Sunday, December 05, 2010

Most Comprehensive and Clear Explanation of Foreclosure Crisis Yet.

If you want the real story that is not being reported by mainstream media (because of course, they would rather blame the people losing their homes), and if you want a very clear and logical explanation of the foreclosure crisis, listen to Harry Shearer interview Yves Smith  of Naked Capitalism.  I listened to it today on  NPR's  Le Show today.

In a nutshell, Harry Shearer and Yves Smith discuss the mortgage ownership, mortgage modification and the role of incentivized MERS (Mortgage Electronic Registration System​) "servicers" in the foreclosure disaster.

Some of the notes I took because I have a short memory. I strongly urge everyone to listen for themselves.

  • Mortgages or notes travel a very circuitous journey through intermediary parties on their way to the mortgage lockbox (trust), which must ring as a "true sale".  All parties must sign the note over - from a to b to c to d - to establish bankruptcy remoteness.
  • The banks try to minimize this as an issue and tell us it's a matter of sloppy paperwork. Not true.
  • Between 2002-2005, the banks quit doing the things they agreed to do to get the mortgages into the legal lockbox (trusts). In other words, the banking industry changed their procedures to save fees and hassle and never bothered to change their legal contracts. Unfortunately, the way the agreements were set up made it virtually impossible to go back and fix things after the fact.
  • MERS has a bizarre corporate structure. It is almost a virtual company with 47-48 employees  (they outsource through EDS). In addition to the 47 MERS employees, there are approximately 20,000 signing officers authorized on its behalf, who have never received a dime from MERS, and who work full time for another company - sometimes a bankrupt company.  Only these 'MERS members' have access to MERS, who actually handle the payments, and the administrative duties that the bank used to handle when the bank held onto the mortgage.
  • MERS, the foreclosure mill, tracks morgage servicing rights (who is servicing the loan and who owns the loan). Compliance is voluntary and there is no penalty for not inputting the data, so the A-B-C-D transfers, if even done at all, were not always inputted.
  • The MERS handshake (electronic handshake) is supposed to ensure a transfer can’t happen without both parties in agreement, however, in practice, documents have the signature of the same person as representative of both parties.  Poorly paid robo-signers were/are used to sign/stamp affidavits.
  • Banks aren’t foreclosing quickly due to large inventory.  The Obama Administration doesn’t want the perception of the right to foreclose in question.
  • Foreclosure is a very lucrative activity for the ​servicers who get paid first. They have different motivations from that of the investor, and their fees continue to pile up during the default period to be paid out upon sale.
  • Investors are being hurt by the foreclosures. The "prudent limit your loss behavior" that applies to almost all types of lending does not apply in the case of foreclosures (For example, lender write-down...repaying loan at a reduced rate). Instead, the losses the investors are suffering upon foreclosure are, on average, over 70% of the mortgage amount. ​
  • The servicers gamed HAMP, forcing people into delinquency, while keeping them on the hook, making them think they're working on mortgage modification when in reality they're processing foreclosure.  
  • The media hasn't covered this at all until the robo-signing scandal broke.  Foreclosure attorneys are dismissed as little more than ambulance chasers whereas banks have credibility and all of the media access.
Kemp vs. Countrywide.
  • The Countrywide employee (10 years) chosen by Bank of America (who now owns Countrywide ) to represent the bank in this legal case said it was their practice not to transfer the mortgage into the trust. 

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