… goes to Chain of Title, by David Dayen (with apologies to Jennifer Taub, Alyssa Katz, Michael Lewis, and many others, including my co-author, Simon Johnson).
Chain of Title isn’t primarily about the grand narrative of the financial crisis: subprime lending, mortgage-backed securities, collateralized debt obligations, credit default swaps, synthetic CDOs, the collapse of the global financial system in 2008, and the frenzied bailout that followed. Instead, it’s about foreclosure fraud: how mortgage servicers, banks, and the law firms they hired systematically broke the law to force people out of their homes. At the same time, it’s about securitization fraud: the fact that an untold number of securitizations were not properly executed, meaning that they violated the terms of their underlying agreements, meaning that their investors should have been able to force rescission of the entire deal.
The substance of the argument has been well known for years, so I’ll try to pack it into one sentence: The banks creating mortgage-backed securities failed to properly transfer notes (the documents proving a borrower’s obligation) to the trusts that issued the MBS, so not only was the securitization itself faulty, but the trust did not have legal standing to foreclose on homeowners—so the banks paid third-party companies to forge the required paper trail, and lawyers knowingly submitted fraudulent evidence to courts, who usually accepted it.
This has been common knowledge on the Internet since 2009 or 2010. But Dayen does what good writers do: he tells the story of a few real human beings figuring out the workings of this vast fraudulent system on their own, fighting against it … and ultimately, for the most part, losing. The book makes you feel the anger, disbelief, hope, and disappointment of those days over again. Even though I knew how the story ended—in a whimper of liability-eliminating settlements and self-congratulatory back-patting by politicians—it was still painful to read. Continue reading
By James Kwak
One of the things I can’t stand about the corporate world is the tendency of senior executives to say things that they wish were true, without verifying whether they actually are true or not. Perhaps my favorite example of all time is Stan O’Neal’s internal memo from mid-2007:
“More than anything else, the quarter reflected the benefits of a simple but critical fact: we go about managing risk and market activity every day at this company. It’s what our clients pay us to do, and as you all know, we’re pretty good at it.”
But here’s another good one from Barbara Desoer, head of Bank of America’s home loan division (to Bloomberg):
“We believe that our assessment shows the basis for past foreclosure decisions is accurate. We have good processes and good controls.”
And apparently she’s sticking with this line. This week she told Congress, “Thus far we have confirmed the basis for our foreclosure decisions has been accurate.”
By James Kwak
I’ve been largely sitting out the foreclosure scandal/crisis. Partly I’ve just been too busy, and partly the coverage on other blogs has been great. Mike Konczal in particular has been providing the “beginners” posts–here’s part one of five–that were my niche during the earlier part of the financial crisis, basically putting me out of a job, and Yves Smith has also been all over the issue.
I want to ask one question, but for those who are not economics blogs junkies, let me get you up to speed. It first turned out that in their haste to foreclose on houses, the law firms filing for the foreclosures (in many states, you have to get a judgment from a court in order to foreclose) were cutting corners and sometimes filing fake documents. Then it turned out that sometimes they were filing fake documents because the real ones didn’t exist. In particular, it is possible that many of the trusts that issue mortgage-backed securities never had properly-endorsed copies of the notes that underlay those mortgages. (See this Yves Smith post. Highlight quote, from the CEO of a mortgage originator: “We never transferred the paper. No one in the industry transferred the paper.”)
The question is this: Why, just weeks from an election in which Democrats are probably going to get clobbered, is the Obama administration sitting on its hands, writing this off as a bunch of technicalities, and opposing a foreclosure moratorium?