We’ve decided to publicize the rapid rise of a dangerous ailment, Banker Derangement Syndrome, which has become so widespread that the media is publicizing examples on virtually a daily basis.
Banker Derangement Syndrome occurs when someone who might once have been sensible is acting as a mindless mouthpiecs of particularly rancid banking industry propaganda. Note that financial services industry employees by definition do not qualify; they are simply engaging in the time-honored industry practice known as “talking your book” when they say something that is patently ridiculous and self serving. No, Banker Derangement Syndrome occurs when an independent party say something so blatantly and embarrassingly wrong in support of the banking industry, whether to curry favor or via having taken an overdose of its Kool Aid, so as to do severe damage to their credibility. In other words, if the questionable behavior could be explained as an over-zealous effort to win points with our new financial overlords, it backfired big time.
The initial example comes in a Wall Street Journal story which finally caught up with what we have been discussing on this blog for a year, namely, that the originators and packagers of residential mortgage securities on a large scale, perhaps pervasive basis, quit complying with the requirements of their own securitization agreements as far as how the borrower notes (the IOUs) were conveyed to the securitization vehicle (a trust).
These procedures were very carefully crafted to navigate a minefield of legal requirements. By not adhering to their own procedures (which included having all the steps completed by a date certain), retroactive fixes are well nigh impossible. Well, take that back. Legal retroactive fixes are well nigh impossible; less scrupulous tactics have become all too common, including document fabrications (a shuttered subsidiary of Lender Processing Services called DocX offered this very service for a fee). Not only do lenders’ attorneys too often show up with “tah dah” documents at the 11th hour, but there are also not-infrequent sightings of too much casual use of Photoshop as the remedy for all ills (such as two different alleged originals of the same document being submitted at different points in the same trial).
The sea-change took place with the robo-signing scandal last year. Many judges were suddenly willing to consider the idea that the banks might have been playing fast and loose and started looking at evidence submitted by the borrower’s attorney, rather than relying on the bank’s argument that the homeowner was a deadbeat and nothing else mattered. And it turns out when judges roll up their sleeves, they are finding in a reasonable number of cases that the banks haven’t established that they have the right to foreclose (the article cites the first successful case on what we called the New York trust theory, which was filed by Nick Wooten). The problem often boils down to the fact that the borrower note never was conveyed to the securitization and someone else in the securitization chain is entitled to foreclose. But no one wants that party to take action; it would prove that the at least some potion of an RMBS is not really mortgage-backed, but is effectively mere unsecured consumer paper.
This relatively short statement in the Journal article is so mind-numbingly awful as to serve as the gold standard for Banker Derangement Syndrome:
Laurence E. Platt, a banking-industry lawyer at K&L Gates in Washington, concedes that banks may have been sloppy. But he says “the real assault on the legal system” are efforts by judges and local officials to strip lenders of their rightful ownership and make foreclosures impossible.
Ahem, this is noteworthy by being 180 degrees wrong. Exactly how many things has the securitization industry done that runs afoul of the law? They violated the representations and warranties in securitizations by stuffing too many bad bonds into the deals (a teeny weeny bit at premium yields would actually have been kosher). They failed to convey the notes to the trusts as stipulated. Servicers and trustees then provided inaccurate certifications multiple times and they continue to do so in periodic SEC filings on these deals. They violated REMIC rules by failing to convey the notes to the trusts in the stipulated time frame. They violated REMIC again by trying to convey defaulted loans into trusts as a fix (only “performing” assets can be placed in a REMIC trust). Servicers have charged fees to borrowers in violation of the mortgage agreements and RESPA. They’ve impermissibly foreclosed on active duty servicemen. They’ve attempted to impose a national mortgage registry and designed and operated it so poorly that it has run afoul of the laws of some states and its records are of questionable accuracy. They’ve engaged in widespread frauds on courts, via robosigning and document fabrications.
And this is only a partial list. Yet the lawyer from K&L Gates has the temerity to accuse JUDGES who are trying to unravel the mess an irresponsible securitization industry has created of “an assault on the legal system”? Pray tell, what are the incentives for bankruptcy judges, who are appointed, not elected, to do such a thing? They’ve been every bit as hard, if not more rough, on the abuses than elected judges. And I’d like to know who these abusive local officials are. The only one I can think of (aside from a couple of local recorders who have done some damaging investigations of their own records) is the sheriff of Chicago, who stopped foreclosing for a short while, only to be ordered by the courts to get back on with it.
Now some readers might argue that since K&L Gates has been one of the biggest public relations outfits for the American Securitization Forum masquerading as a law firm, Platt’s statement could conceivably be forgiven as a classic example of the industry-serving Big Lies pedaled by the firm (see our dissection of some of their earlier flagrant distortions forays on this topic).
But this one goes even further than its earlier output, which looked like calculated efforts to mislead. This statement looks like pure psychological projection. And given that my securitization industry moles report that many of their cohorts are in deep denial about the depth of the mess they’ve created, it isn’t hard to imagine that we are seeing actual warped perceptions. To get everyone on the same page, here are some snippets from Wikipedia on this topic:
Psychological projection or projection bias is a psychological defense mechanism where a person unconsciously denies his or her own attributes, thoughts, and emotions, which are then ascribed to the outside world, such as to other people. Thus, projection involves imagining or projecting the belief that others have those feelings….Peter Gay describes projection as “the operation of expelling feelings or wishes the individual finds wholly unacceptable—too shameful, too obscene, too dangerous—by attributing them to another.”
And in case you are still trying to conjure up a defense for Platt’s views, let Georgetown law professor Adam Levitin disabuse you of that notion:
Platt’s view, it seems, is that everyone understood the mortgage deal and that the paperwork doesn’t really matter. That’s a very problematic view for any attorney to take, much less one with a background in real estate, secured lending, and securitization. (A less charitable interpretation of Platt’s comments is that the proper outcomes has nothing to do with law. Instead, it’s paperwork and intent be damned, we’re the banks so we should win by right.)
One of the things any first year law student learns is that real estate is different. Different contract remedies apply, there are different formalities required by law for real estate contracts to be effective (the lineage of this principle goes back to the 1677 Statute of Frauds) as between the parties to the contract, and a separate recording system to make realty contracts good against third parties. While the law has dispensed with formalities in many other areas, that just isn’t the case with real estate, not least because of the recognition (ala De Soto) that clear title to real property is so fundamental to economic activity.
Anyone with a background in secured lending also knows that paperwork matters. Misspell the name of the debtor so that it doesn’t show up in a UCC search, and you’re unperfected. Check the box for a termination, rather than a continuation of a security interest (ala BoA with Heller Ehrman), and you’re unperfected sol. Dotting “i”s and crossing “t”s matters.
To raise the “it’s just paperwork” argument in the context of securitization, however, is unreal. Securitization is all about legal fictions and paperwork. Why on earth would anyone every bother with the complex legal structures of securitization (typically involving two shell entities) other than to take advantage of legal fictions?
As I’ve noted in other venues, securitization is the legal apotheosis of form over substance, and the basis on which this is legally tolerated is the punctilious observance of formalities. Failure to do so can result in a securitization failing to be bankruptcy remote or to lose its off-balance sheet accounting status or lose its pass-thru tax status, any of which are disasterous. Securitization deals were so heavily lawyered precisely because the paperwork matters. They aren’t like a sale of a used sofa over Craigslist.
The “it’s just paperwork” argument quickly proves too much. Is the borrower’s signature on the loan “just paperwork”? How about a co-signor’s? If it’s just paperwork, why bother to have the borrower or co-signor sign, especially as it can create federal Equal Credit Opportunity Act issues when a spouse is involved.
This is not to say that a lender whose paperwork is fubar is sol. The lender can always petition the court for an equitable mortgage. But I sure wouldn’t want to be in that position, especially if there was anything fishy about the circumstances of the loan (unclean hands and all that).
Bottom line is that to claim that the courts following legal rules that have been firmly established for centuries is the “real assault on the legal system” is simply preposterous. The only thing it is an assault on is the sense of seigneurial right exuded by parts of the financial sector.
And if you take Platt’s argument to its logical conclusion, what happens in court is irrelevant, the judges and local officials are relying on technicalities and must be swept aside. The only thing that matters is who thinks they are right and how ruthless they are willing to be in enforcing their beliefs. This sounds an awful lot like a society ruled by drug lords, except in Platt’s variant on Columbia, the coin of the ruling classes is credit rather than cocaine.
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Well, you are dead right on the law, which means that most securitized mortgages cannot legally be foreclosed except by courts willing to close their eyes to the legal requirements. Unfortunately, there is no roadmap to what should happen next. Does every “borrower” now have the legal right to stay in “his” house without paying for it? Does the “lender” have his rights magically resurrected if he offers a juicy principal modification? Do the patsies who “invested” in securitized mortgages all get their dough back from the banks that have been peddling this drek for fifteen years? In this legal atmosphere why should anybody obligated on a mortgage run through this securitization process continue making payments? I would like to hear intelligent answers to these questions. The only thing that appears morally certain is that the individuals responsible for the mortgage securitization bubble should be stripped naked, tarred and feathered. With construction comatose we probably have the tar, not certain about the feathers.
What are you trying to say, Jake? That not allowing servicers to run roughshod over everyone else creates insurmountable problems?
You assert that, “Unfortunately, there is no roadmap to what should happen next.”
But that’s not really true, is it? For there certainly is a roadmap forward. The bankers now have to sit down at the bargaining table with the other parties involved and hammer out an agreement amenable to all.
Your lament seems to be that that’s quite a reversal for the bankers, who are used to lording it over everyone else. Well yes, that’s true. But who is to blame for that? The bankers have no one to blame but themselves for their loss of bargaining position.
If you’re suggesting that the bankers should be liquidated at fire sale values in some Mogadishu slave market, then that’s where we agree. But what happens to the hundreds of millions whose retirement funds bought the paper? Letting the borrowers off screws them, and many of them are too old to realistically recover from the loss.
Jay,
You’re straw manning.
Do you seriously believe that the bankers-servicers are operating in the best interest of the bond holders?
How many times has Yves debunked this argument? And yet we keep hearing it repeated ad nauseam.
On the contrary, screw the bankers and servicers. I’m just concerned to protect the retirees, which unfortunately may mean protecting the value of the securities.
But what happens to the hundreds of millions whose retirement funds bought the paper? Letting the borrowers off screws them, and many of them are too old to realistically recover from the loss. Jay
Good point but there is a solution:
1) Put the banks out of the counterfeiting business by removing their ability to extend new credit. This would be massively deflationary by itself but continue on please.
2) Every month send every American citizen a large and equal check of new, debt-free fiat equal in total to the shrinkage of the money supply as existing “credit” was paid off.
The above would, without debasing the money supply:
1) Allow borrowers to pay down (off?) their debts.
2) Compensate savers for years of artificially suppressed interest rates.
3) Fix the banks.
4) Fix tax revenues.
5) Reduce wealth disparity.
Thanks. I’ll file this between Single Payer Health Care and Fully Adopting the Metric System in my folder of good but politically impractical ideas.
The answer is clear. Although a bottom-up jubilation resulting in the debtors “owning” the lots free and clear doesn’t bring about a good affirmative dispensation in itself, it would be a huge step forward. It would have the negative virtues of breaking bank power, weakening central government power, and eroding propertarian ideology in general.
Yes. Debt jubilee for all of the loans done that were fraudulent is the only moral and sane thing to do.
If it kills the banks than even better, for that means that those that were perpetrating these fraudulent loans are prevented from doing more of the same in the future.
As pointed out by Down South, there is indeed a road map. You yourself identified it, albeit in hyperbolic terms:
“Does every “borrower” now have the legal right to stay in “his” house without paying for it?”
Yes, except as I’m sure you’re aware, the title deficiencies don’t apply to “every” borrower. But the penalty is severe if one pays for real estate but does not get valid title. That’s why individuals purchase title insurance–to protect themselves against this big risk. Those are the rules of capitalism as developed by centuries of Anglo-American jurisprudence.
“Does the “lender” have his rights magically resurrected if he offers a juicy principal modification?”
No. I suppose there may be some way for lenders with unsecured paper (instead of the secured loan they thought the had) to come to an agreement with the borrower and “redo” the loan. But that may be legally problematic and the only reason a borrower would agree to this is if he were pressured into acting against his interests (why agree to repay a loan one is not required to repay?).
“Do the patsies who “invested” in securitized mortgages all get their dough back from the banks that have been peddling this drek for fifteen years?”
They should be able to file lawsuits or claims against those that defrauded them. They may not (or probably won’t) get their money back because these corporations will simply go bankrupt and won’t have any funds to pay off these debts. This is a strict rule of capitalism that helps the banks and you don’t see much whining about how bankruptcy rules screw average people out of pensions or even lawsuits they have won against corporate defendants. These corporations can’t have it both ways; live by the sword die by the sword.
“In this legal atmosphere why should anybody obligated on a mortgage run through this securitization process continue making payments?”
Indeed. The securities themselves should be blown up and the perpetrators sued or imprisoned and the borrowers should indeed get a “free house”. Hey, it doesn’t seem like a fair result–but there are lots of unfair windfalls in our capitalist system and it’s really not as unfair as the windfall these corporations made in the first place by growing the housing bubble and violating centuries of law. Someone is going to make a windfall–the question is who? And the rules of law and capitalism say it should be the homeowners in this case. I can live with that. It’s better than letting criminal bankers keep the windfall and making the taxpayers pay for it as they get out of jail or court for free.
It was Charles Dickens writing in A Tale of Two Cities who captured the mentality of a man like Platt:
With a wild rattle and clatter, and an inhuman abandonment of consideration not easy to be understood in these days, the carriage dashed through streets and swept round corners, with women screaming before it, and men clutching each other and clutching children out of its way. At last, swooping at a street corner by a fountain, one of its wheels came to a sickening little jolt, and there was a loud cry from a number of voices, and the horses reared and plunged.
But for the latter inconvenience, the carriage probably would not have stopped; carriages were often known to drive on, and leave their wounded behind, and why not? But, the frightened valet had got down in a hurry, and there were twenty hands at the horses’ bridles.
“What has gone wrong?” said Monsieur, calmly looking out.
A tall man in a nightcap had caught up a bundle from among the feet of the horses, and had laid it on the basement of the fountain, and was down in the mud and wet, howling over it like a wild animal.
“Pardon, Monsieur the Marquis!” said a ragged and submissive man, “it is a child.”
“Why does he make that abominable noise? Is it his child?”
“Excuse me, Monsieur the Marquis–it is a pity–yes.”
The fountain was a little removed; for the street opened, where it was, into a space some ten or twelve yards square. As the tall man suddenly got up from the ground, and came running at the carriage, Monsieur the Marquis clapped his hand for an instant on his swordhilt.
“Killed!” shrieked the man, in wild desperation, extending both arms at their length above his head, and staring at him. “Dead!”
The people closed round, and looked at Monsieur the Marquis. There was nothing revealed by the many eyes that looked at him but watchfulness and eagerness; there was no vivible menacing or anger. Neither did the people say anything; after the first cry, they had been silent, and the remained so. The voice of the submissive man who had spoken, was flat and tame in its extreme submission. Monsieur the Marquis ran his eyes over them all, as if they had been mere rats come out of their holes.
He took out his purse.
“It is extraordinary to me,” said he, “that you people cannot take care of yourselves and your children. One or the other of you is for ever in the way. How do I know what injury you have done my horses. See! Give him that.”
He threw out a gold coin for the valet to pick up, and all the heads craned forward that all the eyes might look down at it as it fell. The tall man called out again with a most unearthly cry, “Dead!”
He was arrested by the quick arrival of another man, for whom the rest made way. On seeing him, the miserable creature fell upon his shoulder, sobbing and crying, and pointing to the fountain, where some women were stooping over the motionless bundle, and moving gently about it. They were as silent, however, as the men.
[….]
So cowed was their condition, and so long and so hard their experience of what such a man could do to them, within the law and beyond it, that not a voice, or a hand, or even an eye, was raised.
BRILLIANT comaparison.
God I wish I had finished that book.
The feeling today is getting to be frighteningly the same.
Dickens nails it, and we see clearly the goal being driven towards by our privileged and coddled “elites” at the same pace as the carriage in the story. Lickspittles like these lawyers, Lowenstein, Sorkin and David Brooks pine for the return of Dickens’ world. Its criminal and dehumanizing but if I am any judge of the American character we will not return to that world. In fact, I dare say that the most lasting thing America has given to the world is the mindset amongst the common people that we have a right to our rage and anger – that the universal rights of man are ours, and no one is above the law. These ideas predate us of course, but ours was the first nation to ever truly embody and manifest without hesitation the premise of equality — the first nation where regular people actually feel this principle without doubt or awkwardness, and wear it as a second skin, just as comfortable and effortless as the first skin.
Thankfully much of the world has learned the lesson and is running with it… has surpassed the “teacher” as it were.
This is not to say that tragedies brought on by these same immoral elites won’t continue to happen but that the consciousness of the people will never resolve back to that ugly place and time.
Why do you think Bush, then Obama, aided and abetted by several Circuit Courts of Appeals and the SCOTUS have precisely put a lot of efforts in undermining the Rule of Law?
They love power; power for the sake of it.
I strongly suggest you read Glenn Greenwald’s columns in Salon.com. Emptywheel at Firedoglake is also a great source about the war against American civil rights.
An example: On the simple say so of the President or one of his minions, you can become a non-person. Pouf! One moment you were there…now you are not! You were just whisked to a secret location, tagged as an “enemy combatant” the victim of a secret interpretation by the Executive of the PATRIOT Act. You have no rights, (save those the Leader shall deign to give you, if any!) no legal protection, nothing! Your captors can do whatever they please with you.
Guess what? All the above has been sanctioned, by action or omission, by our courts! Do you hear the talking balloons in the punditofuckology Universe talk about that? No, they are now Patriots, not journalists.
I wish I could be more optimistic about our future, but so far, the last Administration and the current one has not give me any reason to be so.
It won’t take long before this country becomes a wasteland for those not making a minimum of seven figures income.
BTW, if anyone think or feel that my post was full of hyperbole, how about this:
Who wrote such a scathing paragraph? None other than United States Court of Appeals For The Ninth Circuit Chief Justice Kozinski, whom, after raking his colleagues over the coals for their backasswarding worshiping of law enforcement goes for more, much more:
I’ll confess something: I came to this country 16 years ago. When I compare then and now, I can’t believe the change for the worst in the character and judgement of those who are expected to lead by example. It is as if the so called “best of the crop” in American society had been cursed by a Voldemort-like entity. Politicians literally spitting on their constituents, judges shredding the Document they were selected to obey and interpret, financiers who, instead of investing, plunder, steal, engage in criminal fraud and buy out of politicians.
I’m glad I kept the passport from my homeland active and updated. I really have the feeling I’m going to need it.
How the faithful city has become a harlot,
She who was full of justice!
Righteousness once lodged in her,
But now murderers.
Your silver has become dross,
Your drink diluted with water.
Your rulers are rebels
And companions of thieves;
Everyone loves a bribe
And chases after rewards.
They do not defend the orphan,
Nor does the widow’s plea come before them.
Therefore the Lord GOD of hosts,
The Mighty One of Israel, declares,
“Ah, I will be relieved of My adversaries
And avenge Myself on My foes. Isaiah 1:21-24
Yves, your observation, “A less charitable interpretation of Platt’s comments is that the proper outcomes has nothing to do with law. Instead, it’s paperwork and intent be damned, we’re the banks so we should win by right” could be the definition of bankster sector strategy.
It was always the bankster residential securitization scheme to override real estate consumer protection laws at the same time abolishing consumer protection securities law, in favor of investment bankers making their own rules as they go along to accompany their ‘innovative’ investment instruments with the boundless help of their Washington law making minions.
The war on equal rights for consumers-no-longer-people for the right of the bankster/corporate class to print and control all money flows from a central multinational corporatocracy by domination is on. They’ve been preparing themselves for survival in a collapse for some time, shoring up their cash, depleting everyone else of theirs, keeping the peace with bankster controlled food stamps and artificially controlled stock market prices for the investors without a clue class for the day of the big kill.
Domination of media is complete. We have a virtual blackout on news with nothing but commentary-no-questions asked. Actually worse than a blackout when people believe they are hearing and seeing news. Even C-Span isn’t worth watching for its decline into huckstering for the illegitimate ruling class.
Corporate interests dominate the Supreme Court and the Executive branch who work hand in glove with the newly created federalis stop or walk in, frisk and search entitlements above the law. This morning reports on a TSA payment of a couple of thousand dollars before legal fees to a woman whose breast was exposed during a public airport patdown. So, this unholy alliance works against the Congress, now supine; the only representative of the people in the federal government.
It wouldn’t surprise me if this seeming derangement isn’t a tactic for working up a case for US Supreme Court review. Complaining about the courts by attorneys for bankers who have been getting away with murder on all fronts is a logical opening salvo for development of a legal point aimed a Supreme Court case ruling on which to secure banker domination over housing with all legal representation and credit rating recovery out of reach for anyone but the wealthy.
Its what the banksters have been acting on and getting away with all along. They get the bonuses, don’t they? Nobody; not taxpayers who pay their way, and certainly not shareholders, is telling them what to do.
When the NYFed came out with its recent white paper on all of this I thought it was intentionally ambiguous and incomplete. That they intended to use it to “advise” state judges was outrageous. This was followed closely by Schneiderman’s investigation into the securitization industry which, because it followed so closely on the heels of the NYFed’s paper, seemed like it could be used to insinuate more ambiguity into the analysis and thus help to set up a case for the Supremes. I’m not sure what effect that would have on 50 different state codes. But after Gore v Bush I’m sure anything is possible.
“But after Gore v Bush I’m sure anything is possible.”
Bush v Gore was a trial balloon. The real test was Arar v. Ashcroft and the SCOTUS passed it under the noses of the unwashed masses, no sweat!
After that, high ranking officials knew they can break and make the laws as they please. They’re just careful not to be too blatant about it.
In an interview (May-01-2011) with Harry Schearer (Le Show at NPR) Prof. Bill Black prognosticated (well, let’s say he was lead to a fairly logical conclusion) that we will have Great Recession 3.0 much sooner than anyone think; he went further, stating that this next one will “hit us in the teeth, and very hard”.
The podcast is worth listening to in its entirety. What I hadn’t fully appreciated until then was how deep, far, and far back in the past, the overtaking of the entire U.S. political and economic system by the financiers has been. The level of corruption, incompetence and stupidity exposed by Prof. Black in 51 minutes simply boggles the mind.
Forgot my last paragraph! (-.-)
What this Great Recession 3.0 will do, is to FORCE the final awakening of a majority of the American people. No more excuses to stay put listening to American Idol or the Biggest Loser, no more partisan recriminations nor politician BS will do. It’ll be either widespread social movements to oblige the resident of Versailles-on-the-Potomac to OBEY those who vote for them, or another 2-3 decades of economic misery and complete takeover of the country by the über-wealthy.
And Yes! It has happened before, therefore, it can happen here and now.
All this discussion on assignments, endorsement, standing is focused on the relatively small percentage of loans that are in default. Just imagine if any recognizable number of Americans made a “presentment demand” under the UCC to whomever they were making their monthly payment. Under Florida’s UCC, an person responsible for making a payment under a note can demand presentment of that note as a condition precedent to making the next payment….even if a borrower is not willing to make that bold demand, they should at the very least file a Qualified Written Request to see what information the servicer can dig up. Comparing the info received by consumer with what I get in discovery is quite interesting sometimes. But just think about the crisis that would occur if Americans exercised their contractual rights under UCC to see just who the hell owns or holds their obligation!
But just think about the crisis that is already occurring, thanks to those who have screwed the contractual rights and real estate laws. I understand that this was done by Timmy Gangster’s friends, Obama’s biggest donors; yet, we need to hold them to their real obligation…obey the law!
If I were a judge reading the Laurence E. Platt comment undermining my integrity as a judge who is truly committed to enforcing the laws of this land, his insult to the judicial profession would only serve to embolden me going forward. If that article was supposed to be some kind of PR stunt to push the bankster agenda, it’s going to backfire.
The flip side of this is that, as long as the courts are doing the bidding of the banksters, then the bankster trolls are quick to argue that the courts are above and beyond reproach. It’s the old carrot and stick approach.
There’s a perfect example of this on this comment thread.
Attorney Chip Parker took aim at Florida’s foreclosure robo-judges on this CNN video news segment, for which the Florida Bar is now investigating him, threatening him with sanctions.
To this commenter Transor Z replied:
A lawyer making disparaging remarks about a judge or a court by saying that s/he or it ignores rule of law/Due Process is ballsy and a big deal in any jurisdiction. Lawyers are “officers of the court” so they are expected to promote respect for the judicial process.
So what we see is that the bankster trolls are heavily committed to all sorts of double standards.
A masterpiece blogpost written with spot-on incisiveness and wit. Bravo! Hard to keep up with all these new diseases.
“But no one wants that party to take action; it would prove that the at least some potion of an RMBS is not really mortgage-backed, but is effectively mere unsecured consumer paper.” Which suggests a strange, unholy uniting of interests between defaulting borrowers and bond-holders. I wonder whether some group of bondholders could throw some key-money to the FBs to establish that the investment bank only had the right to foreclose in ITS OWN NAME, and not on behalf of the trust. Of all the parties, the investment bank may have the deepest pockets.
Hey! Leave Laurence E. Platt alone. He was a Mortgage Excellence Award winner back in 2006 for his “service and contributions to mortgage lenders and the mortgage lending industry.
The award, which celebrates achievement and innovation in the subprime mortgage financing arena, was based on nominations submitted by Home Equity News readers and attendees to the Subprime Summit, an event presented by Home Equity News.”
http://www.klgates.com/newsstand/Detail.aspx?publication=2705
People like Platt helped make teh subprime mortgage market what is is today.
/sarcasm off
If “lawyer” Platt wants to opine on NY law, he should at least pass the NY Bar exam: http://www.klgates.com/professionals/List.aspx?BarAdmissions=993849d4-2374-4586-ac34-2b9bff333023
“Does every ‘borrower’ now have the legal right to stay in ‘his’ house without paying for it?”
The basic answer is “no.” The more accurate answer is “as a practical matter, it depends.” If nobody can establish a chain of title sufficient to dispossess the borrower of his house through foreclosure, then foreclosure isn’t possible and the borrower can stay in the house. Of course, that does not mean that the borrower does not have a contractual obligation to pay his debts, but the question is who has the right to collect on that debt? Should the borrower be forced to pay somebody-anybody- just to make people like you feel better that deadbeats don’t get away with being deadbeats? Even if that means they might have to pay twice, once to somebody who has no right to payment, and a second time to the person who actually holds the debt?
And, by the way, as title to the house is in the borrower’s name, it is his house, and no air quotes are required. That’s the way it works.
“Does the ‘lender’ have his rights magically resurrected if he offers a juicy principal modification?”
No. The rights either existed or they didn’t. They can’t be resurrected. New rights, however, can be created, but I don’t know why anybody would want to do that given that the original claim presumably remains out there somewhere. Of course, that’s a contract between two third parties, so why should I try to stop them?
“Do the patsies who ‘invested. in securitized mortgages all get their dough back from the banks that have been peddling this drek for fifteen years?”
Again, it depends on what legal recourse the patsies have in contract. Again, it’s their problem to figure out UNLESS a crime can be proven, and in many cases, there has been fraud.
“In this legal atmosphere why should anybody obligated on a mortgage run through this securitization process continue making payments?”
That’s a silly question. If all the paperwork is in order and chain of title can be established, any borrower who had a mortgage go through the securitization process should feel comfortable that she is actually paying the person who holds her debt and need not fear that she may one day have somebody else come after her to pay the debt she has been paying.
Personally, I think the banksters need to be reined in and spanked. Unfortunately, merely requiring banksters to comply with the requirements of contract and property law does not arise to the level of action I believe is required, and I don’t understand why people like you have a problem with applying the rule of law to the banks, particularly when doing so requires divesting the borrowers and patsies of their rights under the law. It seems to me that it is you who are proposing lawlessness . . .
In the film ‘It’s a Wonderful Life’ every time a bell rang an angel would get it’s wings, similary, every time a corporate stooge bloviates a thousand protestors should descend for peaceful demonstrations at the DC firm in question, stopping by where Dugan and Chertoff work also, since they too should be called upon the expert anaylsis that has suggested they have completely failed in their obligations to the USA:
“Laurence E. Platt, a banking-industry lawyer at K&L Gates in Washington, concedes that banks may have been sloppy. But he says “the real assault on the legal system” are efforts by judges and local officials to strip lenders of their rightful ownership and make foreclosures impossible.”
Yes indeed. Your answer re the “free house” is probably more accurate than mine above. If the loan does indeed become a unsecured debt, as to the borrower (and not simply the holder of the “security”), then they can still be pursued personally on that debt.
And I suppose since these are usually really large sums of money to the borrower, it would probably push the borrower into bankruptcy. In bankruptcy the borrower will get to exempt his (no quotes required, as you point out) house, meaning he will get to keep a good amount of the equity in his house. But the trustee may sell the house though as this would probably be a significant asset of the debtor. So the borrower may not get to live there–and the unsecured creditors will get some money back.
I’m just trying to think of any defenses the borrower would have in contract where he would indeed get a “free house” (maybe the single action rule?).
Apparently, asking a question here is the moral equivalent of supporting one side or the other. I find this amusing. For your informaion I do not support the banks or other criminal elites. But I think there are other constituencies who are truly innocent in this matter. For example, retirees whose savings are immiserated daily by ZIRP. As for borrowers who speculated in housing and now claim to have been misled by mortgage originators, I find their claims disingenuous. That huge numbers of people are stupid and careless and easily duped by salesmanship I understand, but that more than a handful signed documents obligating themselves for hundreds of thousands of dollars without understanding the terms I think defies belief. Along with those of others, your own answers to my questions confirm that what ought to happen next is not completely clear. I would prefer a universal bailout of the entire nation and the consignment of banking and corporate elites to ten years of community service in the sewers of our major cities. Pay them $4 per hour and let them find out how that feels.
I agree with you about ‘beyond belief’. Investors that bought into this scheme..they, the sophisticated ones, that didn’t follow the transactions, didn’t check the paperwork, oh that’s right, don’t need any of that paperwork..ie: Note..they are the ones that truly amaze me. The borrowers, I give them a pass, they weren’t in the money making business.
Crap:
“Of course, that does not mean that the borrower does not have a contractual obligation to pay his debts”
Yes it does, there is no contract. The whole thing was a lie from the get go, the “idiot” was set up to be screwed. How many times does this need to be repeated before a Civil War breaks out? The Bank should reimburse the victim 7x times what they have paid out, that there’s the ‘Christian’ thing to do.
I don’t take Platt seriously. He is just a mouthpiece taking a position he is paid to take. When you insult judges generally and across-the-board, you have no credibility.
IMO the only fair solution to the mortgage mess is to turn all these mortgages into equitable mortgages and assign them to a trust (overseen by a court-appointed trustee) that will hold them until it can be decided who should get the proceeds. This process might be started with the homeowner and banks both submitting modification proposals. If they cannot mutually agree, then a court-appointed arbitrator decides. If the homeowner doesn’t like it, he can walk away. If the home is foreclosed, it goes into the trust, which can resell the house with good unclouded title. The homeowner should get his downpayment back, if any, less the fair amount of rent for the period of occupation.
Next, any parties submit claims to the trustee (REMICs and MBSs, banks, insurers, or CDS issuers) and somehow the trustee and/or judge sorts out who should get what. Of course this would be a difficult process, due to a lot of complications. For instance, in some cases the MBS holders have already been been paid off by CDS issuers. In some cases, the insurers have paid for part but not all of the damages. Plus there was fraud by the banks againt the MBS buyers.
This sort of scheme would have several advantages. There would be no winner-takes-all situation like we have now (either for the banks or homeowners), no free-rider homeowner problem, no clouded title problems, a clear and fair process for loan modifications, and generally the loss would be split among the parties who were at fault, the banks for creating this stupid pooling arrangement, and the MBS buyers for not doing their homework.
I agree with you that Platt is just a paid mouthpiece and not to be taken seriously. But your proposed solution won’t work on a practical level. A lender’s purported right to an equitable mortgage cannot be presumed. It is highly dependent on the particular facts of the case. And also on the predispositions of the judge since equitable powers are by nature discretionary. There must be a judicial finding that an equitable mortgage exists. In the absence of such a finding, you cannot commit the homeowner to court-administrated binding arbitration for the purpose of negotiating loan modifications.
Why not this: 1) if a party claims the right to foreclose on a particular loan against a given property and cannot produce documentation clearly demonstrating ownership of that loan, that party henceforth has, and can gain, no standing vis a vis that piece of property. 2) If it can not be shown that the sale was legally recorded at the time of the original sale, then the borrower receives clear title. If the sale was recorded at the time of sale, then the borrower still owes. But, since the party claiming ownership of the loan and attempting foreclosure is now out of the picture for lack of proof, the ownership of the loan becomes, with clear title henceforth, the property of the state within which the property exists. The borrower still must pay his mortgage, but now to the state, and when he has paid the mortgage off, he recieves clear title.
Nobody gets a free house (a sop to all the “enforcers” out there), the state gets revenue (thereby benefitting all the citizens of the state, believe it or not) and all title questions are settled henceforth.
Of course, every entity that thought they bought the loan along the way, but did not take the necessary legal steps to document that purchase, such as proof that the seller had the title to sell, loses. As they should.
How is it that readers of NC can suggest paths of forward action that make sense, benefit homeowners and states and the oh-so-wise-ones in DC remain a fart in a whirlwind?
I like this idea. Something to think about. This problem isn’t going away for decades. There is no way to fix this nationally but breaking it down to a State level would at least give a solution a starting point and maybe shorten the fix by a decade or two. Meanwhile everyday that foreclosures go on make the solutions go further away.
Is it possible to know where and when so and so lawyer will plead a case? Because I would be more than willing to make sure the judge read the thoughts of this K&L Gates’s asshat lawyer before the trial.
Could be fun…popcorn fun, that is!
It IS an assault on the legal system. Activist judges are trying to apply the law that applies to you also to banks. Expect a major backlash from banks who will refuse to be held to the same laws as lesser individuals like you.
Popcorn for sure! I am so enjoying watching this show. I certainly can’t keep up with the lawsuits but to see them all suing each other is…well…who could have written this script. I am just an observer, watching the Great Unraveling in this, the year of Reckoning.
“Does every “borrower” now have the legal right to stay in “his” house without paying for it?”
I understand, in a moral sense, why people keep harping on the above question, but people need to just go back to the nuts and bolts of the real estate purchase. The person listed on the Deed, did in fact, purchase the house at closing. It is theirs…and only theirs. If you don’t believe me, let me know who else the county goes to every year to collect property taxes from.
Also, during closing we noticed that the money for this came from the lender, who simultaneously created a first, and maybe, second lien against the same property to secure the debt.
Now, if the lender sold the Note to another company, who then sold it again to another company, who securitized it and sold it into a Trust, or whatever, but along the way, destroyed/lost the documents, performed incorrect assignments, etc., then it is the lender’s and only the lender’s fault. If the borrower figures this out and decides not to keep paying the “current” lender because the “current” lender cannot prove ownership of the debt, why would anyone expect the borrower to keep paying. Who are they supposed to pay? For them to keep paying monthly installments is actually financially stupid.
As someone previously brought up, if you bought property without making sure you had a clean title, and someone comes along and proves they have the right to the property, well, you are screwed.
Just think, the sole purpose of the banks is to lend money and make sure their loans are secured…and they totally blew it. If any other professionals screwed up so monumentally, they would cease to exist…but here we are.
“Does every “borrower” now have the legal right to stay in “his” house without paying for it?”
I understand, in a moral sense, why people keep harping on the above question, but people need to just go back to the nuts and bolts of the real estate purchase. Big Dawg
In a moral sense, the purchasing power for “credit” is stolen from the entire population as the loans are made. So to whom is the debt owed in a moral sense? To the thieves, the banks, or to the entire population? And if to the entire population then what good does repaying the banks do?
Yves,
You are a bright “truth” lighthouse in an otherwise stormy sea.
Best Regards,
An overwhelming fan
It would be interesting to hear Laurence E. Platt’s comments on the following brief and provide legal support to the defense’s position. The judge in this case seems to subscribe to his position.
Quote from the brief:
“Respectfully, this Plaintiff suggests that Judge Silverstein seriously overstated what role the legislature had actually legislated for “servicers” and supplanted it with his own opinion, seriously overstepping his role as a Judge and trying to become a Super Legislator so as not to start a MERS title epidemic of massive proportions. In fact, the transcript of the Bucci hearing reveals that Judge Silverstein was very concerned about what would happen to the real estate market and title industry if he ruled against MERS. This counsel was counsel in the Bucci case and was specifically asked by Judge Silverstein what I thought about causing a title and foreclosure catastrophe.
My response was “too bad”; my comment was driven by the law and his was driven by economics.”
The brief is fascinating to read and buries Mr. Platt’s assertions in full.
http://www.scribd.com/doc/52370037/United-States-District-Court-District-of-Rhode-Island-Moll-Brief