If you thought the subprime/prime mortgage meltdown of 2008 was scary, with all the related crap –collateralized debt obligations, mortgage-backed securities, NINA loans and derivatives trading- that we were forced to learn about about back then, have I got a sequel for you.
And the sequel is even scarier than the original. Indeed, it’s even scarier than last night’s wild SCV thunderstorm.
I’m talking about Foreclosure Gate: 2010, Banker’s Head on a Stick! and it’s much easier to understand. Put simply, the banks are having trouble identifying who holds the actual paper note on your home. Hey don’t judge; you’d have trouble too: after spending a good portion of the aughts slicing and dicing, combining and splitting, and buying and selling portions of the electronic data that represents the physical mortgage note on your home, the banks are having trouble proving to the courts in several states that they actually have the right to foreclose on homeowners.
Last week Warren Olney had an entire show devoted to this subject and I highly recommend you give it a listen.
One reporter on the show mentions how a San Diego woman took out a loan for her house from Countrywide a few years ago. Recently she started receiving foreclosure notices from Deutsche Bank, which told her it was acting on behalf of Goldman Sachs. Here’s the thing: she’s never done business with either bank and she’s paid the bills on her home, but through the process of securitization, both those banks apparently own part of the mortgage on her home and think she’s due for a foreclosure.
Part of the problem relates to what is described in the show as “arcane” US Property law, in which local jurisdictions, like LA County, are the keepers of property records, deeds, and notarized housing documents. During the go-go aughts, the banks didn’t want hundreds of county bureaucracies across the nation slowing them down -there was money to be made after all!- so they invented an entire separate computerized database of mortgage documentation. Columnist Robert Scheer takes over:
Fully 65 million homes in question are tied to a computerized program, the national Mortgage Electronic Registration Systems (MERS), that is often identified in foreclosure proceedings as the owner of record.
MERS owners now include Wells Fargo, AIG, GMAC, Citigroup, HSBC, the two housing agencies and Bank of America. But the courts are increasingly challenging MERS claims to the right of foreclosure since this whole racket, which bypasses the power of counties to register property ownership, was never authorized in the law
The stakes couldn’t be higher. Last week all 50 Attorneys General joined together to announce an investigation into foreclosure processes at the nation’s largest banks. Major banks have announced a halt to foreclosures while they shred tons of documents fix their processes. Economists and real estate pros say any delay in getting these foreclosures out could ruin the still-sluggish economic recovery, let alone the housing market. This has huge implications for the fragile economy, not to mention Santa Clarita, whose main industries (home and car sales) have been hit hard by the recession.
It’s literally dizzying to think of all the crooks, frauds, swindlers and fly-by-night realty-biz hucksters who made tons of money during the 2000s. We still -two full years after the crash!- have yet to see any bankers frog marched off to jail. Our vaunted capitalist and financial system, once the envy of the world over, can’t even prove in a court of law that it owns what it says it owns. Think about that for a second. There isn’t a bank in the country with more resources than Bank of America, and even they aren’t sure what happened just a few years ago.
And that’s before we get to the equally culpable borrowers, who thought the fat times would never end. It seems homeowners who weren’t greedy, who didn’t overreach, are taking all of this on the chin. While we’ve paid our bills responsibly, our home values are declining thanks to the uncertainty and greed of the banks and some borrowers.
It makes me wonder if we’ll ever recover from this mess.
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