Schneiderman goes after bank foreclosure fraud figures

[merrill]

New York Attorney General Eric Schneiderman filed a major lawsuit today against three major too-big-to-fail banks, charging them with rampant foreclosure fraud in the wake of the housing crisis. It’s a crucially important lawsuit in its own right, but also raises major questions about the nature of the supposedly looming federal and state settlement with these same banks.

Schneiderman is acting here as New York attorney general—not as co-chair of the new federal task force on the financial crisis. That effort aims to uncover wrongdoing before the crash—or, “the stuff that blew up the economy,” as he put it last week.

This is different. Schneiderman, on behalf of New York State, is accusing Bank of America, JPMorgan Chase, and Wells Fargo of serious and wide-ranging abuses with foreclosures—of improperly foreclosing on homes they didn’t have the correct ownership of or paperwork for.

Specifically, Schneiderman is targeting the Mortgage Electronic Registry System (MERS), which he also names in the lawsuit. MERS is a private, national database of foreclosures created by the banks and used widely for taking people’s homes—but since it wasn’t public and run by the financial institutions that stood to gain from rapid foreclosures, there were (shockingly!) a lot of errors and improper filings.

Schneiderman Goes After Banks for Foreclosure Fraud | The Nation

 

[waltky]

Even churches are bein' foreclosed on...

Banks Foreclosing on Churches in Record Numbers
Saturday, 10 Mar 2012 - Banks are foreclosing on America's churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data.

The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance. Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to Los Angeles real estate information company CoStar Group. In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before.

The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Most of these institutions have ended up being purchased by other churches. The highest percentage have occurred in some of the states hardest hit by the home foreclosure crisis: California, Georgia, Florida and Michigan. "Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches," said Scott Rolfs, managing director of Religious and Education finance at the investment bank Ziegler.

Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately. Its common practice for banks to refinance such loans when they come due. But banks have become increasingly reluctant to do that because of pressure from regulators to clean up their balance sheets, said Rolfs. "A lot of these loans were given when the properties were evaluated at a certain level in 2005 or 2006," Rolfs said. "Banks have had to reappraise the value of these properties, whether it's a church or a commercial office building. Values have gone down, so the loans cannot continue in the same form."

The factors leading to the boom in church foreclosures will sound familiar to many private homeowners evicted from their properties in recent years. During the property boom, many churches took out additional loans to refurbish or enlarge, often with major lenders or with the Evangelical Christian Credit Union, which was particularly aggressive in lending to religious institutions. Then after the financial crash, many churchgoers lost their jobs, donations plunged, and often, so did the value of the church building.

CONGREGATIONS IN TROUBLE

 

[g5000]

New York Attorney General Eric Schneiderman filed a major lawsuit today against three major too-big-to-fail banks, charging them with rampant foreclosure fraud in the wake of the housing crisis. It’s a crucially important lawsuit in its own right, but also raises major questions about the nature of the supposedly looming federal and state settlement with these same banks.

Schneiderman is acting here as New York attorney general—not as co-chair of the new federal task force on the financial crisis. That effort aims to uncover wrongdoing before the crash—or, “the stuff that blew up the economy,” as he put it last week.

This is different. Schneiderman, on behalf of New York State, is accusing Bank of America, JPMorgan Chase, and Wells Fargo of serious and wide-ranging abuses with foreclosures—of improperly foreclosing on homes they didn’t have the correct ownership of or paperwork for.

Specifically, Schneiderman is targeting the Mortgage Electronic Registry System (MERS), which he also names in the lawsuit. MERS is a private, national database of foreclosures created by the banks and used widely for taking people’s homes—but since it wasn’t public and run by the financial institutions that stood to gain from rapid foreclosures, there were (shockingly!) a lot of errors and improper filings.

Schneiderman Goes After Banks for Foreclosure Fraud | The Nation

Awesome. MERS is illegal. It should be shut down.

 

[g5000]

When a borrower takes out a loan, they sign a lot of paperwork. The paperwork has lots of fine print which describes the amount being loaned, and the terms of the loan.

All that paperwork for the loan is called "the note".


The person most borrowers interfaced with was a broker. Brokers existed for the sole purpose of getting money into the hands of borrowers and then selling the note upstream to banks or trusts for a fat commission for each loan sold.

Upstream, banks and trusts bought these loans in mass quantities from the brokers for bundling into Mortgage Backed Securities (MBS).

This means if the loan later defaulted, the broker felt no pain. He got his commission and sold the bad loan to someone else. This presents obvious ethics problems. What incentive is there to be honest in one's dealings when one gets paid for every loan one generates and bears no risk at all for failure of the loans?

As a result, many brokers succumbed to greed and committed outright fraud to keep their commissions rolling in.

Once the borrowers signs the note, that loan begins its journey to hell.

Before the ink is even dry on the borrower's signature, the broker sells the note. Before it finds its way to its final resting place in a MBS, the note was sold an average of three times. It is important to understand that the time and date each sale occurred is key to the nature of one facet of the whole fraudulent scheme.


By law, when a note is sold, the actual hard copy note has to be signed by the people selling and the people buying the note and recorded in court. An actual physical signature, and an actual hard copy of the note must move up the stream.

If this does not happen, then the "chain of title" is broken.

The chain of title was broken. Probably for millions of mortgages. Maybe for every mortgage written in the last decade. And the reason this happened is because of the nature of MBS and collaterized debt obligations (CDO) and the whole framework of the mortage investment industry.

Every month, a borrower writes a check for their mortgage. That money is a revenue stream.

The source of the money that was given to the borrower to buy their house comes, indirectly, from the investors in a REMIC or a similar Special Purpose Vehicle. In turn, those investors get a piece of all those revenues streams coming in from all those thousands of mortgages.

An investor is paid according to the amount of risk they want to take. More risk, more interest on their return. But also, more risk, more chances they will not get paid as the revenue stream begins to wither from defaults of random loans within that CDO/MBS.

The low risk investors are paid first, if there is money left from the revenue stream after they are paid, it trickles down to the junior tranches of investors.

So here's the thing. Who actually owns the mortgage? Where is the note?

Do the investors in the REMIC own the mortgage? Does the bank which formed the REMIC own the note? After all, the borrower is not writing a check to the REMIC, they are writing a check to a bank.

When a mortgage defaults, do the investors who are no longer being paid from the revenue stream go after the borrower?

You can see how all these instruments can create ownership problems.

And that is why the Mortgage Electronic Registration System was created.

Take a look at that home page:

MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

Their motto is "Process Loans, Not Paperwork".

MERS was formed to digitize mortgages so they could be sold, resold, packaged, sliced, and diced.

And notice how it says MERS was "created by the real estate finance industry".

Wall Street.

But here's the thing. MERS never got approval from any court anywhere to forego the chain of title in hard copy form.

Yeah.

They've been doing this since the 80s.

This illegality of MERS eventually became public knowlege and came to the attention of the courts and district attorneys. But then, to make matters worse, in order to cover up this problem, the banks began forging false paperwork trails in order to cover up their violation of the law. Irony! And they are stil doing it, and doing it very sloppily. Their forgeries are pathetically obvious.

And they are committing this additional fraud to cover up their screw-ups openly. One company, DocX, even advertised a price list to create fake chains of title for banks.

Okay. So a note is sold and resold until it comes to rest at a bank. The borrower might have been writing checks for their mortgage to Countrywide, but one day they are told Wells Fargo owns their note and they are to start writing checks to Wells Fargo. Since Wells Fargo is the organization that actually receives the borrower's checks, they are called the "servicer" of the loan. They service the loan by making collections on it. But somewhere along the way, the hard copy and associated signatures were thrown away and the loan was entered into MERS. The chain of title was broken. And so legally, Wells Fargo is not entitled to collect on that loan.

Legally, no one is entitled to collect on the loan.

Yeah. Technically, the borrowers no longer owe anybody anything. The banks screwed up. They broke the law and have forfeited the loan.

You can see how this presents a serious problem for the banks, and the judiciary, and the government, and the economy as a whole.

Before concluding that breaking the title chain is "no big deal, just a minor technicality, so what", you need to know more. This break in the chain was not some oversight. It was not some minor technicality. It was not an accident. It was done deliberately. They deliberately broke the law. Willfully did it. On a massive scale.

If you think about it, the fact that breaking the chain of title occurred on such a massive scale tells you this was no accident. So why should they be allowed to get away with it?

A New York appellate decision said, "Yeah, why should they get away with it? They can't."

The ubiquitous Mortgage Electronic Registration Systems, nominal holder of millions of mortgages, does not have the right to foreclose on a mortgage in default or assign that right to anyone else if it does not hold the underlying promissory note, the Appellate Division, Second Department, ruled Friday. "This Court is mindful of the impact that this decision may have on the mortgage industry in New York, and perhaps the nation," Justice John M. Leventhal wrote for a unanimous panel in Bank of New York v. Silverberg, 17464/08. "Nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property." The opinion noted that MERS is involved in about 60 percent of the mortgages originated in the United States.

 

[bitterlyclingin]

The whole exercise you described was set in motion by the individual lenders desire to protect themselves against the borrowers imminent default. After lawyers like Barack Obama and Andrew Cuomo succeeded in suing the banks, like Citibank, for not making enough loans they knew through long experience would never be repaid under the Community reinvestment Act, promulgated by two Democratic Presidents, and two Democratic Congresses, driven by the mistaken belief that all prudent lending was racist, the banks had no choice but to securitize those loans. Most of the loans made during the last two to three years of the housing boom were sub prime loans. No down payment, no income documentation, no principal payment, interest only, teaser rates, essentially a dollar down and a dollar when you catch me.

[ame=http://www.youtube.com/watch?v=NU6fuFrdCJY]Burning Down The House: What Caused Our Economic Crisis? V2 - YouTube[/ame]

 

[g5000]

I see the CRA meme is alive and well.