Has your client made his mortgage payment counselor? That’s all I’m concerned with. If he hasn’t made his mortgage payment then I’m going to grant this Plaintiff summary judgment and the home will be sold.
That’s the attitude of a great many judges in courtrooms across this state and probably the country. The problem with this very simplistic view of the current foreclosure crisis is it completely ignores the much larger social, economic and legal aspects of the crisis and this, combined with ignoring long standing rules of procedure, evidence and case law, has created a dangerous environment where the very parties that created this crisis are being rewarded improperly (yet again) while normal everyday Americans are paying the price for their reckless and criminal behavior (yet again). The failure of courts to consider the more important questions like whether the plaintiff claiming the right to be paid actually has that right has fostered an environment where hundreds of millions of dollars and the title to potentially hundreds of thousands of properties has been transferred to unidentified entities, some of whom may not be entitled to that money or the title to the property. Most importantly, our entire civil court system has been seriously undermined because the rule of law has been suspended in courtrooms all across this state (and presumably the entire country) in the mad rush to conclude foreclosure cases.
Most Foreclosure Defendants Have Not Paid Their Mortgage
T he truth is most borrowers in foreclosure have not paid their mortgages. That’s the easy part of the discussion. The more complex issues are the fact that most of these borrowers never had the ability to make these payments either in the short run and certainly not in the long run. Also, most borrowers in foreclosure could have and would have begun making some payment to the lender had they only been allowed to and if our national economy had not deteriorated such that they are legitimately unable to make their full mortgage payment. Very few homeowners just decided they weren’t going to make their payments. Instead, most became unable to make their payments, some were told not to make payments (in order to qualify for modifications) and others made payments but those payments were returned by lenders who will accept only 100% of what’s owed….and nothing less. Finally and most importantly, it is not at all clear or certain that the Plaintiffs demanding foreclosure even have the legal right to make those demands and they may not even own the mortgages, a fact that was most recently admitted before a Congressional panel two weeks ago as part of the examination of the failed HAMP program.
Most Foreclosure Defendants Never Had a Prayer of Ever Paying Their Mortgage
Now it is true that many borrowers took out loans that were greater than they could afford and it is true they took benefits from these loans, but are these millions of Americans guilty of gaming the system or where they merely pawns in a much larger economic scheme created by a handful of individuals within the powerful banking and financial services industries, a scheme that was expresslyconsented to by elected and appointed government officials from the local level right up to the White House and everywhere in between? Clearly it was the latter. The Subprime Boom of the last decade was not a crafty populist scheme by millions of homeowners who got together to fleece the mighty banking and mortgage service industries. The Subprime Boom was the national economic policy that was designed by the Wizards of Wall Street and aggressively advocated by our local, state and especially federal governments. After the tech bust, we had no new economic output so the only way to fund our national economy was through the creation of a credit-derived, consumer-spending economy. Paying for all our national economic prosperity with a big fat American Distress credit card was a whole lot easier than actually going out and digging ditches or building national parks like the Works Progress Administration so we were all…and I mean all of us…more than willing to “get to work” (spending). It was after all our duty as Americans to go out and spend, spend, spend….we did after all have a consumer based goods and services national economy to support.
It is also an undeniable truth that most of the defendants currently in foreclosure were financially illiterate at the time they took out the loans and these financial illiterates were preyed upon by mortgage brokers and agents of the banks that were far more sophisticated and had far more to gain by selling the loan (especially in the short run) than did the homeowner. The borrower dupes were aggressively solicited by far more sophisticated and overtly aggressive broker salespersons who said and did whatever it took to get that borrower to sign. Whatever objection a homeowner might make to the taking out the loan was met with an aggressive and insistent sales job from the broker, “Don’t worry, we’re going to refinance you right out of this adjustable rate before it adjusts.” Most importantly from a current perspective, most of today’s foreclosure defendants never borrowed one dime from the Plaintiff demanding foreclosure and evidence these plaintiffs introduce to support their demand for payment from the defendant is questionable at best and potentially outright fraudulent. Our courts have focused far too much attention on the defendant (have you paid your mortgage) and not nearly enough attention to an even more important question to the plaintiff (are you really entitled to collect this mortgage)?
Now why in God’s name would any company loan any amount of money when they knew the borrower had no way of ever repaying that mortgage?
Well, the reality is simple. In the fast paced world of subprime mortgage closings in 2000-2007, the subprime lenders were closing loans just as fast as they could get borrowers to put their signature on the bottom line and the individual brokers and the companies were paid in full plus commission for those loans literally before the ink was even dry on the paper. The subprime lenders (all of which are now bankrupt) couldn’t care less if this borrower had the ability to repay and in some cases, they didn’t care whether the information on the loan application was true or correct…they were being paid to close loans. And the “shittier” (to borrow Wall Street parlance) the loans were, the more they got paid. That’s right, the subprime lenders and Wall Street were making more on loans that had no chance of performing than they were paid on loans with good borrowers that would pay. It seems so counter intuitive, why would anyone pay more for a “bad” loan or one that had less chance of paying in the long run than a “good” loan with a stable, credit worthy borrower? Because the big money in the high stakes game of Wall Street Finance was not in the individual loans themselves, but it packaging pools of loans into trusts which (theoretically) held loans totaling $10-$12 million dollars (I say theoretically because most of these loans never actually made it into these trusts), then selling the rights to collect the mortgage payments coming into these trusts, for which the Wall Street Wizards collected huge commissions. Next, and even more significantly, the Wall Street Wizards made even more money from betting that these trusts would not perform over even the short term.
The Investors in Mortgage Trusts Were Either Ignorant or Lied to Or Both
After the homeowner’s loan was closed it was pooled together and sold or “placed” (theoretically) into one (or more) trusts. The right to collect the mortgage payments that went into the trust was sold to large institutional investors. (I say theoretically because we know that in most cases the loans never actually made it into these trusts and there is growing evidence that individual loans were sold into more than one trust but more on that later.) Believe it or not, many of the Fat Cat investors who bought the billions of dollars in “tranches” or streams of payments in these trusts had no idea just how “shitty” the loans in the trusts they were purchasing were because the rating agencies that would (theoretically) grade the loans in these trusts stopped actually reviewing or grading the loans and merely relied on the Wall Street Wizards that packaged the loans to tell them just how high quality the loans were. (Honest Moody/Fitch/S&P these are all Grade AAA loans with perfect credit borrowers!) Fitch, Standard and Poors, Moodys. These were the ratings firms that the world relied upon to grade and value these pools, but these companies stopped actually critically reviewing the pools of loans early on as each company competed to make commissions by offering their ratings. They weren’t getting paid to actually make accurate ratings, they were only getting paid based on the volume of the ratings made. In addition to the passive, volume-based incentives for inaccurate ratings, much of the modeling and assumptions they relied upon to come up with their ratings were just flat out inaccurate. i.e., a recent immigrant with no credit history could have a near perfect credit score that would qualify them for a huge loan despite the fact that he had virtually no income. (a so-called thin file credit score) The thin file credit score borrower phenomena is part of the explaination why housekeepers, minorities and other borrowers with zero financial histories represent a disproportionate population of those in foreclosure. But most of those rather important details were unknown to the Fat Cat investors who bought the streams of payments because they relied on the flawed or fraudulent ratings and they failed to do their own due diligence.
Close the Loans and Con The Investors
So let’s put all this together. Beginning really in 2002 and really ramping up with intensity through 2006, thousands of subprime lenders and brokers were carpet bombing the entire United States with offers to give loans to every single person in the United States that had a pulse. You remember the television and radio commercials. You remember the stacks of direct mail solicitations. You remember the telephone cold calls. I worked with many of these brokers and companies and I watched the borrower criteria steadily decline from first (sort of) examining the borrower’s credit, employment and financial history to quickly ending up where the lenders quite literally didn’t even look at credit scores, employment or financial histories. One week a salesbroker would come in with their minimum loan criteria that would say the borrower could have a 700 beacon score and no bankruptcy then two weeks later the same broker would show up to announce the new program which was no documents, no minimum credit score…just submit the application…we’ll get it closed. In a very short period of time, the subprime lenders went from reckless and irresponsible due diligence on the loans they were willing to take to no due diligence at all. Forget about the borrower making false statements on the loan application, they needn’t make any statements at all in order to qualify for whatever loan they wished. The subprime lenders existed for one purpose and one purpose only…scour all of America and close as many billions in dollars in loans as they could, as quickly as possible. Ignore all questions about whether the loans would ever be repaid….that was some other sucker’s problems that would ultimately end up holding the bag.
A Breakdown in The Contract From the Outset
Most importantly for purposes of many of today’s foreclosure cases is the fact that there was a systemic and profound breakdown between those who originated the loans, those who packaged the loans into the trusts, those who service the loans and those who are entitled to payments from the trusts based on all the payments going into the trusts. The responsibilities of each of the aforementioned parties are clearly defined by what is typically a 300+ page document called a Pooling and Servicing Agreement. These documents are contracts and most of them contain very specific requirements that each of the parties were supposed to comply with. Of particular importance in today’s foreclosure cases are those provisions which required the originators of the loans to actually transfer those loans into the trust. Often there are requirements that the original so called “wet ink” note be physically transferred along with other requirements such as endorsing that note, either in blank or specifically to the trust that claimed ownership of the note. There is also typically language that would have required that the mortgage be assigned into the trust and that assignment of mortgage be recorded, along with shifty language to the effect that the assignment need not be recorded, “unless law or custom dictate otherwise”. The bottom line is that in far too many cases, these important contractual requirements were never complied with by the parties from the outset….and here lies one of the very big problems that plague foreclosure cases today. Had the big shots complied with their own contracts…the ones they drafted, the ones they are empowered to enforce, the contracts that were drafted to protect all their interests, pesky defense lawyers like me would have a whole lot less to argue about today. The bottom line is that in far too many cases, the originators, the aggregators and the servicers failed to properly transfer the loans into the trusts when they were formed in the boom years. Next, the servicers have failed to fulfill their servicing obligations from the beginning and at every step of the way.
The foreclosure mill investigations, the robo signer press, the document mill controversies, these are all related to the fact that the parties to the mortgage trust agreements failed to fulfill their basic contractual agreements from the beginning. If they had simply transferred the loans they claim they own when they were supposed to, they would not have to work to fabricate the ownership and transfer years after the fact. The haphazard, frenetic, questionable and potentially fraudulent nature of all the post filing endorsing and assigning leads to real questions about whether the loans that purport to be held by any particular trust actually are owned or held by that trust. Which brings us back to the question…does this Plaintiff own this loan they’re foreclosing on? Do they really have the right to demand payment from this defendant? And if they really do and if they really are the party that owns this mortgage and is entitled to collect, why did the documents evidencing this alleged right not exist until long after the foreclosure case itself was filed? In the vast majority of foreclosure cases the plaintiff is many steps removed from the original lender. In reality, today’s plaintiffs are more often than not nothing more than (at best) a servicer or straw party for the ultimate owner or investor. (All the more significant when we consider that great effort is being made to conceal the fact that that the federal government is the real party in interest in the majority of today’s foreclosures). The initial sin was the problems with documentation, ownership and transfer at the inception of the loan. With that as the start, in the years since the Subprime Boom Years, we have so obscured and confuddled the real, honest ownership of these mortgages and the post filing attempts to document ownership claims seems like sloppy guesswork based on hunches or supposition. In all my years of defending foreclosures, I’ve rarely had clear, straightforward and intelligible answers to ownership and chain of custody questions answered to my satisfaction and in far too many cases, the alleged ownership and interest in these loans changes even after the foreclosure case is filed with Plaintiffs claiming all sorts of reasons for the alleged change in ownership. What boggles my mind is the number of times judges allow these post-filing substitution of party interest to occur without every questioning why this has occurred or really pushing for some proof that a change in interest has occurred. We’re talking about millions of dollars here and the right to collect that money or take title to the property is tossed around like an irrelevant after thought. This is not an afterthought….it is exactly as important as the question of whether the defendant has paid his mortgage.
A BORROWER HAS A DUTY TO PAY HIS MORTGAGE, BUT HE ALSO HAS A RIGHT TO KNOW WHO IS LEGALLY ENTITLED TO COLLECT IT
Who Shall We Blame (Punish) For Today’s Foreclosure Crisis?
During the subprime orgy of roughly 2002-2007, trillions of dollars in loans were extended to millions of Americans and many of those Americans were never in their natural lifetimes ever going to make the money they would need to repay those loans””even in a good economy. And the American economy had been in real decline for many years prior to the subprime boom years. Now Wall Street and Washington DC folks will point to indicators that would suggest things were going great with the economy, but the bulk of what was “right” with our economy was fueled not by real output, but by the trillions of dollars in credit that warm blooded Americans had taken out in the form of shitty subprime loans. The shopping that fueled the consumer spending, the building that fueled durable goods purchases, the trillions of dollars that was coursing through Rooms To Go, Lowes and Target was not fueled by any productive economic output…it was fueled by economically absurd loans that fueled this false economic prosperity. Loans that were secured by false equity that had no chance of every being repaid.
The defendants in foreclosure today were not the architects of this current financial collapse. I acknowledge they benefited by the fancy new house, furnished with trips to Rooms To Go and prettied up with appliances from Loews and new landscaping from Home Depot. But did these consumers create the system that allowed them to do all of this? No. It was our national economic policy developed and aggressively pushed by at all levels and by both parties of state, federal and local government and all of the major power brokers of industry and finance throughout this country. No one is government or business was preaching economic responsibility…quite the contrary…the official economic policy of the last decade was SPEND, SPEND, SPEND. No regard to actual economic output and seemingly no regard for the how this country was ever going to repay the massive consumer (and government) credit card bills we were all racking up. Today, the defendant borrowers in foreclosure cases are demonized and frankly abused and disrespected by judges who treat them as worthless deadbeats who are a cancer on our society. What many of these judges fail to recognize or appreciate is that these borrowers really are financially illiterate. They failed to appreciate the economics of the transaction they entered into and they were manipulated by the brokers, lenders and even our government itself that allowed this absurd economic insanity to develop. Today they are paying the price of their own failed economic choices and the price is heavy. They are broke. They are unemployed. The economic strains case divorce and emotional heartache. Oftentimes the home they are clinging to is the last glimmer of dignity or hope of stability they have left. But too often, these emotional and psychological realities are ignored….”You deadbeat, you haven’t paid, so get out.” And while I acknowledge that homeowners benefited from these loans, it is almost universally overlooked that the Wall Street Wizards took far more benefits from those loans (remember all the record high multi million dollar bonuses?) than did the homeowner borrower. But is was not just the deadbeat homeowners or the Wall Street Wizards that benefited, in fact every business on Main Street benefited. The entire country benefited (at least in the short run) from the economic crisis to come that was the Suprime Boom.
It All Comes Crashing Down- Act One
In retrospect, the economic “good times” that was the sub prime boom years was absurd insanity that in no uncertain terms could not continue. Looking back the only real question is why it was allowed to continue and how it continued for so long. The fact of the matter is the crash of the American sub prime mortgage market and the resulting collapse of the US financial system could have been easily predicted by anyone with an 8th grade education in economics. The collapse did not come because those crafty American consumers conspired against the mighty Wall Street Wizards and the entire American Banking and Finance system. The collapse happened because the Wall Street Wizards and most of the players in American Banking and Finance (and many internationally) individually and collectively engaged in an ill conceived and wide ranging conspiracy to suck out trillions of dollars in real and phantom equity from the Great American Middle Class and pocket a few billion dollars for themselves. When the collapse came, it came hard and fast. One Wall Street institution after another followed closely by mainstream main street banks and financial institutions. Remember the facts now, because many of us seem to have forgotten how dire things were. The fact of hte matter is that in fall 2008, the US and in fact the world economies stared straight into the brink of financial Armageddon. All of the major Wall Street institutions and many of the biggest banks from all across the country had to come face to face with a stark economic reality”¦.they had made outright stupid bets and their entire business model had collapsed”¦.and the collapse of their business model meant the collapse of the entire American economy. Keep in mind this was not just a few Wall Street firms or a few banks, but virtually all of the major players in the mighty American financial institutions. How in God’s name was this allowed to occur”¦all at once? Staring into the black hole of financial Armageddon the federal government allowed some institutions to fail while others were consolidated, received sweetheart deals and ultimately profited handsomely as a result of the dramatic intervention. Most experts acknowledge that the United States and the world truly was on the verge of real collapse and while many questioned the wisdom of the dramatic federal intervention, it is widely accepted that the intervention by the federal government was successful in preventing a major systemic collapse of the US and world financial institutions.
A key but largely hidden component of the sub prime boom years and the resulting collapse was the fact that both the boom and the bust were driven not just by reckless credit driven demand economics, (the bright happy/stupid side of the equation). The bust side of the equation was driven by the credit default swaps and other bets that were taken out against the bright/happy/stupid side of the equation. Prior to the sub prime boom, there did not exist the capacity or mechanisms to make such profitable bets against the American people, but a subset of the Wall Street Wizard community convinced the uber smart Wall Street Wizards to extend to them absurd odds that the pools of sub prime loans would not perform in the long run. While the Wall Street Wizards were making obscene money by packaging the loans, they discovered that they could make far more money making the bets on the down side of the equation. Between 2004 and 2008, this small subset of American and international investors that were betting against the American people made larger and more profitable bets that today’s homeowner’s would not be able to pay their mortgages in the long run. As we all know, most of these bets turned out to be very right and very, very profitable. And here’s where it gets ugly. If the private companies (like AIG) that financed the other side of those bets (and who made billions from creating those bets) were forced to pay the losing side of those bets, they would bankrupt. And here’s where it gets even more ugly. Our federal government paid off those bets and those national and international companies that made those bets got paid 100% of their bets….with American taxpayer dollars. Remember AIG and the French creditor “haircut” dust up? To remind you, this refers to the fact that the French convinced Uncle Sam that it would be illegal for them to lose one cent on their sub prime bets against the American people so…they were paid 100% on their bets…paid with the money of Americans who are being thrown into the street.
It All Comes Crashing Down- Act Two.
It is undeniable that the dramatic and unprecedented interventions in 2008 prevented a larger economic collapse and (surprisingly) the federal government made money on the deal. The second part of the equation (providing some relief for everyday Americans) on the other hand has been a dismal failure. The cornerstone of the government’s response was to set aside $50 billion dollars which was supposed to be used to modify American’s mortgage’s and keep them in their homes. The program has been an amazing, fantastic, wonderful success…..for the banks, servicers and institutions who caused all this mess. They’ve pocketed hundreds of thousands of dollars of that money and provided permanent modifications to fewer than 500,000 Americans with a median payment reduction of less than $500. The banks and servicers are stealing money from the federal government, they’re pocketing trial payment money paid by borrowers, foreclosures and just kicking down doors, burglarizing and taking homes lawlessly whenever they care to. They’re not negotiating or mediating in good faith and so the system continues to spiral out of control. Act Two has been and will remain an abject failure because the lenders are not working with the American taxpayers who are paying them for the “privileged” of hearing an operator in some foreign land tell them they don’t qualify for any kind of loan modification.
What’s Really The Point of All This Foreclosing?
Let’s start with our country’s bleak”¦.very bleak economic situation. Our country is absolutely , totally, undeniably bankrupt. Our obligations to seniors for health care, to the poor, to all of those who are taking one form of government entitlement or another alone and the interest we owe on debt have us bankrupt. Forget about other expenditures like military spending or infrastructure projects or anything else that is productive going forward”¦.just focusing on those backward-facing liabilities shows just how bad off we are.
Now consider the typical American’s personal financial picture. Salaries and income have been stagnant or declining for more than a decade. Even if you are not one of the millions of Americans who cannot find a job (and who frankly have no real prospects of finding a job at any time in the foreseeable future), the economic picture for American workers is bleak. Next, because of fundamental changes to the American economy, there are vast numbers of Americans who have no real hope of finding employment anywhere near the pay levels we came to expect over the preceeding decade. Unless there are fundamental changes in not just the American, but in the world economy, this poor employment reality will not change.
So what’s the practical reality? Even if the millions of Americans were provided fair and honest mortgage modifications, our economy is in such poor shape that they will not be able to make even the most optimistic modification payments in the long term.
I’ve gone so long in the tooth on this one, but if anyone’s still reading, here’s the deal….the banks, the institutions the servicer plaintiffs that are trying to throw my neighbors out of their homes may not even have the right to do it and even if they may have some right…they’re often not playing by the rules as they work to take these homes back. The homeowner may not in fact be paying his mortgage, but until the banks and institutions start playing by the rules the homeowner should not be compelled to pay the questionable claims of the plaintiff.