where is my note” scam.

http://www.bloomberg.com/apps/news?pid=n ewsarchive&sid=aejJZdqodTCM&refer=home

Via the much-missed Tanta from Calculated Risk.

Posted by Danny_Black | Report as abusive

I’m another one who agrees with the Yves found here:

http://www.nakedcapitalism.com/2012/02/t he-top-twelve-reasons-why-you-should-hat e-the-mortgage-settlement.html

The bottom line is that I don’t really care if the banks failing would cause a huge disruption. The situation as it is is simply impossible. Property rights mean nothing. Law means nothing. Right and wrong mean nothing. People are stealing money from me on a daily basis. How much worse does it get really?

So if we allow them to fail, then at least we have lanced the boil and can set about the healing process. But as it is, we’ve simply left the cancer remain uncontested. How is that possibly good?

Honestly though, no fines are ever going to stop this. You can’t attack money people with money. Nothing is going to change until a handful of CEO’s are in prison. I should imagine that substantial prison sentences would be highly motivational to the ones who remain free.

Maybe put differently, I think this country will be heading back in the right direction when I see that stealing billions or trillions of dollars and/or committing hundreds of thousands of frauds and perjuries is prosecuted with at least the same vigor as…. say… that black kid over there caught with half an ounce of dope.

As it is, Obama just made it crystal clear that there is no law in this country. There’s just the wealthy and what they want.

Posted by JDHayes | Report as abusive

JDHayes, if property rights really really meant something to you then you would be outraged at people staying in homes that are not legally theirs based on technicalities.

If the law really really meant something to you then you would not be advocating sending people to prison pour encourager les autres.

Instead, work that faux moral outrage.

Posted by Danny_Black | Report as abusive

jpmist, the bonds the CMO trust issues are based on cashflows from the mortgages. If the amount – after costs of litigation and lost interest on cash – recovered from the sale of the defaulted property is less than the amount the mortgagee is paying on a reduced principal and that reduced principle then the value of that cashflow is more.

200,000USD mortgage is defaulted on, assume 5k to litigate and is sold for 100,000USD – cash to CMO bond holder is 95k. If there is a mod reduction to 100,000 and he keeps paying 5% for 10 years then that is around 150k.

Posted by Danny_Black | Report as abusive

Danny: You do realize that for instance in the case of the Florida ‘rocket dockets’, judges as a rule required no more proof of the right to foreclose than that a bank is filing to foreclose, and that they averaged 1 case per judge per minute? There was simply no way for homeowners to ‘appeal’ the foreclosure decision because they did not get the time to lay out their case. Moreover, most lawyers didn’t know about the forgeries, so that they had no ready way to dispute a foreclosure even if they were retained (which most homeowners won’t do because they no longer have any money).
Next, if you read Warren’s (2003) the two income trap, you can already read about banks frequently processing transactions in such a way as to extract the maximum number of overdraft fees, and that they also fairly often choose to change transaction dates in order to be able to charge late fees. These practices appear to be quite widespread, as well as fairly well-known. Yet nobody does anything about it apart from slapping banks on the wrist every once in a while. Does that not suggest to you that banks get away with quite a lot?
You put far too much faith in the idea that practices stop as soon as they are reported upon.

Anyway, I really don’t care whether you want to call it a conspiracy or simply journalistic ineptitude; however, I would remind you that Matt Taibbi was pretty much the first major journalist to report on the issue of Florida’s corrupt rocket docket system. Until that occurred, they didn’t even consider changing the procedures to seem a little less dubious. (And more recently there’s the case of the two florida prosecutors apparently fired for being too serious in their investigation.)

Posted by Foppe | Report as abusive

Foppe, is there any dispute that the people in the foreclosure court had a mortgage and were not up to date on it? Once we peel away all the “outrage”, the answer is no and you seem to think people who don’t honour their contractual commitments should be given a gift.

As for the second paragraph, so what? You never ever manage your payments to maybe pay later? Someone offers you interest free credit, you insist on paying in cash now?

Even with Taibbi on the case did he find a single case where someone didn’t have a mortgage and was being foreclosed on? Or that they were 100% up to date and foreclosed on? From recollection hsvkitty scoured the Internet for reports and found a grand total of 6 cases, all of which were richly compensated for the pain they went through.

You seem to think that the banks are profit-maximising machines EXCEPT when it comes to mortgages where they are trying to take posession of houses where the guy is paying on time and in full – ie the sweet spot for both the investors and the mortgage servicers – and presumably dumping those houses on the market for less than the mortgage after thousands of dollars of outlay on the legal costs of foreclosure.

Posted by Danny_Black | Report as abusive

Danny, I fully agree with you. I think you’ve been the objective and dispassionate voice here on much of these ongoing discussions.

That said, there is literally no excuse for the abysmal business practices. It’s virtually certain that the outcomes would not have changed, but the banks and service providers have created themselves the mother of all public relations debacles that will stay with their industries for a very long time. It is very likely that our national attitudes towards banking and home ownership have been negatively affected for a very long time, not by the outcomes, but by the behaviors of these industries.

I really think that the frustration that many Americans face is not so much that they bought a house that they can’t pay for, but rather that those that loaned them the money and serviced those loans literally can’t get their acts together. Were I in a similar position (disclosure: I am most certainly not), I might well try to keep my property on a technicality.

Posted by Curmudgeon | Report as abusive

Curmudgeon, don’t get me wrong. I have no sympathy for the servicers who cut their processing staff to the bone. Also, whilst it is a technicality, technicalities are the stuff of literally billions to the banks and I have no doubt that were the shoe on the other foot, the bank would be exercising that technicality to make more money. My concern when this story broke was that it would incentivise people to simply stop paying mortgages for no reason, which COULD have caused a major crisis. I also think A LOT of people hyping this were milking these poor desperate people by denying all they were doing was delaying the inevitable and racking up costs. The links always seemed to be some foreclosure lawyer or consultancy or some “asset manager” who would look after you against “Wall Street Lies” and frankly I consider these people to be scum of the earth.

Reminds me of when the big move in the 90s for Investment Banks was to cut as many back-office and middle-office people as possible, when good people in that field were literally worth millions but because you never saw the money they saved by making sure allocs and confirms went through they were seen as a “cost-centre”. disclosure – I was front-office and I never ever gave credit to back or middle office and all the P in my P&L was my genius and the L was obviously some idiot who got something wrong.

Posted by Danny_Black | Report as abusive

Ah yes, the banker, Y2kurtus, the banker, is happy to tell you all it is okay that robosigning continues as it is the ONLY WAY! The Laws and abiding by it … are passe … they just get in the way of making sure the banks make money and move foreclosures along, right Y2k?

http://www.cbsnews.com/stories/2011/07/1 8/national/main20080533.shtml

Ah yes, and to further agree, a seemingly intelligent Danny-black, banker retired mind you, is here to say it is the homeowners fault and there is nothing here to see, move along and let the process continue. Everyone else is an idiot except him of course, and there was only a handful of people affected… according to Danny-Black.

Those dang homeowners need to be evicted post haste even though the servicers and banks didn’t take their payments and duped them, falsified their income, added Insurance costs and foreclosed on them with false papers and without a mortgage note.

The reason why this is not big news is that few people have been able to forensically peel back the layers to see the fraud, homeowners do not have access to the fraudulent papers to see how they have been duped and many ARE already out of their homes. It was/is a great big mortgage fiasco and the greed machine still has to move onward!

The AGs were supposed to be THE ONES relied upon to stand by the law to ensure the fraud doesn’t continue… and homeoners were protected. THAT is why it is no longer news… it was left in the hands of the “powers that be” who could have peeled back the layers and investigated thoroughly and brought charges.

The banks were “overwhelmed with paperwork” so let their servicers move it all along as expediently as possible, whether it meant fraudulent papers signed by people off the street signing as bank managers. And because the mortgage and foreclosure mess is so huge, and global, it is being swept under the carpet so banks do not fail!

Judges and lawyers are PART AND PARCEL of the sham, and contributed to the mess rather than follow the rule of law by robo-rubber-stamping documents in the foreclosure dockets, thereby abetting consumer fraud. This deal authorizes more of the same for the future; corruption and greed, banks and Wall street ruling in America.

Posted by youniquelikeme | Report as abusive

Imagine the boost to employment if the banks were to hire and train sufficient staff to PROPERLY process foreclosures? Especially if they had begun in 2007 when defaults started to spike?

Posted by TFF | Report as abusive

Danny, you envisioned a world where every individual repudiated his/her mortgage debt (perhaps all debt, why not?). Oddly enough, the will to pay our individual debts remains strong, despite the lure of strategic default.

Much of this was driven by the press; not the few mortgage horror stories, but the years of steady SEO-driven stories telling us how to manage our various debts with a few extra commitments here and there in order to squeeze out a few extra points out of our FICO score.

Perhaps the good thing that has come out of all of this is that more of us realize that we shouldn’t live our lives by the obscure laws of FICO.

Final disclosure: I have never learned my FICO score, and while I’m pretty sure it’s good, I really don’t care. Life is too short.

Posted by Curmudgeon | Report as abusive

“Everyone else is an idiot except him” – no just you youniquelikeme. Weird how everyone like you seems to think that during the breaking of the robosigning story, Gretchen Morgensen got a stack of letters from people bang up to date with their mortgages but who were foreclosed on but decided to ignore those stories to focus on people who hadn’t paid in months but thought they deserved to stay in the house they hadn’t paid for. Or maybe the people who were bang up to date on their mortgages felt shy about complaining? Or maybe there is a invisibility cloak that only drops at the first missed payment? Or maybe, just maybe they don’t actually exist in any serious numbers? Unlike you and Foppe, I guess I don’t have the ability to think outside the box. Properly because i am a bankster who simply doesn’t have your intellectual brilliance.

TFF, I think the issue is with the person who signs off on the foreclosure docs who has to be a lawyer I think. Not sure at all but maybe one of the reasons it may not have been easy to bulk up. Also the Master Servicing agreements with the bond investors mandate a fixed cost and timeframe for managing foreclosures, those same poor investors who are now going to apparently take a hit even though everyone was claiming reductions were a magical win-win.

Curmudgeon, I was envisioning a world where people had been convinced by lying media they didn’t really have a debt or that it was to evil banksters who already had too much money.

Posted by Danny_Black | Report as abusive

Danny_Black, if I understand it properly, the major issue was signing statements that affirmed ‘personal knowledge’ of the facts. Which typically requires reviewing ~50 pages of documents.

Doesn’t at all require a lawyer. Does require some education and skills, but we’ve had five years for people to acquire those skills. Plenty of time **IF** the banks were investing in their back-office staff all along.

Instead they made the executive decision that it would be cheaper to ignore the legal requirements. And you know what? They were right! Money is power, and the rules only apply to the borrowers.

“Also the Master Servicing agreements with the bond investors mandate a fixed cost and timeframe for managing foreclosures”

In other words, the banks signed contracts promising that they could manage foreclosures more cheaply than any honest servicer, because they knew they could get away with cutting corners. Money is power, and the rules only apply to the little guys.

In short, money is power. Let’s be honest.

Posted by TFF | Report as abusive

tff, honestly dont know. I thought it had to be notarised which says lawyer to me.

Most of the msas where agreed in the bubble, when servicing was money for old rope. Defaults were lower and you could pile on the costs. Within a year that changed, pretty sure there are not many scale businesses that could completely re-engineer their processes in that timeframe.

Again not defending these practices just want to point out the “victims” such as the defaulting borrower and investor are not as blameless as most of the people commenting claim.

Posted by Danny_Black | Report as abusive

Danny_Black, I understand that the terms of the servicing agreements were negotiated in an environment where foreclosures were almost nonexistent. Still, if they contracted to do X for $Y, then they need to do X for $Y. You can’t excuse a half-assed job simply because X is more work than you expected. (I know small business owners who have finished jobs at a loss for exactly that reason. It happens sometimes.)

The banks could have slowed foreclosures. (They ultimately did that anyways.) They could have hired many more people. But (as you admitted earlier) they viewed back-office expenses as wasted money and were willing to overlook blatant violations of law to save a buck.

And none of this is meant to justify the defaulting borrowers, or to excuse the role that investors played in the bubble. Plenty of fault to go around.

Posted by TFF | Report as abusive

Danny Black, as you like to repeat your opinion that this was the homeowners fault and refuse to open your eyes to see it isn’t just a tiny amount of foreclosures that were fraudulent and banks and servicers (and lawyers too)baited homeowners to refinance to sub prime, refinance to hide previous document fraud, made liar loans by adding zeroes to income, did not do their duty to other customers and committed consumer fraud, and robo signing was but one of the many breaches of the law.

That you affix blame on the homeowners means you sound like a stooge for the banks. (which is why I love to out you as the retired bankster from England who doesn’t have a clue, or care a whit about this subject)

The homeowners are pawns in the greed game, and regretfully even those who are bashing other homeowners will soon see their own house prices sink for some time and likely be underwater unless the criminal acts cease. And why would they when criminals go unpunished and mortgages have been so lucrative for so many?

I am going to repeat this:

Deny it all you wish, but the housing market will never stabilize nor become healthy, as long as past problems are not fixed, and mortgages are used as pawns to the detriment of all homeowners and the economy.

While in England and as a former banker, do you live in a flat or a home? Do you even have a mortgage? I know a favourite comment I get from my English friends is that ONLY bankers can afford a home in England. I suppose that may be where your distaste of anyone beneath you owning one might come from…

Yeah, lawyers signing the documents outta fix it:

http://www.palmbeachpost.com/money/forec losures/foreclosure-lawyer-probes-left-u p-to-florida-bar-2147322.html

Even David J. Stern,the foreclosure king of Florida, hasn’t been reprimanded.

Posted by youniquelikeme | Report as abusive

TFF, I don’t think we are really disagreeing.

However, for over a decade these companies existed in the same environment, very low level of defaults, most of the time property going up in price. Within the space of a few months all of those things were no longer true. To deal with the extra volume, they would need to completely change their IT systems – which takes time – hire and train new people – I suspect they hired people but didn’t properly train them before throwing them into the field – and develop new processes.

PS You will notice the tendency to treat all “banksters” as basically interchangeable, it is like treating IT people as more or less the same but I suspect that a systems programmer would not be terribly happy being equated with first-line hardware support. On the other hand it does mean that journalists can quote the equivalent of Microsoft toilet cleaners as “financial professionals”…

youniquelikeme, seriously… feel free to say something intelligent.

Posted by Danny_Black | Report as abusive

“To deal with the extra volume, they would need to completely change their IT systems – which takes time – hire and train new people – I suspect they hired people but didn’t properly train them before throwing them into the field – and develop new processes.”

Well put. This is exactly what they needed to do, and what they didn’t manage successfully. Note that this was really the first test of the “too big to fail” banks since repeated waves of consolidation created these monsters. Perhaps they are not only TBTF but also too big to manage?

Posted by TFF | Report as abusive

TFF, well you had a near overnight change from a mass-production type model to custom work. I doubt Foxconn – picking a mass-production company name at random – could retool over a period of less than a year to making custom watches in a period of extreme stress to it’s industry.

Posted by Danny_Black | Report as abusive

This settlement reduces one of the unknown liability elements for lenders regarding the mortgage mess and provides some modest benefits to the States and some borrowers…period.

The bigger question is how can we rebuild a viable mortgage industry to serve American homeowners. Ongoing mortgage financing is at huge risk in America. Cash and carry is going to mean very very few homeowners. Pushing through the current foreclosures in limbo is one of the impediments to a viable real estate market. The huge unresolved question in this little corner of the bigger problem is the legal authority of MERS. If we assume their ownership of mortgages and deeds of trust is not legal, how do we unwind all of the millions of mortgage transactions which have passed through their hands ???? Many of the players (mortgage bankers and other lenders)no longer exist, and can’t provide corrected assignements, reconveyances, etc. Millions of quiet title law suits ??? Are we going to change the laws in all 50 States, plus the Counties to make MERS legal and deprive those municipalities of that income stream ???? Meanwhile property values will continue to plummet and lending will continue to constrict. Even a cash buyer should be refusing to accept a deed with a MERS history.

Posted by RPD3 | Report as abusive

“TFF, well you had a near overnight change from a mass-production type model to custom work”

This is exaggerated. The volume of foreclosures may have increased 5x to 7x, but the business model for processing them didn’t change (or shouldn’t have changed). Foreclosure processing has never been a “mass-production type” business.

Are you telling me that the banks made a real effort to ramp up their foreclosure processing operations by a factor of 5 or more between 2005 and 2010? My guess is that they tried to “make do” for the first 3-4 years, then grudgingly hired some temporary staff without bothering to provide training.

Moreover, once the mortgage business took a downturn, they could have hired/retrained those people. Is much the same skill set, just a new list of procedures.

Plenty of companies have successfully managed this kind of growth. It isn’t easy, and it takes investment, but it isn’t impossible either. The banks simply didn’t try.

Posted by TFF | Report as abusive

To remind you all what robo-signing was all about. It wasn’t some banks and servicers gone awry because they couldn’t keep up. It was duplicity and fraud designed to make the system opaque, with no regard for the law.

Here is a deposition on MERS and the “actual” process, not the process Danny Black and the other banker would like you to believe:

“Do you know specifically what you’re authorized to do for MERS?”
*Just sign the documents.*
“Do you know specifically what you’re authorized to do for City Residential Lending?”
“Just sign the documents.”
“Why did you sign this document indicating that your address was in California if that in fact was not your address?”
“Because my name was on the document.”
“So it was presented to you to sign and you signed it.”
“Yes.”

“In addition to notarizing assignments of mortgage, do you ever sign assignments as a vice president of a company?”
“Yes.”
“For which companies have you signed as vice president?”
“I couldn’t list all.”
“Could you give me some examples?”
*Chase Morgan. Wells Fargo. I’m on pretty much every corporate resolution.*
“Would it be accurate to say that there are maybe an excess of 20 companies or banks that you sign as vice president?”
*That would be fair to say.*

“What did you study [in the one year of college]?”
“Nothin’. It was just the basic.”
“General courses?”
“Yeah.”
“Do you have any other additional training or education in banking or finance?”
“No.”
“Real estate?”
“No.”
“Law?”
“No.”

Can you tell me on any given day how many assignments or other documents you sign?”
“Are you looking for a ballpark average?”
“Ballpark. I certainly don’t expect you to remember exactly.”
*I’d say 5,000.*
“Would that be an average day for you?”
“That would be average.”
*Would it be fair to say that during your tenure at NTC you’ve probably signed an excess of 50 or 60 thousand documents?*
*Yes.*
“Could be higher than that?”
“Yes.”

“When you say ‘financial’ are you referring to matters relating to banking?”
*No. We don’t do mortgages in my country. … I don’t have any idea about mortgages when I started here.*

Bait and Switch:

“A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles’s Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody’s signature.”

http://www.investorsinsight.com/blogs/jo hn_mauldins_outside_the_box/archive/2010  /10/25/how-a-gang-of-predatory-lenders- and-wall-street-bankers-fleeced-america- and-spawned-a-global-crisis.aspx

How to turn a fixed rate loan into an adjustable loan:

“What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower.

They buried the real documents, the ones indicating the loan had an adjustable rate that would rocket upward in two or three years, near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.”

Posted by youniquelikeme | Report as abusive

Ah, I should add that Nationwide Title Clearing has changed a little since those depositions. Well in their statements on the websites anyway. And indeed they have grown. But they also refuse that they were involved in anything illgal, being “their” robo signers were the names on the documents. (Oh who cares if it said they were bank Presidents and VPS!!)

“Nationwide Title Clearing, Inc. partners with mortgage industry lenders, servicers and investors by strategically building custom processes to meet any budget and service level. We lend our expertise in back office document processes to give our clients the advantage of focusing on their core competencies.

Our service offering has continually grown to meet the needs of the mortgage industry and our clients.”

That wording has been changed since:
http://www.nwtc.com/

NTC on robo-signing. (8.3 seconds would be the average amount of time the signer used to prepare the documents, given the number of documents set before them)

http://www.nwtc.com/about/FAQ_A1.html

Posted by youniquelikeme | Report as abusive

“illegal” nit illgal

Posted by youniquelikeme | Report as abusive

A while I commented on the links people like youniquelikeme, who is either hsvkitty or her mentally retarded twin:

“The links always seemed to be some foreclosure lawyer or consultancy or some “asset manager” who would look after you against “Wall Street Lies” and frankly I consider these people to be scum of the earth.”

and from the link:

“John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor.”

Posted by Danny_Black | Report as abusive

Danny-Black, you name-calling bank apologist you!

The first link was added as it contained the quote I included, which is an excerpt from book “The Monster” by Michael W. Hudson.

The other links were to the Nationwide title clearing house to show it is still in business and likely doing exactly what its ‘employees’ were doing before and during the crisis… pretending to have authority to sign as bank presidents and other officials and signing that they read and understood documents before signing.

Because the employees were using their own names, NWTC thinks it was quite innocent! That is why I added there page on robo-siging, being they are claiming they were doing no such thing.

Having read the depositons, how can anyone think signing that you are bank official, when you are not, is anything but fraudulent action??? You have disregarded my last message by proclaiming my sources are questionable. Being this is a very real deposition… and these are the answers that the emplyees gave.. that is what really matters and what you should be addressing.

But as usual you resort to name calling rather than addressing the issue, in this case… robo-signing. Now the banks will now have this AG whitewash as their get out of jail free card… when AG’s should have charged them with fraud!

Posted by youniquelikeme | Report as abusive