I received an e-mail from a correspondent I’ll call MBSGuy and I thought readers would find it informative. He’s been an expert witness in quite a few securitization cases (which is an area with relatively little in the way of case law, in contrast to real estate). And in case it isn’t obvious, to serve as an expert witness, you do have to know what you are talking about.
By MBSGuy:
I think Calculated Risk is a great web site and I read it every day. But for the most part, CR has avoided mortgage securitization market details. That was really Tanta’s turf.
CR has a post up today which is a troubling, in that it mentions “hysteria” and “misinformation” yet misconstrues critical issues. The article, “Why did the mortgage servicers use “robo-signers”?” despite being well intentioned, does not answer the question posed in its headline, adds no real information and is about two weeks late.
It is patently incorrect to say that the “foreclosure gate” issue is about “robo-signers”. A dozen top banks or servicers voluntarily halted foreclosure across much of the country because title insurers were no longer comfortable working on their foreclosure sales, borrowers were having increasing success challenging the foreclosures, their sub-contractors (such as Lender Processing Services and various foreclosure mill law firms) were being investigated for fraud and perjury, and news was starting to get out that the problems were much more widespread than had been previously reported.
The entire legal structure of foreclosure was coming undone. Robo-signers were just a manifestation of a much larger issue that was already becoming a problem.
People who believe that the foreclosure crisis issue is just about servicing are either new to the issue or unwilling to ask some obvious questions about what is going on. Certainly all aspects of process intensive work can be exposed to human error and mistakes, but you’d think the mistakes might be randomly distributed, rather than concentrated in the same parties and the same documents, over and over again in the same ways.
I believe that a reasonable examination of the facts shows that the documents were not prepared incorrectly due to mistake, but rather due to a strategic choice.
How can you look at this issue in detail and not wonder why the servicers chose the routes they took? If it was really just a bunch of technical mistakes, how come they never did anything to fix the problem, even though they have been facing legal challenge from a growing number of borrowers?
Surely, someone at the servicer knew that submitting unverified affidavits could create legal problems The deposition of GMAC’s robo-signor Jeffrey Stephan, which seemed to break the case open in September, was actually from 2009. GMAC was on notice of the problem with unverified affidavits for over a year and did nothing about it – in fact they submitted thousands more with the same problems, even after Mr. Stephan admitted in court that he repeatedly submitted false affidavits to court. It was their business to submit them on an unverified basis, it was not a technical mistake.
Having witnessed a servicer and its counsel lie repeatedly in a court where I was testifying, I can say with confidence that the incorrect statements they made were not mistakes. I wondered why they spent so much money to dispute our claim that the form of the note and mortgage were not in the proper form. If the servicer had just made a technical error, why didn’t they just go correct it and re-submit the foreclosure in the name of the party actually holding title (rather than the people they wanted to be holding the title)?
They submitted the documents to cover earlier mistakes in the origination process. If it is true that the servicing “mistakes” are correlated to the number of loans with conveyance problems, then it appears that the conveyance problem could be quite large.
In fact, the hysteria seems to be coming from people like CR and from the servicers themselves. Doesn’t preemptively and voluntarily halting foreclosure in 23 or 50 states seem like a bit of an overreaction if this really were just a few technical mistakes in preparing some otherwise uncontested servicing documents?
Refusing to ask “WHY did the servicers prepare so many incorrect documents?” is evidence of a very advanced stage of denial.
122 comments
Comments are closed.
It does appear that the ‘sloppiness’ with documentation was strategic, was intentional from the beginning, and began in 1997 as soon as MERS was formed.
Had the documentation been correctly handled and passed on to MBS investors, a casual audit would have blown the lid on the high percentage of ridiculous, fraudulent loans within them.
It also appears that the lending banks and the MBS investors all made CDS and derivative deals to insure themselves against these bundled mortgages defaulting. In fact, they had multiple policies covering themselves.
This is why lenders work so hard to foreclose now, rather than deal with the homeowner. They want that loan in default, since that triggers multiple insurance payoffs that covered the mortgage.
This is why HAMP only got 10% success for all that money.
This is why the banks really, really want to keep right on foreclosing, any which way they can. If these loans don’t payout through mortgage default, all the lender gets is the property and a lawsuit from the MBS investor, demanding their money back.
Now we’re getting to it…
“This is why lenders work so hard to foreclose now, rather than deal with the homeowner. They want that loan in default, since that triggers multiple insurance payoffs that covered the mortgage.”
AIG Redux?
“It also appears that the lending banks and the MBS investors all made CDS and derivative deals to insure themselves against these bundled mortgages defaulting. In fact, they had multiple policies covering themselves.”
*****
Thank you, Antifa, for this piece of the puzzle.
Question: with AIG out of the picture, who were the big insurers of these deals?
Question:
What exactly triggers the payoff. Does the foreclosure have to be final, just filed or is it as soon as the loan moves from delinquency into default?
I read this blog with the fascination that accompanies watching a slow motion train wreck, but remain effectively a naive bystander. Still, some observations lead to some questions. First and perhaps last, what was the expectation of the perpetrators of this obvious fraud? Are they simply impulsive sociopaths like most common muggers and con artists? Did they expect that the paper trail could be so confused that they would escape, being untraceable? Or are the conspiracy buffs on target this time; there is so much money involved and the law enforcement side so hopelessly compromised (captured, corrupted) that there will ultimately be no downside for them and they knew it even then? Perhaps they were confident that their ultimate sponsors, being in control of the apparatus of government, could retroactively absolve them of wrongdoing and let them keep the money? I’m sure Mr. On-The-Ball Patriot would consider the last to be the obvious. If so, the implications for the viability of the business environment in the US are not pleasant to contemplate.
The other question stems from the first, though it’s almost inconceivable to me that a self-interested party could assent to pay off a guarantee against foreclosure without actually requiring that the foreclosure be valid and fully legal.
More information, driving the poster’s last point to conclusion, will be very interesting. Or perhaps very discouraging. Or both.
To clarify: my reference to “obvious fraud” meant the sale of tranches based on non-existent securities. Non-existent because of the failure to properly transfer the notes. Any my second question is: will a guarantor actually be willing to pay off on a foreclosure if that foreclosure turns out to be illegitimate (for any reason) or will the guarantor seek a claim against the party receiving the payout?
A corollary, can the foreclosed party ever present a claim against the foreclosing party if it can be shown that there were material misrepresentations submitted in the foreclosure, post fact?
From what I’ve read, credit card securitisation
has been around for about 15 years or more. From what
I understand, credit card receivables are conveyed
to a trust that issues Asset-Backed Securities.
Now, consumer credit card debt isn’t secured by a
lien on real property.
Does that mean that Asset-Backed Securities aren’t
really securities?
I’m looking at this and MBS from the point of view
of investors in ABS or MBS. It may be, as some say,
that MBS are non-secured securities, so the
investors could take legal action for misrepresentations
in the prospectuses for MBS . On the other
hand, Asset-Backed Securities backed by credit-card
receivables don’t seem to be secured by anything,
and yet are called securities without anybody seeming
to challenge this notion. It’s all very confusing.
David Bernier
In the credit derivatives business, I believe the
trigger is known by the generic name “credit event”.
As I understand it, credit default swaps are
two-party contracts, so I suppose the contracts
would be the place to look to find out which
“credit event” or “credit events” trigger
the “insurance” or insurance payments.
David Bernier
If i understand it, the CDS is written against a tranche of a residential mortgage backed security (RMBS). so ‘default’ would be like, if a certain percentage of the mortgages in that RMBS were behind payments by 90 days… ‘event of default’. i could be wrong.
It is funny in 2007 John Paulson (hedge funder) bet against a bunch of ortgage securities…. then he actually tried to have Bear Stearns investigated by the government for modifying loans and keeping people in their houses… why? He had bought his CDS from Bear and claimed they were cheating. Kelley, Ng and others wrote about this in the WSJ.
Well, well ,well! So, it wasn’t just me who had the impression that CR was full of it here.
Glad to know that diagnostic skills can be somewhat transferable. ;-)
A fine nose you have, monsieur.
If this guy is such an expert, why doesn’t he just tell us “why”, instead of insinuating and attacking CR. Sounds like someone have made some bad investments in MBS and now looks a legal pretext to sue for some of that money. The homeowners/former homeowners may only be further victimized.
Yves has pointed to the evidence and the “why” in links in the very next post.
nilys,
It boggles the mind how quickly you jump to the conclusion that someone “made some bad investments in MBS and now looks a pretext to sue for some money.” How is it that you are so sure the MBS investors weren’t defrauded?
Of course if all the original evidence gets “lost” or tampered with, if new documents can be created out of thin air, and if people are allowed to give false testimony with impunity, it’s pretty difficult to prove fraud. That’s why, in American jurisprudence, the cover-up can frequently land one in as much hot water, if not more, than the original crime.
Let’s take the case of Martha Stewart for instance, where she was accused of selling almost 4000 shares of ImClone stock (worth about $230,000) on an insider tip. She was never convicted of the original securities fraud, but instead of the cover-up: conspiracy, obstruction of justice, and two counts of making false statements to a federal investigator. Stewart plead not guilty, saying she had a standing order with her broker to sell her shares if ImClone stock fell below $60. Stewart refused to testify but maintained her innocence throughout the proceedings, despite witness testimony as well as evidence of doctored documents. The jury found that Stewart lied and obstructed justice, including her claims regarding the prior $60.00 automatic-sell agreement.
Stewart reported to Alderson Federal Prison Camp early in the morning on October 8. She was released on March 4, 2005 at 12:30 AM.
So you see, tampering with documents, producing documents out of thin air and making false testimony can result in some pretty stiff penalties. That is, of course, unless you are a bankster.
Well sure, government’s too corrupt to restore minimal commercial integrity, so institutional investors are going to be the Hexenhammer that destroys you. When they’re through with you, all the zombie banks you work for will be liquidated, fulfilling the basic requirements of financial reform, and you criminals will be mowing lawns at Butner with your wig off. Ask Mike, it won’t be so bad. Plenty of potted meat in the vending machines!
This is from a post on this blog:
“ If the trusts don’t have the standing to foreclose, the RMBS are at best unsecured paper …That alone will kick off the mother of all litigation, with the bank trustees as the biggest targets.”
http://www.nakedcapitalism.com/2010/10/foreclosure-crisis-finally-hitting-banks-where-it-hurts-their-stock-prices.html
If you want to believe that this foreclosure issues is somehow about morality or the rule of law, it’s your choice. I hold it’s about a bunch of suckers who bought MBS and are now mad over their losses. If the MBS investors win in the court, “the banks” will suffer losses and lobby for more bailouts. At that point, these same people who rallied about the foreclosure-gate will be numb – if the “banks” go bankrupt the MBS crowd will still lose, so they would be Ok with another bailout. End result – the taxpayer coughs up the cash – and everybody’s happy again – except the still-to-be-foreclosed-on homeowners, who have been and will have been victimized here over and over. The government might as well make whole the Madoff’s investors. We enter an investing nirvana where stupidity is rewarded.
I don’t think you’re appreciating the scope of the situation here.
First, there are tons of these MBS’ locked up in pensions all over the US, aside from large percentages that are on foreign investors sheets. We’re talking about “prospectors”, we’re talking about serious investment groups that paid for AAA rated securities and are now finding out–after all the bs after the 08 bailout–that there is NO LEGAL FOUNDATION for those securities. It’s not getting burned so much as outright robbed.
Second, it is not about the “suckers” who bought MBS, it’s about the “suckers” like ME who bought a home for my family in 2005 and now I want to know that if the lender I’m paying can actually satify the conditions of the mortgage when the term is completed–that is, will I own my house when I’ve paid off the bank, or will they not have the legal authority to tranfer a title that NO LONGER EXISTS?
That, my friend, is the issue.
My friend, then you should be in favor of a title reform. From elsewhere:
“The real scandal is that the process of recording property title is so antiquated, and there are so many interest groups that resist modernizing it. The MERS mortgage database shows what a modern system could look like. But all of the counties that charge fees for title recording, the title “insurance” companies that shake down home buyers to buy “protection” from getting sued to prove that they own their property–these interest groups want to keep the title recording system as expensive and unreliable as possible.”
And I have no sympathy for anyone who bought MBS. AAA does not mean there is no risk. There is no returns without risk, and risk means losses. People wanted to have their 401K, mutual funds, pension funds, etc. Well, 401K carries a risk. What? you did not think that losses would happen to you and your 401K. Poor thing, the government will dip in their “keyboard” capital and give you everything back. From now on everyone is guaranteed up by the government.
Intersting logic nilys, you say….“The real scandal is that the process of recording property title is so antiquated, and there are so many interest groups that resist modernizing it.”….
Skippy here…allow me to parse please:
1.”the real scandal” ie: reverse blame game, bigger that omitted fraud or committed fraud of which there is a preponderance of evidence too (would be easier if transparency was available eh).
2. “the process of recording property title is so antiquated”
Me again…you mean the tried and tested system which has served capitalism so well, which is the bedrock of it. Yet for immediacy’s sake aka the slicing and dicing or debt in to securitization to be sold world wide become the largest asset class infecting every promise ever made…cough contract[s.
3. “and there are so many interest groups that resist modernizing it.”….
Defective me here…define interest groups please…maybe they resist the chances of allowing individual[s to game the bedrock of capitalism, by increasing speed, lack of transparency, layers of bagholders et al.
WET INK is not antiquated_it is_a *reflection* of the human condition, the ability to hold those which make their mark upon documents, accountable for their actions, in a court of law, in person or by a representative and not some easily manipulated data base cough bad input = bad out put etc, that can not be called in to court save a representative that has no liability.
Skippy…you can not digitize humanity, we are cumbersome, we can not be modeled, we resit all means too strip us of our last vestiges of it, to increase the already massive inequalities apparent and on going.
Good luck with that Mate…
I am sorry to tell you skippy, but you have been digitized in a millions of ways. Need I to recount. Let start with a number called FICO and which represents your past and present earnings and borrowing history in simple and elegant three digits…
You assume too much, I am aware and have been for a long time. I do not live as a digitized human, I do not have a FICO score, I do not avail myself to any of it save what some think they know.
BTW not one rejection on the topic ie WET INK…not that unusual though. You would have had to make further statements of which you would have decreased your maneuverability, better to redirect, live another day…
Skippy…as the IBs used bad models, statistical marketing farmers repeat their follies, scientific fail rates near 10% should never be trifled with on any thing systemically important, it works till it doesn’t…lol.
Skippy, I find your wet ink argument silly. How about this: why don’t you stop posting here and thus digitizing your communications and thoughts and start writing good old-fashined letters. After all, letter writing has served people so well through so many centuries.
nilys,
You are treading on the edge of getting yourself banned in your style of argument. Way too much ad hominem and personal attacks.
And I’m not impressed by the substance. Go read BusinessWeek, hardly a band of Luddites. It point out that the system you decry as antiquated was perfected over centuries and is the foundation of modern capitalism.
The innovators took a process that was robust and worked just fine to save a little in recording fees. That’s what’s at issue here.
No one save the greedy originators and packagers had a problem with the old system. And their desire to rip a few extra points out of the deals for themselves has left a monster mess in its wake.
More to the point:
If we take it as granted that wet ink is antiquated and that MERS represents the future – does this mean that we MERS or its shareholders can be trusted to re-write New York trust law or produce “missing” documents and backdate existing documents out of whole cloth in the name of “efficiency?”
How shall we take IRS regulations regarding REMICs? Should clear violations regarding income pass-through rules be disregarded?
What about the well-substantiated allegations of fraud? In the case of GMAC, they have been on notice at least since 2009.
“Refusing to ask “WHY did the servicers prepare so many incorrect documents?” is evidence of a very advanced stage of denial.”
Oh man!
You want some denial? John Mauldin in his weekly newsletter has a long expose about the real troubles in fraudclosure and it hits all the important points.
Yet…when it comes to think about solutions:
Then, why did the mortgage industry acted precisely like they won the lottery every day? Hey! Title or not, note or not, who the hell cares? It’s our, because we say so! Gee! Must be nice if you can have it, no?
Yeah yeah! We get that! By the same token, a bank that can’t prove ownership, can’t foreclose nor sell to anyone…it’s not theirs! Dura lex, sed lex!
Again, banks and mortgage institutions should’ve thought about all that before engaging in these stupid and unlawful practices. Are we supposed to let them get away scott free? This is not the America I want to live in. Rule of Law or die! Sorry…somebody gotta go to jail boom boom long time.
Really? We used to live w/o that system for a looong time and we had a functioning economy back then, didn’t we?
Not if you build a digital warehouse. Come on! Imagination at work! Think different and all that jazz!
You got that one right John! D’ya start to dig it ma’ man? That is why regulators are important…ya know wattam sayin’? They get to play ref and last time I checked, you can’t run a game for long without them, refs. It’s just the way it is.
So, yeah! Adults need to step in and clean the big mess the unruly kids made all over the place. ALAS, while the adults clean the playground, play’s gonna be really, really slow for a while. That’s gonna make the kiddos antsy-pantsy aplenty, but hey! What else can be done? Give’em a different flavor of Kool Aid, and if they don’t like it, a time out in the corner wouldn’t hurt.
This is what happens when the .1% of the population hollow out_for their profit_a country in an act of immediacy (serotonin fix, egotism, ideology, pick your mania) and reduce it to value added electrons…pinging around the planet as light speed…go figure.
Skippy….and some folks were / are scared of that wee collider thingy.
How about money being the MOST POWERFUL AND ADDICTIVE SUBSTANCE KNOW TO MAN. With money, you can “purchase” lifestyle in any color and fragrance you want. You are only restrained by your health and yup you guessed it, money.
The value of life has to measured on a different scale. And the prestige of that life must by recognize with a different reward.
With money, you can “purchase” lifestyle in any color and fragrance you want. Bill
Really? Then I should have accumulated more. Or perhaps I never reached the threshold where the “good life” really kicks in so I have no idea of what I’m missing. Maybe the good life is just 1 more million or billion down the line.
But I look at billionaires and all they want to do is to get richer and I remember this:
He who loves money will not be satisfied with money, nor he who loves abundance with its income. This too is vanity. Ecclesiastes 5:10
And what the rich spend their money on is so boring as to be pitiful. What could be worse than to be rich and not know how to enjoy one’s money?
To be poor and know very well how to use your money.
Excellent comment Francis,
The problem in analysing how property title in the US has been subverted is that this is a LEGAL problem, not an economic problem which people like CR and John Maudlin are so expert about.
This is interdisciplary which is why Michael Shedlock is limiting his comments to the economic aspect of forclosuregate.
The bloggers which understand both areas are few. Yves Smith and Karl Denninger are the experts on the internet.
Ideally, they should be in the White House advising Obama.
But we are more likely to a (proper) audit of the Fed and Fort Knox before that happens!
Barry Reitholtz appears to understand both the legal and financial sides of the story as well as the two you mentioned.
Most importantly you also need to understand the Constitutional side too.
Oops. I almost forgot. That doesn’t matter anymore so let’s refer it all back to Judge Judy.
She’ll figure it out. She always does.
“That is why regulators are important…ya know wattam sayin’? They get to play ref and last time I checked, you can’t run a game for long without them, refs. It’s just the way it is.”
The key ref sat on the bench with his large nose and thick lenses buried in Atlas Shurgged; now he’s in shocked disbelief but still can’t blow his whistle.
Oh, what a tangled web we weave,
When first we set out to deceive.
Oh what a mess we make
when we dare to fractionate.
“Thou shalt not steal”,
a simple rule;
much too simple
for complex fools.
I can think of at least four plausible reasons for robo-signers and none of them are good. CR and MBSGuy have covered two of them.
“Where there’s smoke, there’s fire.” Everybody knows that one and there’s a hell of a lot of smoke right now.
Frankly, I think it all goes back to basic–possibly unrepairable–defect in securitization. Joshua Rosner has been talking about it.
From the way things have been going recently, this much is certain: we’re going to find out what it is.
Frankly, it seems that the role of the cours in the whole foreclosure gate seems to be forgotten. It would be the court system as final line in the sand, combing irregularities and fraud out of the process.
Although I by no means know the inner workings of US real etate law, it seems that the process of foreclosure does not have many checks and balances in terms of court supervision. Anyone with a forged note can walk in and proceed if the foreclosed party does not show up. At least, it appears that way.
In mainland Europe, third parties are mandatorily part of the mortgage process and its foreclosure. Think of (independent) civil-law notaries and bailiffs. Both professions are bound to thight regulations and supervision. It probably adds costs to the process, but also a self-enforcing influence wich encourages quality and due diligence. If the notary blows it, he will be personally liable, both from a civil law perspective as regulatory. Hardly an incentive to go along with shoddy paperwork.
No civil-law notary would proceed with a foreclosure unless he has verified all elements of the process himself. If not, he would be held liable soon enough.
I won’t say accidents do not occur in Europe, but I do get the feeling that it will remain rather minimal. No bank has an incentive to create shoddy paperwork, because the third party would reject it, blocking the mortgage creation and/or foreclosure. Although regulatory capture is alive and kicking in Europe as well, serving fraudulent paperwork to the courts ‘en masse’ would undoubtly have massive repercussions for such parties.
So bottom line: where are the courts?
Half the courts are doing the right thing; the other half have been replaced by robo-courts, or “rocket dockets”, which do whatever the fraud mills tell ’em too. Look at 4closurefraud.org, livinglies.wordpress.com, and Foreclosure Hamlet, also Matt Weidner’s blog, for stories of both types of courts.
First of all, CR has a banking background. He thinks like a banker because that is what he used to be.
It is not so surprising to me that CR is disturbed by the media reporting around fraudclosure gate. They seem to be siding with the people losing their house on the basis of fraudulent documents while omitting the fact they stopped paying their mortgage.
Still, I do think he is wrong when he claims that this fraud is somehow isolated from the rest of the mess. Honest loans were being made during the boom, by honest bankers and following all procedures diligently. But you cannot ignore the facts that the mortgage system was being abused on a large scale by parasites.
CR (Bill McBride) is a former technology executive (http://en.wikipedia.org/wiki/Bill_McBride_(blogger))
I think Tanta would have been all over this story, likely many months ago. I don’t think “ForeclosureGate” is either a sloppy paperwork or a few bad apples story. The whole business model of asset securitization combined with cost pressure and corner cutting looks like it had massive embedded tail risk. Companies were generating profits from the originate/distribute/service chain, but the controls just weren’t there.
The Controls were unbolted and removed.
Actually the “controls” were controlled, but so
they could blow up and reward CDS arsonists.
We are on to you now. Time is on our side.
Great comments.
As far as I can tell, MBSGuy is saying that the illegality of the process followed goes deep. I don’t see him claiming that there is widespread foreclosing on homeowners who are not in default. Not do I hear him saying the foreclosing is being initiated by anyone other than an agent of the correct investor parties.
So the legal process needs to be cleaned up, and heads need to roll at the servicers. Any sporadic errors of economic substance that resulted must be remediated. That shouldn’t be allowed to change the economic transactions of the broad foreclosure process, since nothing has changed about the economics.
Unfortunately, there is evidence that there is widespread foreclosing on homeowners who are not in default (scams such as fee fraud were used to fake defaults, for instance).
There is even more widespread foreclosing on homeowners who were happy to negotiate for a reduction which would be more profitable for the note owner than foreclosure — but less profitable for the fee-driven servicer.
There is rampant evidence that the foreclosing is being initiated by operators other than agents of the correct investor parties. It is in fact unclear to me whether any of the securitization foreclosures have *ever* been initiated by the correct trustee of an actual securitization trust holding the actual note. It is even less clear whether any such action was done by a trustee acting in the interests of the investors, as such a trustee should be.
IMVHO, it’s a huge, ginormous insurance fraud in which CDOs had to be created as the ‘insurable item’ in order for the fraud to be perpetrated.
See also: the very first comment in this thread, as well as Francois T’s comments.
The sillyChatter About ‘technical problems’ appears to be one of the feints that the insurance fraud perpetrators are attempting to use in order to sway public opinion and buy time.
But ‘time’ is a critical resource in this scheme.
The CDO contracts have expiration dates; the longer the foreclosures can be delayed, the less likely they are to meet the CDO cutoff dates.
As I suss it out, to screw the fraudsters, it is essential to screw with their timeframes. CR does not appear to grasp this essential point.
I was stunned to read the case of
U.S. Bank N.A. v. Ernest Harpster before Judge Lynn Tepper
in Pasco County, Florida. U.S. Bank N.A. through
their attorneys presented a back-dated notarized document, allegedly notarized Dec. 5, 2007; this date is
contradicted by the expiry date on the notary’s stamp,
May 2012.
From the Court ruling:
<>
According to the notary’s Bonding Company, the stamp
used only came into existence in April 2008.
It seems U.S. Bank N.A. tried to dupe the court;
the Harpsters did no such thing.
David Bernier
“….since nothing has changed about the economics.”
Wrong.
The bubble in residential real estate was a credit-fueled bubble.
And this credit-fueled bubble, let’s call it the superstructure, underpinned derivatives trading on top the original debt that was perhaps 10 times as great as the debt itself.
When this high-rise of bubbles came tumbling down, it certainly did change the economics. Not only did housing prices tumble, but it devastated the job market as well. So households not only got nailed on the asset side, but the income side as well.
Much of the credit that created the bubble was extended to people who had absolutely no ability to repay. How did this happen? Why did it happen?
Apologists for the banking industry stick to the story that they were just “helping families achieve the American dream of homeownership.” But does that tell the whole story?
One has to wonder if when the notes and deeds of trust got “lost,” if all the “due diligence” performed in the loan-making process—-financial statements, income verification, employment history, credit history, etc.—-didn’t get “lost” as well.
How much of that “due diligence” was provided to the ratings agencies, the private parties that bought the loans and the federal agencies that either insured or bought the loans in real time, that is at the time all the loans were being made, sold, packaged, and resold?
If one were to start snooping around in those “due diligence” files too much, one might find evidence that many crimes were crimes of omission. But one might also discover evidence that others crimes were not crimes of omission at all, but crimes of commission, with deliberate and malicious intent to deceive and defraud. And if such findings were to come to light, well you see that wouldn’t be good for the banksters at all. For there is a huge difference between crimes of omission and crimes of commission, both from a legal and a moral standpoint.
Not infrequently the crime of omission is a committed crime; i.e., we’ll simply omit that little detail and be on our way. After all, we’ve sold the fraud to that greater fool.
What I see is that the perpetrators were focused on money grubbing and that the mortgage note was simply ammunition for a succession of frauds. Write bad mortgage loans; bundle them into a great pile of failures; collect lots of fees; pay the rating agencies lots of chump change; buy CDS against the failing bundles, and: voila, you get a nice hard to prosecute fraud that pays a handsome bonus.
What is infuriating is that yield chasing with no prosecutions for fraud made this whole mess possible and so we are about to embark on the destruction of our currency with something called QE2.
Is there anyone out there who suspects that we could stiff the world by going back to the gold standard at say $10,000 per ounce? That’s something like $2.6 Trillion for the monetary base. That’s if we really have got 260 million troy ounces of gold. Lets say that required reserves are 20%; that suggests that M1 could be $13 Trillion. Look familiar? GDP is $13 Trillion + some change.
If gold goes to $10,000 from the current $1,250 that’s an 8 fold price increase. Minor problem, will incomes increase by 8 fold? I think not. Lets accept 12.5% as the annual rate of growth in our march to $10,000. How long will it take to get there from here? ln 8 = 2.0794 / ln .1178 = 17 years and 8 months.
Foreclosuregate indeed. We should be seeing massive prosecutions. Do not hold your breath. Mozilo pays a fine, swell. What about that fella that found so much guidance in Atlas Shrugged? But then, even Nixon was allowed to rehabilitate himself.
Mr. Presidente, be upstanding and attentive, you have an equal opportunity employment program before you. We need a very large addition to our Federal Penitentiary System, we need to add roughly 10,000 beds, cells etc. And then I wonder, would that really be sufficient?
No. Make ’em border guards. We don’t need 10000 new cells and beds, just 10000 used flak jackets and m16s. Win, Win.
While attempting to create and sell (Actually, to fill orders; to sell something would actual require a sales process, which in this case was non-existent)as many of these economic sh*t-bombs as humanly possible, the gentlemen involved in this process soon ran out of enough parts needed to build the bonds(thus jeopardizing their modest salary and reasonable bonuses). So rather than wait for more quality pieces of financially healthy borrowers(which would have led to healthier and well valued bonds), they instead “relaxed” (ie threw out the window) underwriting guidelines to the point that virtually anyone, no matter how unsound fiscally, to purchase a home (at 100% LTV no less)in order to create more parts to build the bonds faster (and thus not put their modest bonuses at risk). THIS IS WHERE THE CRIMINAL NEGLIGENCE AND WILLFUL NEGLIGENCE BEGAN. The subsequent decline of reasonable underwriting guidelines furthered this frenzy, and thus created the environment in which a massive ponzi-fraud was perpetrated on both the investors and the the public at large. The argument that homeowners “knew what they were signing” is disingenuous at best. And as Moody’s rubber stamped these suckers with AAA ratings, the investors were duped as well.
THIS IS WHERE THE CRIMINAL NEGLIGENCE AND WILLFUL NEGLIGENCE BEGAN. Darby
Puleazee. That is just the old argument that if fractional reserve lending (legalised counterfeiting) was just done prudently (only to “credit worthy” borrowers) then it is no crime and would cause no harm. Just read history. For how long a period since 1694 has the West ever been free from banking crisis?
We will be lucky to salvage the remnants of capitalism from this crisis. The world is too small and dangerous for these silly banker games.
MBSGuy gives us the obvious answer: massive fraud to cover massive malfeasance and dereliction. A more important question someone else asked here a few days ago is, “When did Eric Holder pass away?” Or, why can Obama never miss an opportunity to miss an opportunity? Does it have to be served on a sliver platter?
Is Eric Holder still married to Oprah? Maybe he’s just really busy?
Eric Holder is busy denouncing a California ballot measure (Proposition 19) that would allow people over 21 to legally possess one ounce of marijuana and allow California to tax marijuana sales. He insists that, if it passes, federal law enforcement agents will be used to arrest, under federal law, Californians possessing marijuana. Since most marijuana arrests are currently carried out by local police under state law, this would be a major burden for the federal government.
He is willing to spend billions arresting pot smokers but not once cent on arresting Wall Street crooks.
http://www.mercurynews.com/top-stories/ci_16350151?nclick_check=1
http://www.latimes.com/news/local/la-me-marijuana-holder-20101016,0,5547626.story
Yea, that’s important.
“Or, why can Obama never miss an opportunity to miss an opportunity?”
I love it — the phrase, that is, not the phenomena.
“GMAC was on notice of the problem with unverified affidavits for over a year and did nothing about it. . . If it was really just a bunch of technical mistakes, how come they never did anything to fix the problem”
from my experience in the back-office operations shit-hole of a financial institution, where you are viewed by management as a little above a cockroach, and your work is treated with the disdain a peep show visitor treats tissue paper, my observation is that fixing problems costs money, and bank operations managers dont want to spend money to fix problems. it makes them break out in hives. telling them ‘this is a problem’ will not move them. telling them they will get sued does not move them. actually suing them wont move them… they already pay lawyers to take care of that. the only thing that will move them is if they lose a lawsuit, but by then they will probably close down that department as a ‘money loser’ and let some other institution offer that service, then write in their annual how they ‘successfully consolidated and streamlined operations’
HOWEVER i am inclined to believe you guys, maybe there was a conspiracy.
i am reminded of Penn Square Bank of Oklahoma City, early 1980s , which made massive numbers of bad oil&gas loans. the paperwork was a mess for months (years?) and they were out of balance with their ‘upstream’ ‘correspondent’ banks for a long time. and when people complained about this, they were told it was all just a back office paperwork issue… the loans themselves were fine.
of course they were not fine. but was there some strategy of a manager to use sloppy paperwork to hide bad loans? as Shia Lebouf said, “that’d be tough to prove”.
you can always blame operations. its like plausible deniability for bank management.
did you just quote shia labouff?
i also love all these ‘we cant give people free houses’ cries against socialism.
its hilarious, its like a moral crusade. like a religious belief. mostly, in that is entirely and glaringly hypocritical, seeing as hundreds of thousands of employees, shareholders, and bondholders of goldman, morgan, AIG, BoA/Merrill, JPM/Bear, GM, Chrysler, etc, are in fact, right now, living in free houses, payed for by the taxpayers.
Yves,
Ever thought about the parallels between MERS (the database) and MERS (the principal) with al quaida (the database) and al Qaida (the terrorist organization)?
I don’t know if we can answer the question “why all the robo-signers” unless we go back and understand, clearly, that the bankers had ALSO been drinking the kool-aid. There is no need to worry about the technicalities of foreclosure if you believe that housing prices are ALWAYS going to go UP. This entire machine was meant to drive refinancing fees, issuing impossible mortgages (with huge jumps in payments down the road) designed to force the homeowner back to the refinancing trough.
Not only does that explain the need to back and fill a system that was not designed to foreclose at all, but it also explains the ‘deadbeat’ problem. These are not people that ‘bought more house than they could afford,’ although a lot of those people exist. Far more extensive are the people that are in the right house with the wrong mortgage, a mortgage that both lender and borrow knew was impossible to meet once the payments jumped, with everyone involved consoling themselves with a ‘don’t worry, when the time comes we’ll just refinance.’
Bankers consoled themselves with “What’s the worst that could happen? We’ll get back a house that is worth a lot more than when we issued the first mortgage and sell it for a profit.”
People on this blog and on CR should be more aware than most how difficult it was just a few short years ago to convince ANYONE that it was even POSSIBLE that housing prices could go down.
History is sooo replete with examples, that if a Ivory School grads can not discern this simple observation, it begs the question, why the hell are they getting payed so much…eh.
Skippy…banksters dirinking their own product…methinks not.
If you apply Ocam’s Razor to this scenario, then what meli says makes good sense. And while I do not, in any way discount the idea of there being outright fraud and other criminal actions, the idea that the banks might have drank their own kool-aid can not be struck down out of hand. We claim the politicians drink it, MSM drinks it, why not the banks.
But for my own personal beliefs, I think the criminal side of the banks are showing.
I think it’s just the usual human ignorance about the subject, of CR.
He wouldn’t try to cover this fraud of MBS’s investors, or would he.
As real estate is considered by the law and by the courts to be , in each case, unique enough to ground claims for specific performance where there is failure by a party to fulfill a contract of P & S, how can it be claimed that it is fungible enough to form the basis of a securitization?
Isn’t each property – and thus every mortgage – unique – to unique to “securitize” (sic – nice verb, though)?
Could it be that loans secured by residential real estate loans are simply “unsecuritizable”? As eahc underlying contract deals with irreducibly unique substance?
Remarkable how the word “security” shifts its meaning, from security = collateral, to security = paper instrument.
We need a better word for those paper values.
Using the same word for both clouds this issue.
A loan backed by a mortgage is secured: it’s bundling, if that is even possible in law, with other such loans adds NOTHING to its “security” – for it was alreaduy secured once.
And on these sand castles, they wrote themselves insurance policies against the coming of the tide. Nic.
Mortgage Securitization is obviously in the “Failed Model” bin.
Back to Hudson City Model, Please.
we need a new term for all this — perhaps ‘strategic fraud’ so that is echoes and parallels ‘strategic default’…..
“Going Dillinger”
http://www.practicalstate.com/?p=2891
Cheers
You were doing good till you wrote this:
And, we still need to make sure those that bought more house than they can afford, or quit making payments when they went underwater…eventually lose their homes (legally). Stupidity or irresponsible behavior no longer gets a pass in American society.
Apparently you don’t realise how a government backed counterfeiting cartel in the government enforced monopoly money supply drives people into unserviceable debt during the bust.
No we are not all guilty. Underwater home-owners are almost by definition victims of the counterfeiting cartel
You’re asking the wrong question. The correct question is:
“Why did DeutcheBank, HSBC, BofNY Mellon, et al not force the originators of the loans to deliver the assignments along with the notes within 90 days to the trust, as required by law?”
The trusts did not know which loan went into which security tranche until defaults occurred. My guess is the trusts were commingling the securities from many trusts in one pool, so they could have a better degree of control over which issues went where. It could be one reason we see so many ownership changes right before the foreclosure decision is handed down.
Finally, the crux of the matter with foreclosures is what occurred off-shore, where the law firms and the servicers built the documents that were filed in court. Where did the off-shore servicers get the information that they plugged into these filings? You can bet they came from a computer platform, but who plugged the values into that computer system that the off-shore processors accessed? Signs point to the Alpharetta, Ga, office of LPS.
The Robo Signing was just the cover up for these prior actions.
Maybe we’re supposed to be obsessing over the robo-signers because they’re the intended scapegoats. That’s one line of defense. Another is the “deadbeat borrowers” meme. And we’ve already seen the ultimate last-ditch defense on other threads on NC, that anyone who doubts the wisdom of Our Financial Overlords is a dirtyhippiecommiepinkofagMuslimterrorist who Hates Our Freedom.
It is obvious that the reason they continue on the course they have chosen is because they believe that is the one most profitable for them and that Obama, congress and the regulators are in their pocket. I am not so sure they are wrong.
The administration continues on its course because the fix is in. Bill Gross has admitted on national TV that he has foreknowledge of the FED’s next move. Further, he knows that the government will guarantee his losses. No mystery there. He continues to press for federal guarantees of MBS’s and the breakup of Fannie and Freddie.
MBS GUY lays it out for Yves, widespread foreclosure fraud was designed to cover intentional securitization fraud or gross negligent. Remember that the big banks sold CDO’s to each other, as well as nationally and internationally. Their capital levels are insufficient to cover the losses of successful suits for “Put Backs” or “Breach of Contract”. Hiring robo-signers who knew little or nothing of the legal process was not just about saving a buck it was all about the fall guy.
Move along, nothing to see here it is the same old same old “Crony Capitalism”
Yup. Because any company worth a damn would have sought qualified signets, or at the very least trained employees. But this has the appearance of hiring dumb ‘stooges’, who would not ask questions. And who would later be set up to take the fall.
Reputable businesses do not exhibit these characteristics.
It’s Rummy’s “a few bad apples” defense, Abu Ghraib remix.
As DownSouth, Siggy and others have noted, the dog-pile of leverage built upon this impossibly crumbled foundation is like a gargantuan Rube Goldberg contrivance balanced a the tippy-top of a Dr. Seuss contraption that disppears into the clouds. If it falls … when it falls, it could create a veritable black hole worthy of Skippy’s supercollider—the new ground-zero.
That that’s eloquence.
I’ve never been able to describe it so well.
Mortgage Gate: It’s Not About The Money, It’s About Integrity
http://www.practicalstate.com/?p=2834
Cheers
If you read CR’s post, he is making an attempt to understand “why this happened,” although he admits he isn’t sure:
“So my guess is a combination of getting swamped with foreclosures, lack of experienced staff, the poor economic environment for servicers, and outsourcing to the lowest bidder, all contributed to the servicers using “robo-signers”. This doesn’t excuse their behavior – I’m just trying to understand why this happened – and why it happened at more than one servicer.”
Remember, he’s talking about the robosigners themselves, not the underlying reasons there were poorly-written mortgages in the first place. I don’t think CR and MBSGuys’ views are incompatible here.
I’ve been a CR poster for many years, and have been surprised not by the thoughts but by the tone of his posts on this, and thus asked him to rethink his wording of the issue.
He tends to be an analytical fact based thinker who is uniquely talented at being able to parse data and put it together as a whole (an excellent trait by the way). he was thus one of the first to start highlighting the credit/mortgage problem in 2005.
this crisis is somewhat different because there is not publishable data about the problem. Thus, the claims being made by Yves and others are “unsubstantiated”.
obviously, the problem is that the only way to substantiate the problem is to pore through the actual documents… which the banks/servicers are keeping under lock and key. Thus, stalemate.
but clearly there is a Grinch who has stolen Christmas, it just isn’t yet clear how much of xmas he stole.
on the one hand, it’s clear that there’s an awful lot of smoke out there. On the other, we can’t see how big the fire actually is. but I’m becoming increasingly worried that the answer is “really really big, and there’s a hole in your bucket”.
Yes I’ve been following a few of your discussion with CR over there and you are doing a great job in trying to bring him around.
I always like to hear (at least) two sides to every story but none of the counter arguments expressed over at CR have made much on an impact. One other commentator (I forget his name) did give the following framework for why critics were making mistakes but then never really fleshed out his criticism. He says the proponents of the Fauxclosure problem fail that to distinguish among:
1. Ownership of the property.
2. Ownership of the note.
3. Ownership of the cashflows.
Can you or anyone else please explain if there is any merit to what he is saying.
it may have been Longtime Lurker
in the end, my personal view on this problem is that people are talking past one another.
some people are restricting their thoughts and arguments to the PROVEN and PROVABLE aspects of this, such as robosigners and document fabrication. They are not interested or willing to discuss possible ramifications of all of this.
this is where CR stands right now.
—-
In terms of your question… I agree that many people ARE confusing the issues, but that does not reduce their argument.
many of the so-called hysterical doomsayers (and most likely me too) confuse the three categories you have outlined.
for instance, I’ve seen a lot of posters talk about “giving the home debtor the house for free”.
however, this is unlikely to be the case. as far as i can tell (and I am NOT a lawyer or an expert at all), the more likely outcome would be that the mortgage may become an unsecured loan.
this is the type of “mischaracterization” that I think some are railing against.
all that said, it doesn’t reduce the plausibility of the idea that the foreclosing entity may not have legal possession of the note, for whatever reason.
====
I’ve been framing my thought process the following way:
(I’m happy to hear from others if I’ve miscategorized)
1) robosigners have perjured themselves. FACT AND PROVEN. Easily resolved going forward, neglecting punishment for past perjurious behavior. (although an expensive fix)
2) documents have been fabricated. FACT AND PROVEN. Easily resolved going forward **assuming #3 below is not true**, again neglecting punishment for past behavior. (although expensive to fix)
3) foreclosing entity does not hold legal possession of the note. SUSPECTED BUT NOT FACT. this is where most of the argument comes. there seem to be many different causes for the failure for the foreclosing party to hold legal possession of the note. Including, but not limited to, MERS issues, failure to convey to the trust, destruction of the original note when “electonified”, etc.
this is the big hoo haw, and since none of us know if this is true, or if it is to what extent, it is hard to grasp the possible consequences.
worse: the implications cross many specialized fields including IRS law, federal law, state law, Securities laws, Economics, etc etc etc.
thus, to sum it up, Longtime Lurker (if that’s who you meant) has a legitimate argument because he correctly identifies that many of the “hysterians” don’t understand what they are talking about, or confuse the issues you have elucidated.
however, he has no argument against the very real possibility that the foreclosing entity doesn’t have the note.
all IMO of course.
Following CR’s train of thought that began with Tanta’s Ubernerd posts from 2006-2007, the Robosigners are just a continuation of the servicers BO attempts to avoid the high costs of proper paperwork management. These are Tanta’s chickens coming home to roost: either you pay for due-diligence up front during underwriting, or you pay later with attorney fees and foreclosure delays.
Where worlds collide is on the securitization side: what are the consequences for security buyers/sellers if improper rep/warranties were made? Unfortunately, I don’t think anyone really knows. It may come down to a case-by-case examination of the fine print of these contracts, and will take years to sort out. Yves hit the nail on the head last week: if the failure of a MBS can be traced to poor underwriting as evidenced by the necessity of the Robosigners, the implications are huge.
My point: the failure of the MBS’ and the need for Robosigners are symptoms of the same disease: poor mortgage underwriting during the boom. Of that, I don’t think there is much disagreement.
They aren’t “unsubstantiated”, there are lots of depositions that support various aspects of this story, plus the requirement of the pooling & servicing agreement (which he could find if he bothered to; key sections have also been posted various place on the Web), newspaper reports, plus even quite a few findings (on MERS) by state supreme courts.
The problem seem to be that CR isn’t used to dealing with non-quantitative information.
Originally, the house closing, lien release, and foreclosure process was a two-way street of contract and civil law. Owners wanted to be able to have a way of making sure they had clean title after they had paid off liens and the lenders wanted to make sure the asset couldn’t be sold without them getting their money.
The securitization process broke down the fundamental interests behind those traditional relationships. The servicers used to own the mortgages themselves and so the cost of foreclosing was simply a portion of the cost related to the total foreclosure if the entire lien amount could not be compensated.
Now, the company that sold the mortgage in securitization only had a short-term interest at the table where their profits were fees generated at closing and sale of the mortgage to an MBS. Their interests were often extinguished within hours (other than the potentential for mortgage fraud that nobody seems to want to prosecute).
The MBS owner may not even know what mortgages are in his basket as he relied on the ratings agencies to tell him what price to pay.
The servicer is contracted by the MBS security to “service” it, which means collecting the money and passing it on for a small fee. Foreclosure is also paid for, but with underwater mortgages, the MBS owners don’t want the servicers to take an extra dime, so “managing” costs is paramount for profits.
Most of the problems seem to trace back to fundamental bank policies of poor lending standards during the securitization process which created a large volume of low quality loans in an industry that never geared up mentally or physically to address the fundamental issues that their change in lending standards and financing structure had created in the first place.
If there truly are fundamental security structure issues, then that would be the icing on the cake which would turn a largely procedural and cost debacle into a massive international financial fraud.
Usually, the US government would be able to step in and prosecute securities issues like that, but Congress has been so meddlesome in the housing finance markets that it is hard to differentiate where the banks stop and the feds start. The 2008 crisis made this even worse because many of these securities then wantdered onto the Federal Reserve balance sheets as well.
I have no sympathy for people who bought too much house. Two of my primary financial goals in life have been to own a house worth less than five times the median household income in my area, so there will be numerous buyers at the time of sale making it a somewhat liquid asset, and for the house to be less than 20% of my total assets at retirement. I am on-track to ahead-of-track for those goals. However, I am an engineer who can do math, think through multiple failure modes, and work with factors of safety on a daily basis. The average homeowner doesn’t have that type of background which is why the pre-2003 lending standards were so critical to maintaining a stable housing market. The bank’s failure to enforce their own historical standards is a major root cause of their own crisis.
However, I am an engineer who can do math, think through multiple failure modes, and work with factors of safety on a daily basis. The average homeowner doesn’t have that type of background which is why the pre-2003 lending standards were so critical to maintaining a stable housing market. The bank’s failure to enforce their own historical standards is a major root cause of their own crisis. rd
I was an engineer too and might be tempted to believe that the fractional reserve lending scheme could work economically speaking if practised “prudently” The fact remains though that it is government backed counterfeiting in a government enforced monopoly money supply that steals purchasing power from all money holders including the poor. Shame on you for blaming the victims who fell into a trap.
And if deflation wipes out your job then you might be more sympathetic to the early victims of this crisis. Or you may have been truly wise and have a well stocked fortress in the country. Congratulations.
The engineers typically have the smarts to avoid being victimised by this mess. But how many have applied their talent to fixing a fundamentally dishonest and UNSTABLE money system? What kind of engineer tolerates an UNSTABLE system and then blames the victims of it?
except that some people have written that the ‘historical underwriting standards’ were de-facto created by the federal government, everyone basically adopted it’s standards.
i was always astounded to hear of people buying adjustable rate mortgages. why oh why would you buy something if the rate would/could go up. and the “horror” stories about “minority groups” who bought into this group of loans sounded like a sure fire way to “stigmatize” that Minority group as being stupid and ignorant.
Just in case you lost your job/income, which had become a “feature of American employers,” how would you pay off or make ends meets, much less your mortgage?
i always thought anyone who bought adjustable rate mortgages invited foreclosure due to the swings in the market. i never trusted the Market other than to reward the players who make the bets.
as someone who has recently learned a lot about the economics that caused the crash this time, i can see how corrupt the whole Banking system has been. while there are “honest” lol, bankers out there, the lack of regulation and the lack of enforcement signified a ticking time bomb. As Reagan/Greenspan’s thinking along with the republicans/democrats who followed were so anti-regulation, i figured the crash would come one day. it was a long ride until the day the music stopped.
to watch the anti-social segment of money changers rail against the ignorant masses who bought their schtick is one of the features of the system. without a “victim” the con can’t play out. to hear about the MBS bouncing their mortgage, $79 million, on their building in DC., was proof of the “do as i say, not as i do” bs i have learned to associate with some in this fiasco.
there are so many things which still aren’t clear to answer many questions, but it seems i was right to be skeptical of what the Bankers have proclaimed all these years. like they say, “if it seems too good to be true, it is.”
the greed encourage by the Wall St. Greenspan thinking is so deep and pervasive. i am glad there are blogs where people can explain what happened and who did what. when i started to learn what CDO’s and all the rest were, i knew we had turned into a prototype of a fascist state, where business runs the state for its’ own interests. Government became more aligned with the Business/Wall St. interests than in promoting or protecting the average American, investor or not.
uncovering the fraud will not happen. the money is too good for that to happen. minimizing my part in this mess is all i can hope for.
“i was always astounded to hear of people buying adjustable rate mortgages…the “horror” stories about “minority groups” who bought into this group of loans sounded like a sure fire way to “stigmatize” that Minority group as being stupid and ignorant….
[…]
…to watch the anti-social segment of money changers rail against the ignorant masses who bought their schtick is one of the features of the system. without a “victim” the con can’t play out.”
Oh yes indeed, this was a feature of the plan, not a flaw.
“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” (Greenspan, 2/2004)
And an excerpt of Alan Greenspan’s April 2005 speech:
“Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. … With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. … Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.” (http://en.wikipedia.org/wiki/Alan_Greenspan)
I posted this elsewhere on NC, but I think it merits a repost as a simple explanation of where the MBS’s issues began:
The root of this fraud is unadultered greed, which can be tangibly traced back to the creation period of the MBS’s. While attempting to create and sell (Actually, to fill orders; to sell something would actual require a sales process, which in this case was non-existent)as many of these economic sh*t-bombs as humanly possible, the gentlemen involved in this process soon ran out of enough parts needed to build the bonds(thus jeopardizing their modest salary and reasonable bonuses). So rather than wait for more quality pieces of financially healthy borrowers(which would have led to healthier and well valued bonds), they instead “relaxed” (ie threw out the window) underwriting guidelines to the point that virtually anyone, no matter how unsound fiscally, to purchase a home (at 100% LTV no less)in order to create more parts to build the bonds faster (and thus not put their modest bonuses at risk). THIS IS WHERE THE CRIMINAL NEGLIGENCE AND WILLFUL NEGLIGENCE BEGAN. The subsequent decline of reasonable underwriting guidelines furthered this frenzy, and thus created the environment in which a massive ponzi-fraud was perpetrated on both the investors and the the public at large. The argument that homeowners “knew what they were signing” is disingenuous at best. And as Moody’s rubber stamped these suckers with AAA ratings, the investors were duped as well. When this tale has its day in criminal court (Which I believe it will), it will be in a RICO setting because this was a vast criminal enterprise. Believe it.
The greed got so overwhelming and vast that the rest reads like the keystone cops. They didn’t even stop to sign the bond doc’s properly (a delicious irony), which would be akin to closing on your home, but not signing the paperwork until a few months later. Its that tiiiiiny little detail that will (hopefully) lead to the bank’s legal downfall. And they all knew exactly what they were doing, the real comedy lay in the fact that they did it so poorly.
The real pickle is explaining this mess in a clear understandable fashion to someone with no prior knowledge or legal/economic fashion.
Read the Foster case (filed 3 weeks ago)
http://www.scribd.com/doc/38654717/Class-Action-vs-Mortgage-Electronic-Registration-Systems-Gmac-Deutsche-Bank-Nation-Star-Aurora-Bac-Citi-Us-Bank-Lps-Et-Al
Start around page 23 and read until you vomit in your mouth a little.
The best part of all of this? Its all available to see for yourself.
http://www.sec.gov/Archives/edgar/data/1269518/000112528205004023/0001125282-05-004023.txt
Thats a Countrywide MBS prospectus. Read the PSA for yourself.
ALL ROADS LEAD TO MOZILO…
Reply
Barry Ritholz has an interesting post this morning where a guest writers post. However, Barry Ritholz’z initial prologue to it pointing out the legal issues of “equity” and “unjust enrichment” is probably the most important part of the piece: http://www.ritholtz.com/blog/2010/10/the-foreclosure-mess/
The servicers could initially get fees from foreclosing insteading of modifications. It was difficult to ascertain who the actual mortgage holder was and then have that “committee” of security owners agree on modifications.
I wonder if anybody in the Administration and Congress is smart enough to figure out that the courts may be the way to get their cherished homeowner mods. If the courts simply started declaring that the poorly documented foreclosures would simply have a mortgage amount equal to the appraised value of the house by a court-appointed appraiser, and that the homeowner could then elect to take on the new mortgage committments or be foreclosed, the premise of strategic default would go away while people who still can’t or won’t meet payments lose the home.
This would meet the basic principle of equity as everybody would be offered an opportunity to “play and win” and the servicers would not have to do the time-consuming and difficult task of getting agreement from the security-owners on a mortgage by mortgage basis.
There would be haircuts all-around with hoeowners still on the hook with zero current equity in their house if they were underwater previously but with the possibility of making money in the long-run while it is likely that the total principal losses to the securities would be less and pressure on the housing market would also be less.
Second mortgages would likely be zeroed in many cases, but they are the junior loan which is what is supposed to happen. The judge could elect to leave them with some value if they judged it was equitable and would reduce the chance of appeals and delays.
“I wonder if anybody in the Administration and Congress is smart enough to figure out that the courts may be the way to get their cherished homeowner mods.”
I seriously doubt that anyone in the Administration wants mods, whether or not Congress does is another story. Anyone who seriously wanted mods, would have amended the Bankruptcy code to allow “cram downs”. The courts method of forcing a mod on the lender. The Admin. talks about mods, but in no way attempts to force mods.
Mods create huge headaches for holders of MBS’s, and CDO’s because a mod would decrease the value of the assets underlying a part of the bond and decrease the payments received by the bond purchaser, thus overall diminishing value. Large holders of MBS’s and CDO’s are the FED, Federal Government and the big banks. Many of these instruments are carried on the balance sheets of these entities as assets. These assets are use in calculating capital requirements. Thus, potentially magnifying the loss that would result from massive mods. (At least this my theory.)
Others argue that various mod programs allowed the banks to slow foreclosures and thus, keep the Real Estate market artificially inflated. Likely true. One wonders why CNBC’s Santelli cried out for a tea party based on one of the government mod programs. I seriously doubt that he has not known all along that these and similar programs do little to help the homeowner and much to help the banks.
At some point compromise between all of the parties, homeowner, banks, bond holders would alleviate much of the problem. All must take a haircut.
What a mess.
Isn’t this why Congress did bankruptcy “reform” to prevent judges from cram-downs? Virtual debtor prisons look like they were part of the setup, but foreclosure fraud now looks like a giant monkey wrench in the schemers’ machinations. Heh-heh!
Mortgage backed securities should be illegal. Home loans should be originated and serviced locally and never assigned. Home ownership is too important to leave to the vagaries of a securities market subject to speculation and bubbles. Please read here: http://brighton-towne.blogspot.com/2010/10/why-we-should-outlaw-mortgage-backed.html
MBSGuy,
Great post from you and great comments from NC readers. I think we’re all trying to figure out the real implications of 2 very different issues (economic and legal) emanating from 1 huge problem (securitization).
MBSGuy believes the foreclosure problems are not mere servicing mistakes but rather due to “strategic choice” … OK, but that’s for foreclosure cases. He then says “If it is true that the servicing “mistakes” are correlated to the number of loans with conveyance problems, then it appears that the conveyance problem could be quite large.” And that’s where, I believe, the Pandora’s box opens wide… From the beginning I’ve always believed this problem went way beyond foreclosures because as Yves pointed out numerous times the “assignment mistakes” are embedded in the securitization process. Thus all securitized notes are tainted and all title chains clouded. That’s why I have been suggesting that even borrowers current on their mortgage payments (about 85% of all borrowers) could legitimately stop paying their lenders until hard evidence of being entitled to the payments (meaning they have the note in hand!) was displayed. That scared me because any failure there meant the mortgage financing market could potentially freeze as John Mauldin rightly points out: investors would flee; secondary market would stop functioning; mortgage rates would shoot up; transactions would slow to a crawl, etc. Ok … that’s bad enough, right? … But it gets worse if we follow the logic …
For essentially the same reasons, it follows that past real transactions involving a mortgage on the sell side are also tainted. Just like the buyers of foreclosed properties are wondering if they truly have a clean title, the buyers of properties where sellers had a securitized mortgage must be asking themselves the same question. If buyers/new owners don’t have satisfaction that the title was free and clear at closing time, can’t they sue for false conveyance?
Current and future real estate transactions suffer from the same dilemma. Think for a minute that if you were negotiating to purchase a house from a seller with a mortgage … would you not want to see the seller’s original note and proof that all assignments during the trading bubble years were properly registered, etc. Failing which you would probably walk away from the deal. Chances are a lot of buyers will now walk. Alternatively if you were to purchase a house with a clean new mortgage, how could you be certain that banks won’t play the same shenanigans with your mortgage?
Of course, the same issues are just as true for the commercial real estate market. Massive CRE mortgages there were all securitized too. We haven’t heard anything about that in the media/blogs to date … but aren’t they suffering from the same defects? And don’t forget that refi time in that market is coming to a head. I believe some $400B of CRE mortgages are expected to come to market by 2013. While banks have been playing the “extend and pretend” game, which bank will now refinance if the note is nonexistent and the title chain is broken? Where will equity come from to close the gap between current value and mortgage balance? Who would invest in an asset with no clear legal title/owner? Etc.
In this mess, which title company will insure any of these residential or commercial transactions? Which attorney will issue an opinion? Which banks will lend? Will any of them be solvent or licensed to service us after this debacle?
And what about all the CDOs containing some of these mortgages? Are they tainted too? Can the toxic cancerous parts be carved out? If not, does the CDS kick in? Who’s the CDS counterpart? The same banks? Where does it stop?
So these are the real issues. We could be facing a total economic sudden stop … it could unravel at lightning speed …
I leave the legal issue to others as I know they are ultimately more important than the economic/political ones … but at least we can now better appreciate the economic impacts of this fiasco.
How do we seriously fix this mess? I don’t see a simple answer and I don’t see good leaders taking the helm either …
Will we recapitalize, once again, the same banks and trust them, once again, to right their ways … or will we give up on the private sector’s ability to discipline itself and allow for far greater government involvement? Reader Democratuus is right: Europe has learned to institute checks and balances to safeguard the basic foundation of democracies… however flawed they are.
One thing seems for sure today … if Obummer upholds the rule of law, we’re screwed economically … and if he doesn’t, then we’re a banana republic … and we’re totally screwed!
Gee wiz folks. What is this talk about “deadbeat” borrowers? The government backed counterfeiting cartel wrecked the economy as they are wont to do and people can’t pay or are afraid that they soon won’t be able to pay. Tis the bankers fault as the article said.
When the banks extended loans (created money) to people to buy homes, the purchasing power for those loans was stolen by the banks from all money holders but particularly savers and the poor and loaned out.
For my part, I forgive the debt the borrowers owe me. The banks have no moral standing with regard to that debt. The borrowers don’t owe them squat, imo, except outrage that they had to deal with government backed counterfeiters.
I don’t mean to take anything away from MBSGuy, but this opening statement to establish his credibility is completely asinine:
“And in case it isn’t obvious, to serve as an expert witness, you do have to know what you are talking about.”
The number of tech related court cases that have “expert witnesses” who have no idea what they’re talking about, or are opining way, way above their skill-set and knowledge-base is magnificent.
I took it as sarcasm.
I just mailed this (see PS at end):
Chief Justice Shirley S. Abrahamson
Wisconsin Supreme Court
Madison, WI 53701-1688
Chief Justice Abrahamson,
Over the last 10 years I worked for a Madison attorney helping people deal with foreclosure and bankruptcy. During that time we saw many cases of debtors that had defaulted on loans with no hope of being able to continue to make payments. We also saw many examples of mortgage lenders that had lost payments, failed to accurately report payments and in one or two cases, foreclosed despite having received the payments. In Federal Bankruptcy Court, a lender when confronted with illegal accounting of bankruptcy payments (misapplication of funds) asked, “do you expect us to change our procedures just because someone is in bankruptcy?” to which the Court responded, “Yes.” Increasingly over the last five years, we began noticing that lenders were foreclosing that were not the original mortgage lender, in many cases there were no assignments of mortgages and even more troubling, notes were not included in the documentation, either because the lender was NOT the note holder or it had become ‘lost’.
In my personal life, situations resulted in the default on our mortgage. Our original mortgage lender was Indymac Bank. It failed in 2008 and One West Bank purchased many of its assets (according to press reports). One West Bank’s foreclosure documents did not include the original note to Indymac Bank. When we brought up this deficiency with the court at our hearing (10CV00820), Dane County Court Judge C. William Foust, Branch 14, indicated the lack of the note was a technicality and that he was satisfied with the affidavit of default provided by the lender. The lender did not address the lack of note. We understand the default judgment now replaces the missing note.
In light of the recent actions by the State Attorney General, I am asking the Supreme Court to give guidance to the Municipal Courts in the state to NOT just accept foreclosure documentation that is ‘technically deficient’ in the interest of speeding up the process. We brought the issue to the attention of the Court in our case and it was ignored. Hundreds if not thousands of Wisconsin homeowners are facing foreclosure and are unable to afford legal help to defend themselves.
False affidavits, lost notes and historically bad accounting are being ignored by courts in the interest of ‘processing’ hundreds of thousands of foreclosures throughout the country and in Wisconsin. We are asking you and the Supreme Court of Wisconsin to maintain the integrity of the court system for all parties – not just those lenders hoping to take advantage of distraught homeowners to sweep all the bad acts under the foreclosure rug.
In my case, the issue might soon be over, but lenders who have foreclosed and received judgment are also failing to complete the process. We have seen lenders foreclose, homeowners leave the home and then the lender fail to hold a sheriff’s sale. The lender leaves the homeowner to maintain the empty home indefinitely, including municipal fines for failure to mow or shovel snow, insurance and minimal utilities.
The Courts expect homeowners to abide by the terms of their mortgages, it is time for the court system to make sure the lenders abide by the law.
Sincerely,
Tracy C. Coyle
PS: somewhere out there is the note. The holder of that note has a claim against the property that will forever cloud the title. Equity – giving the house to the foreclosing lender because, after all, I am in default ignores legal interest. The lender foreclosing doesn’t have it, the note holder does.
Reading your comment prompted an odd thought for me. On the remote chance that it could be of any value, I’ll observe: I’ve not quite been able to fathom what the pattern of foreclosures take.
However, I’ve assumed they started at specific banks.
However, info from comments at NC (and also at Emptywheel) suggest mortgages targeted for foreclosure were not necessarily underperforming. Yet, homeowners were relentlessly pursued.
This suggests that the path leading from “banks” more likely originate in CDOs. In other words, if this is what I suspect — a huge system of insurance fraud in which CDOs were created primarily for the purpose of betting that X%++ of the mortgages needed to default in order for the fraudsters to collect from the ‘insurance’against mass foreclosures, then the place to begin tracing the risk of being foreclosed would be with the CDOs, would it not?
(It’s been clear for some time now that the reason so many crap mortgages were sold was to set up the CDOs against which to place bets on risk of foreclosure. For that reason, I’ve lost a lot of patience with blaming homeowners. This is a predatory scheme.)
Comments suggesting that bloggers and other investigators (“50 Future governors”) have an agenda, and a “nothing to see here” attitude have been less than helpful to those that seek to illuminate the issues and redress the wrongs.
To his credit, CR has expressed his wish to see investigations and prosecutions of wrong-doing. But one would think that CR’s own experience trying to get out the word about the subprime/credit bubble would make him more understanding of the difficulties faced by those who swim against the tide of big bank influence.
BS. More of the Same. Piled High and Deep.
From Asset-Backed Alert
http://www.abalert.com/headlines.php?hid=73847
Investors Grumble Over Flawed Remittances
Mortgage-bond buyers are losing faith in the accuracy of remittance reports, and some say the apprehension could soon factor into their investment strategies.
Remittance reports, distributed monthly by securitization trustees, are supposed to provide routine snapshots of the cashflow-collection and distribution activities of servicers. However, investors say there has been a rash of recent instances in which the reported data differed considerably from what actually happened – making it impossible to determine values for their holdings.
[…]
Why have the once-reliable reports been wrong? Investors point in part to increasing use this year of mortgage-modification programs that government agencies and lenders have implemented to aid troubled borrowers. They claim some servicers fail to verify when the changes take effect, resulting in mismatches between when a given loan’s cashflows actually shift and when those adjustments are reported.
Servicers argue the volume of recent modifications has become overwhelming in comparison to their staffing levels. They also have faced ongoing struggles in figuring out how to treat loans that are in the trial phases of modification programs. “It has made it nearly impossible for us to appropriately account for changes,” one servicing professional said.
Buysiders call that a red herring, saying servicers are equipped to account for modifications as they occur. “The servicers simply don’t pay enough attention to what’s happening to the underlying loans,” one source said.
Forgive me if I am incorrect, but it was not my understanding that particular loans were every assigned to particular tranches.
I thought the tranches were just a tranches of payments on all of loans in the pool.
My predictions:
1. The Feds will backstop the Title Insurance companies for any claims made against foreclosure properties they insure.
2. The IRS will rewrite tax law to allow the trusts for pooled securities to pull the mortgage into the pool at the time of foreclosure without penalty. This will be an exception that is allowed in passive investment entities.
3. The RMBS investors will be blocked against claims of misrepresentation due to the mortgage not being in the trust’s possession. The argument will be that, due to the nature of the instrument the mortgage and note have to exist in a pool outside any particular tranche. This is so because a failing loan can only be moved into the appropriate tranche at the time of failure. Investors will be told they were buying an income stream governed by certain rules and not title to any particular properties.
4. The Feds will legitimatize MERS by cleaning up its procedures and forcing it to collect and archive the actual IOU and deeds it represents electronically. Language to the effect that MERS acts as a proxy to the investment trusts it represents will allow it to continue its operation but with rules that make it trustworthy.
5. The Feds will strongarm the states and counties into allowing MERS to continue operation legally given that MERS will become truly accountable.
6. Mortgages where the paper trail no longer exists will be converted to “equitable” mortgages.
These steps should relieve the pressure and allow the housing market to clear.
LJR,
I agree that is the most likely scenario. I see no other way out then the Fed backstopping Title insurance companies until it cleans up the mess.
Three questions:
1) What collateral do the Feds get?
2) What to do with the practically insolvent banks, lenders, servicers, etc. … they did commit fraud on the court, right?
3) How do you convince investors and the ROW that this little mishap will never ever happen again, so soon after the last little mishap … after all, the rule of law is a matter of trust… running thin there, no?
No, that isn’t the way it is playing out. The banks are being forced to indemnify the title insurers on certain liabilities in foreclosure sales. That’s happened with BofA, expect to see it elsewhere. And title insurers are starting to write qualified policies on foreclosure sales.
OK… that might be true for now and for foreclosure cases… but what about if the title chains are broken for all/most securitized mortgages and that creates (as I suppose it does) the same issues = no ticky, no laundry… will banks be made to indemnify title insurers too for cases were performing borrowers challenge lenders and win, for past and current transactions being unwound because of title defects, for commercial real estate, CDOs, etc. … if banks are on the hook (as they should be, we all agree!) then they’ll go bust tomorrow and … then what?
That’s why I see no alternative but for the Federal government to backstop them until a solution is hammered out. Whether LJR’s step X step holds legal water, I don’t know. We will have to find a temporary legal patch until they clear up this mess. But I really don’t think the Fed will allow nor do I think the country is able to go through another round of Sunday Night Bailouts as in the Fall 2008.
Good thinking. Thanks.
Viewed another way:
1. The government will provide another back-door bailout.
2. The banks are above the law
3. The banks are above the law
4. States Rights are meaningless
5. States Rights are meaningless
6. The banks are above the law
TARP was easy compared to this. The anger at the banks has only grown since 2008. Any resolution is likely to be costly to the banks.
And remember that retroactively amending these contracts creates a double standard: the NYFed, with the blessing of the Tsy, said that the reason they had to pay out 100% in the AIG bailout is that they could not amend private contracts.
A. This is already a clusterf*ck for the banks, the regulators, and confidence in the US government and financial system is on the line. Backdoor sweetheart deals for the banks are probably already not possible (witness Obama’s veto).
B. It will get worse before it gets better. There are too many in denial, or trying to side-step, the problem. (witness attacks on “deadbeat borrows” and “hysterical” blogers). Plus ass-covering, finger pointing and navel gazing never goes out of style. And, prosecutions (unavoidable now) will shine light on industry practice and may go up the line to executives.
C. Institutional investors and have a fiduciary duty to recover as much as possible. Together with State AGs they make a potent force that will exact a high price, for any settlement/compromise.
Then there are a number of unknowns. For example, if enough people get on the “demand the Note” bandwagon, threatening to make their payments to escrow instead of to the Servicers, they will be a potent force unto themselves. (Extracting a higher price).
On the other hand, maybe the Notes were conveyed properly and the problems is contained to foreclosure mills. On thing is for sure, no one is in any mood to Trust the Bank’s work that that is so.
LJR,
Item 1 in you list is not unreasonable. If any of the other things happen, then We the Peasants should get out the pitchforks and the tumbrels. I for one would help set up the guillotine and get out my knitting.
For your consideration:
“2. The IRS will rewrite tax law to allow the trusts for pooled securities to pull the mortgage into the pool at the time of foreclosure without penalty. This will be an exception that is allowed in passive investment entities”
This doesn’t account for the countless REMIC violation that have ALREADY occurred. As the IRS has tens of Billions it can now legally collect, I seriously doubt a retroactive measure will be created.
“3. The RMBS investors will be blocked against claims of misrepresentation due to the mortgage not being in the trust’s possession. The argument will be that, due to the nature of the instrument the mortgage and note have to exist in a pool outside any particular tranche. This is so because a failing loan can only be moved into the appropriate tranche at the time of failure. Investors will be told they were buying an income stream governed by certain rules and not title to any particular properties.
4. The Feds will legitimatize MERS by cleaning up its procedures and forcing it to collect and archive the actual IOU and deeds it represents electronically. Language to the effect that MERS acts as a proxy to the investment trusts it represents will allow it to continue its operation but with rules that make it trustworthy.”
The investor suits will be filed in NY on a STATE level. The state has jurisdiction as the MBS’s were created in and according to NY trust law. And judges do not particularly like Federal meddling on an issue that resides in their state court. And the issue of MERS is fundamentally a state one. The aptly monikered “50 future governors” are certainly not going to pass on the political bonanza of a lifetime.
“5. The Feds will strongarm the states and counties into allowing MERS to continue operation legally given that MERS will become truly accountable.”
Again, 50 future governors simply wont allow that to happen. At least not all of them.
“6. Mortgages where the paper trail no longer exists will be converted to “equitable” mortgages.”
There is no way to legally do that unless a homeowner reaffirms the debt and allows a lender to reestablish title. Perhaps if an effort was made to offer a principal reduction (the real solution lay in principal reduction) to current market value (whatever that is) homeowners would be willing to negotiate a settlement in turn for a hold harmless of future liability from the bank. But the banks only legal tool would be to ask very very nicely.
Right now, tens of millions of homeowners legally own their home free of encumbrances. Thats whats up.
But I think its a good sign the debate has turned toward possible solutions.
Again, 50 future governors simply wont allow that to happen. At least not all of them.
I’ve been thinking on this point with ambivalence.
in the end, the Feds could just buy the States off with Federal dollars.
sort of like how they did with Highway Speed limits.
Did not Obama unveil this long coming infrastructure package cough….bribe[s recently.
That’s exactly right… and don’t forget that most State finances are in shambles… especially States with massive foreclosure problems. So if the Feds roll in with a seeming solution… they’ll take it and put the burden on the Fedreal government… it’s like a political bailout! How many do you think will resist?
In this post from 3 years ago,
http://www.nakedcapitalism.com/2007/11/ohio-judge-dismisses-foreclosures-in.html
attorney April Charney was quoted as saying:
“This opinion, once circulated and adopted by state and Federal courts across the country, will stop the progress of foreclosures, at first in judicial foreclosure states, across America, dead in their tracks.”
It received an interesting reception – almost ridicule.
Check out this letter dated September 2 from the monolines to Bank of America. September 2!
http://www.businessinsider.com/association-of-financial-guaranty-insurers-letter-to-bank-of-america-2010-10
Now that the banks have made a mess again hopefully they are not going to expect to be bailed out again .. not to mention all the lawsuits from being foreclosed on and all those trying to put their life back together after thier credit has taken a complete dump.
How To Fix Bad Credit
This entire chain is a process and would be subject to various internal controls etc at various entities. Some, if not all, of which would be governed by Sarbanes-Oxley and so forth. Where in this process was management, who presumably signed off on everything being copacetic? Where were the auditors who did the same? Without fraud how would these things pass muster?
The saddest part of a con is when the mark gets a whiff that he/she is being “played” and yet they continue to pump good money after bad, hoping they are wrong. Eventually, often once the mark it tapped out, they come to their senses. With Ben and Tim sitting on trillions in MBS, one hopes they come to their senses before we’re tapped out. I am also left to wonder how far up the food chain the complicity goes. That is, one could argue that the CDS AIG wrote on many of the MBS were unenforceable because of underlying fraud in the origination of the MBS. What if shareholders and courts, not the U.S. Government had made those payout decisions? Would they have challenged the validity of the claims?
its too bad that this has to continue on and the banks seem to just be able to get away with more and more abuses sure they get slack from press or govt or at least it looks like it but if they were really getting heat don’t you think they would do their best to walk a straight line instead it seems like one story after another every week of more and more abuse on how they operate. Santa Maria Homes For Sale