Foreclosure moratorium - why?

[Htown Harry]

The news the last few days has had a bunch of headline stories about the supposed fraud lenders and mortgage service companies have committed in the way foreclosures were handled.

There's been no ER angle that I've seen, but the media has jumped all over this one in a way that reminds me of some of the 2008 coverage of the financial crisis. I do remember that year having some ER implications.

Several of the latest I have read have gloomy hypotheses saying that the fundamentally weak housing market is about to get even more gummed up. Or that the banks have set themselves up for another fall that might need taxpayer support.

News Headlines

Momentum builds for nationwide freeze on foreclosures

I'm not getting it...other than Harry Reid's politics in Nevada.

I even read through one of the lawsuits. http://www.scribd.com/doc/38654717/...Nation-Star-Aurora-Bac-Citi-Us-Bank-Lps-Et-Al
I think it's typical. There's a laundry list of allegations of paperwork "errors", but no real claim that the outcome - booting out the deadbeat borrower - was incorrect.

OMG, the notary wasn't in the same room when [-]her boss whose signature she has seen thousands of times[/-] an official signed a foreclosure suit!!!

Are you concerned that this is leading to something serious? Or is the whole thing just one of those "crisis" stories that tend to pop up in the weeks leading up to elections?

 

[Pete]

Lots of good points Harry. One thing I know for sure...we're setting up another moral hazard. I know a lot of people who stopped paying their mortgages (on purpose..with advice from real estate attorneys) and worked out some sweet deals with their banks to lower their payments. It already takes a long time to get "deadbeats" out of these houses. What do you think this news will do? PS. I don't hate "deadbeats"

 

[Htown Harry]

Well, I suppose "deadbeats" was a poor word choice, as it implies a willful plan to not pay. I only meant "non-payers." Certainly not all folks who stop paying their mortgage have a scam in mind.

But it is inconceivable to me that foreclosures are happening to anything more than a handful of households who are only a month or two behind on payments. There's plenty of evidence that lenders are moving to foreclosure more slowly than ever, given the volumes they are dealing with.

As to what will happen...I think politics (and the lenders' inclination to defer to politicians in an election season) will triumph over the longer-term view and we'll see a widening moratorium on new foreclosures from now until early November. But given how choppy the housing market is anyway, that doesn't worry me too much.

However, if it continues much beyond some congressional hearings when Congress returns to session, or if any of the lawsuits begin to stick, I'm worried freezing up the market's ability to work through the bad loans could create collateral effects that will be difficult to predict or control.

 

[harley]

I don't know. I think if a bank is going to throw you out of your home, whether it's your fault or just the way the cookie crumbles, they should be required to follow the law in doing it. It's sort of like the death penalty, I'd rather let a guilty person off than kill an innocent one. I don't know all the details, but I do know that if someone is supposed to be checking the information for validity before signing off on it, they should do so. And I can guarantee that if someone is signing several thousand of these things per month, they aren't doing their due diligence.

Many of you know I'm not pro-gov't, rules, and regulations, but that's not what's at stake here. This is a business process, the end result of the contract a person signs when they buy the house. Just like the owner is required to make payments on time, pay taxes, insurance, and all the rest, the bank has signed onto some procedures for foreclosure. Just do the work, and don't try to cheat on it. I have no problem with someone taking the word of another employee that the work has been done and then signing off on it, but that's not what's been happening here from what I understand. They're just assuming it's all in order. Hire more people if you are overwhelmed. It's not like the banks can't afford it, or the workforce is hard to find.

As far as the politics of it, it's just another thing to posture and blow about. Do we need a moratorium? I don't know. If it slows things down and the foreclosures get processed properly, good. Just do the work, and do it right.

As far as the effect of slowing down the market, tough. You don't throw people under the bus to make things convenient for the rest of us. If the lawsuits stick, I will assume it's because they have some legitimacy. It's not like the legal system is prejudiced against the financial institutions. They usually share the same golf cart.

 

[Cattusbabe]

The way these mortgages were
sliced and diced then sold and re sold can the banks even prove that they are the mortgage holder. This is a Gordian Knot that will take a long time to untie. I think the Banks were pulling a fast one with robo-signing these foreclosures and got caught. I agree with harley, there is a business process and the Banks need to do things the right way.

 

[Zathras]

The way these mortgages were
sliced and diced then sold and re sold can the banks even prove that they are the mortgage holder.

This is the big question as I see it.
From what I have heard, currently the law requires the entity that is foreclosing on a property to have some specific documentation to show they are indeed the owner of the loan. This paperwork is not present in many cases and it is on that basis the foreclosures are being challenged.

 

[M Paquette]

There have been a few unfortunate outcomes from banks and their notaries 'expediting the process', where a homeowner who had paid off a loan and was in posession of the deed and paid mortgage documents found the sheriff at the door.

There are a number of instances where homeowners and renters found their residence had been entered, certain valuables removed, and locks changed. That's a big ole no-no for occupied residences, and of course the theft of owner or tenant property is bad. Banks were handing out incorrect addresses to their 'repo men.'

 

[Nords]

The way these mortgages were
sliced and diced then sold and re sold can the banks even prove that they are the mortgage holder. This is a Gordian Knot that will take a long time to untie. I think the Banks were pulling a fast one with robo-signing these foreclosures and got caught. I agree with harley, there is a business process and the Banks need to do things the right way.

I bet if the homeowner wants to catch up on their payments or sell the house (fully paying off or transferring the mortgage in the process) that the banks will locate the appropriate paperwork with amazing efficiency and speed.

 

[Birdie Num Nums]

Mortgage Bankers Association's Strategic Default

 

[Texas Proud]

Since at one point and time I had to be the one to sign the papers to foreclose on houses.... I will tell you that I relied on hired experts to say that what we were doing was legal.... so, by the time the paperwork got to me to sign... all I did was sign.... I did not look at anything.... I think this is the same with some of the people who are being called 'robosigners'....

The one benefit that I had was all the loans I had to deal with were in the same city or county for the bond... but I did know some people who did it for CMOs and they basically did the same thing...


As for why they are stopping.... and this is just my guess.... they have plenty of houses in the pipe... putting new ones in will not do anything... it is better to have the lawyers review what you have done so someone can not find a technicality and get millions of dollars from you even though they were not paying in their mortgage... a normal CYA procedure...

 

[dfdski]

There have been a few unfortunate outcomes from banks and their notaries 'expediting the process', where a homeowner who had paid off a loan and was in posession of the deed and paid mortgage documents found the sheriff at the door.

There are a number of instances where homeowners and renters found their residence had been entered, certain valuables removed, and locks changed. That's a big ole no-no for occupied residences, and of course the theft of owner or tenant property is bad. Banks were handing out incorrect addresses to their 'repo men.'

I'm not interested in the politics associated with things here. (Been there, done that, have the tee-shirt. I'm not on this forum for a political discussion.) And M Paquette - I've been here long enough to know I pretty much tend to agree with you.

But this? No links? It hits close enough to home - I plan to pay off the mortgage about 3 years early in 2012 - to ask for *something* more than you word about "a number of instances" or "a few outcomes".

With all due respect, mistakes can happen. You seem to imply something much more.

Peace.

 

[clifp]

Mortgage Bankers Association's Strategic Default

At times it is ridiculously easy for the Jon Stewart show to come up with material.

This WSJ article say they arranged a short sell as opposed to a strategic default. Although the net effect is pretty similar thet promised to payback the 75 million they borrowed and ended up paying a lot less.

 

[clifp]

Since at one point and time I had to be the one to sign the papers to foreclose on houses.... I will tell you that I relied on hired experts to say that what we were doing was legal.... so, by the time the paperwork got to me to sign... all I did was sign.... I did not look at anything.... I think this is the same with some of the people who are being called 'robosigners'....

The one benefit that I had was all the loans I had to deal with were in the same city or county for the bond... but I did know some people who did it for CMOs and they basically did the same thing...


As for why they are stopping.... and this is just my guess.... they have plenty of houses in the pipe... putting new ones in will not do anything... it is better to have the lawyers review what you have done so someone can not find a technicality and get millions of dollars from you even though they were not paying in their mortgage... a normal CYA procedure...

TexasProud one of the reports I heard said that bankers were required under penalty of perjury to sign that had reviewed the paperwork before they could start the foreclosure process. It seems me one of the big problems we've had in this financial crisis is too many people are ignoring the the "Under penalty of Perjury" which is typically in big bold print.
I'll certainly sign (or lately click the I accept box) that I've not read thourghly, but the threat of perjury tends to stop me.

It wasn't that long ago we impeached a president for perjury. I'd like to see more people pay attention to it in the future.

 

[Alan]

I'm not interested in the politics associated with things here. (Been there, done that, have the tee-shirt. I'm not on this forum for a political discussion.) And M Paquette - I've been here long enough to know I pretty much tend to agree with you.

But this? No links? It hits close enough to home - I plan to pay off the mortgage about 3 years early in 2012 - to ask for *something* more than you word about "a number of instances" or "a few outcomes".

With all due respect, mistakes can happen. You seem to imply something much more.

Peace.

There was a high profile case reported on CNN (Chase Bank have since apologized)

Bank breaks into home - over mortgage payments

Nancy Jacobini was home alone in Florida when she heard what she thought was an intruder at the front door. There was no knock. She wasn't expecting anyone, so she grabbed her cell phone and called 911.
As it turns out, the man who broke the lock on her front door was actually a contractor hired by her bank. It is a procedure typically used to secure a foreclosed home. However, Jacobini's home wasn't foreclosed. She tells American Morning's Kiran Chetry how terrifying the experience was for her.
Nancy Jacobini: When the police arrived, of course, they had to search the house to make certain that nobody else was in it. And then one thing led to another, and then we basically found out that the gentleman was there to change the locks on my home.
Kiran Chetry: And who was he sent by?
Jacobini: He was sent by the bank, Chase Bank, to change the locks without my permission.

 

[Pete]

Getting too caught up in legalities. Borrow the money at a certain interest rate with the house as collateral. Don't pay your mortgage, out you go. If not I'm not paying either, and neither should you and you and you....

 

[Brat]

I understand there is another mouse in this house, the paperwork in the securitization of mortgages is a mess. Title insurers have stopped writing policies on foreclosed properties and, it is rumored, that they are hesitating about writing where any mortgage has been securitized.

 

[obgyn65]

Interestingly, officials in 40 States are now said to consider a joint foreclosure probe...

I understand there is another mouse in this house, the paperwork in the securitization of mortgages is a mess. Title insurers have stopped writing policies on foreclosed properties and, it is rumored, that they are hesitating about writing where any mortgage has been securitized.

 

[Htown Harry]

Harley and others have made good points on due process, and after some more reading I better understand the root issue is the opaque paperwork and hard-to-pin-down "ownership" of the notes that were securitized as part of MBS's.

There is no doubt there is a mess, one largely of the financial industries' creation. They have a responsibility to clean it up using legal methods.

However, I'm still hung up on the suggestion that the ultimate financial outcome should be tilted heavily in favor of the homeowner. For example, in the lawsuit I linked in the OP, the plaintiff's suggest the solution is to essentially give them the property free and clear:

328.
The Plaintiffs are entitled to a reformation of these agreements and notes as unsecured notes or as partially or wholly discharged notes and a right to reformation of the contracts with the persons or entities who are owed obligations because of funding of the loans of the Plaintiffs.


329.
The Plaintiffs are entitled to have their properties as referred to herein quieted in their names until and unless some party comes forward in this litigation who has a right to enforce the loans upon their houses free and clear of all encumbrances.

I can't see how that would be a just outcome.

Disclosures:
1. I own some shares in a bond fund that has invested in distressed MBS's
2. I live in Houston - ground zero for the S&L crisis of the 80's and, in my view, the successful work-out of the problem through the RTC.
3. I live in a house that was foreclosed by an S&L, which I bought from them in 1985.

 

[chinaco]

Apparently some of the paperwork is not in order and the banks and mortgage companies need to support their claim.

This will be sorted out. But it will slow down the process.


Ultimately, if people stop paying their mortgage, they are going to be evicted. They know it.

 

[Nords]

329.
The Plaintiffs are entitled to have their properties as referred to herein quieted in their names until and unless some party comes forward in this litigation who has a right to enforce the loans upon their houses free and clear of all encumbrances.

I imagine that full archiving and auditable records were the last things on everyone's minds during the go-go years of 2004-2006, and now the legal threats are being made to the mortgage companies to prove it or lose it.

Kinda ironic that the banks would loan to anyone with a pulse (and some without) and now can't even figure out who they loaned to. I still think they're obligated to pursue (and complete) due process before foreclosure, or else they really are just pissing their shareholder's money away.

 

[dfdski]

There was a high profile case reported on CNN (Chase Bank have since apologized)

Bank breaks into home - over mortgage payments

Alan, here's the difference between this article and what I was asking M. Paquette about:

There have been a few unfortunate outcomes from banks and their notaries 'expediting the process', where a homeowner who had paid off a loan and was in posession of the deed and paid mortgage documents found the sheriff at the door.

Chetry: You say that you were about three to four months behind on your mortgage payments but you'd been working diligently with the bank to get a mortgage modification.

Jacobini: Absolutely.

In 12 years there has been one time I was late (by about a week because I wasn't paying attention) on a mortgage payment. What "hits close to home" for me is the offhanded quote about a homeowner in posession of the deed.


In 2.5 years I plan to pay off my mortgage about 2 years early. I've been a little concerned about how best to go about it. Certified check? Call ahead and see if I can pay it off in person? (It's a national outfit.) I'm aware that mistakes happen.


Regarding the OP, I have mixed emotions. The banks are at fault for making historically risky loans. So far I'm not seeing how they've paid for that crime on society. Mortgagees are at fault for, well, LBYM (living beyond your means). The so-called regulators are at fault for not doing their job. But then again, nobody can be blamed for doing "what everybody else is doing". In the meantime the only ones who will pay seem to be the ones who pay their taxes and bills.


Simplistic? Probably. Do I have an alternative? I didn't back when we bailed out the banks, and I don't have one now to bail out the mortgagees. So I guess it's a national foreclosure moratorium for now.

 

[Alan]

Alan, here's the difference between this article and what I was asking M. Paquette about:



In 12 years there has been one time I was late (by about a week because I wasn't paying attention) on a mortgage payment. What "hits close to home" for me is the offhanded quote about a homeowner in posession of the deed.


In 2.5 years I plan to pay off my mortgage about 2 years early. I've been a little concerned about how best to go about it. Certified check? Call ahead and see if I can pay it off in person? (It's a national outfit.) I'm aware that mistakes happen.


Regarding the OP, I have mixed emotions. The banks are at fault for making historically risky loans. So far I'm not seeing how they've paid for that crime on society. Mortgagees are at fault for, well, LBYM (living beyond your means). The so-called regulators are at fault for not doing their job. But then again, nobody can be blamed for doing "what everybody else is doing". In the meantime the only ones who will pay seem to be the ones who pay their taxes and bills.


Simplistic? Probably. Do I have an alternative? I didn't back when we bailed out the banks, and I don't have one now to bail out the mortgagees. So I guess it's a national foreclosure moratorium for now.

My mistake. I've not heard of anyone in possession of a deed being foreclosed on, although that doesn't been big boo-boo's don't happen.

Last year while living in Baton Rouge, a good friend of ours had an awful experience. She had owned 2 houses in the same sub-division, one which she lived in, and one which was a rental. She sold the rental house several years ago.

One slow day at work she was reading the Baton Rouge Advocate, scanning the page which lists all the folks who owe taxes (they have a name and shame system in place) and she sees her name listed as being delinquent on her property taxes, naming her as the owner of the house she had sold years before. Off she goes to the records office (in Louisiana you never get to physical hold your house deeds) to discover that her lawyers had messed up and transfered the deeds of the wrong house.

I know that was off-topic, but it illustrates that house ownership paperwork screw-ups occur in "normal" times also.

 

[DoingHomework]

I did not look at anything....

So you are admitting to fraud, a felony?

I think that is the issue here. I have little sympathy for deadbeats. But banks MUST follow due process. To not do so and then sign documents confirming that the proper review was carried out and the bank officer had personal knowledge of it, which is required in some places, is perjury and possibly fraud on the part of the bank officer. Clearly it varies by jurisdiction. But the national banks ignored jurisdictional requirements and just followed their own rules. In many cases these rules were contrary to law.

 

[Amethyst]

Mass evictions? No. Riots and disorder would follow.

My simplistic take:

In life, one chooses to be an ant or a grasshopper. Ants follow the rules, such as paying bills on time, because ants love order. If necessary, ants are willing to cut back and do without; grasshoppers do so only when the things they want simply aren't there. Also, ants don't rebel, because ants love order. So ants will continue to pay their own bills and also help pay for the grasshoppers' mass defaults, caused by the banks' enabling behavior. Thus, an appearance of order and comfort may be preserved for the ants even though deep down, they know they're being had. Large corporations and governments know this, and act accordingly.

A.

A In the meantime the only ones who will pay seem to be the ones who pay their taxes and bills.

 

[DoingHomework]

I can't see how that would be a just outcome.

Forgiving the loans would not be just. But it might be the legal out come in some cases. As I understand it, in some jurisdictions banks were required to keep physical paperwork documenting loans. That is inefficient so they kept electronic records only in their owns systems. While that made sense to them, it was not legal in some areas because it denied borrowers access to documents they might need to support a claim.

Now the banks are in the position of having to support their claims without documentation. If they cannot produce original documents as required then they may have no claim on the properties.

I don't think it is a sensible or just outcome. But the alternative is to not follow the law that required banks to maintain evidence of claims. That would not be just either.