A Foreclosure Lawyer Goes to Washington

Dec 8, 2010Thomas A. Cox

white-house-150Foreclosure lawyers may be better off working in the states than getting DC involved.

white-house-150Foreclosure lawyers may be better off working in the states than getting DC involved.

A couple of weeks ago, I was invited down to Washington to testify before the House Judiciary Committee hearing, "Foreclosed Justice: Causes and Effects of the Foreclosure Crisis." The panel that I was to be on included two other lawyers who represent homeowners, Professor Christopher Peterson (the University Of Utah law professor who has really got MERS's number), and representatives of three of the large loan servicers. Since one of those loan servicers representatives was to be from GMAC Mortgage, LLC, an outfit that has commanded quite a bit of my time and attention over the past six months, I hoped for the opportunity to make sparks fly with him in the hearing room.

I worked hard on my written testimony, giving GMAC Mortgage a lot of special attention. I headed down to DC on the day before the hearing just to be sure I made it on time. At 7pm, a call came in from the committee staffer telling me that the servicers were not going to be at the next day's hearing after all. Perhaps I am getting a swelled head, what with all of the recent media attention, but I wondered if the last-minute bailout meant that GMAC's representative did not want to sit before the committee with me as I much as I wanted to be with him.

Despite the absence of the servicers on our panel, I was still feeling energized the next morning. After all, after two recent hearings conducted by the Senate Banking Committee and one by the Subcommittee on Housing and Community Opportunity of the House Finance Committee, the House Judiciary Committee hearing was to be the first one where real, everyday foreclosure defense lawyers were appearing to explain the foreclosure crisis from a personal perspective. (No disrespect here to Diane Thompson of NCLC, who testified before the Senate Banking Committee -- she surely is a real lawyer, but she sits at the right foot of God as the country's preeminent expert on HAMP.)

The next day there were to be two panels before the 40-member committee, which meets in a big, impressive room. The first would include representatives from the OCC, Treasury and the Federal Housing Finance agency and a State Supreme Court (trial court) judge from New York. I was geared for action, but when the hearing started, there were only nine committee members in their seats. Later, the number shrank to three -- one of them distracted by an animated cell phone conversation.

Between a recess for a House vote and the glacial progress of the hearing, my fellow panel members and I were informed by a staffer mid-afternoon that, while they were thankful for our attendance, our panel would not getting an opportunity to testify that day.

Despite this unpleasant surprise, I came away with four observations:

1) I believe that an activist federal intervention into state property laws  to help solve the foreclosure scandal should be avoided. There are some areas where our federal government can handle issues better than the states, but this is not one of them. Example: The recent win that I scored in the Maine Supreme Court in August, where, construing more than 150 years of Maine foreclosure law development, our Court ruled that MERS cannot have standing to conduct foreclosures in Maine. This much-desired result came from local judges on a readily accessible state level court interpreting legal issues presented by local lawyers. We did not need, nor do we want, remote legislators in Washington telling us what the law will be for uniquely local matters.

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2) During the hearing, one of the Republican committee members argued that if the rule of law was enforced across the board, then perhaps the mortgage servicers would not be behaving as they do. He asked why there is not much more activity at the state level to sanction the lawyers who enable and present the servicers' dishonest claims. He wondered why the state courts are not being much more active in sanctioning misconduct, and why there is no criminal prosecution of misconduct, simple as submitting affidavits filled with perjury. I felt that these were legitimate questions. The dishonest affidavits issue is a simple one and I do not think that there is a good excuse for state boards of bar overseers failing to take action against the offending lawyers. And it puzzles me that no one state Supreme Court has taken any creative action, or undertaken a judicial inquiry to determine what, if any, remedy should exist for homeowners who lost their homes based upon dishonest affidavits. On the other hand, state judiciaries are tremendously overloaded and underfunded and have little to no spare capacity to take these issues on.

3) I wanted to ask this Republican if Congress should demand that Attorney General Eric Holder bring federal criminal charges against those who broke the law by submitting thousands of dishonest affidavits. I met with our newly appointed U.S. Attorney here in Maine about a month ago to urge him to consider using federal mail fraud and wire fraud statutes to pursue criminal charges against the servicers and perhaps their lawyers. The cryptic response seemed to be that the direction to do so would need to come from Washington. Apparently there is no such direction. Months ago, Holder said he was investigating. What is there to investigate? The crime is simple. We have served the evidence up on a silver platter of thousands of dishonest affidavits filed all over the country. Attorney General Holder should instruct U.S. attorneys in all fifty states to immediately start indicting those responsible for filing the dishonest affidavits, including the affiants and the notaries right on up to senior officers in the servicers who had to know what was going on. A wave of such indictments would surely change the culture in the servicing industry.

4) Another thing that stuck with me from the hearing is an apparent fundamental misunderstanding on the issue of principal reductions. Those who advocate against a foreclosure moratorium until there can be certainty that servicers will behave are also generally against forcing servicers to provide principal reductions as a part of the loan modification process. What the advocates of the "foreclosures are good" school seem to ignore is the fact that every foreclosure is, in fact, a principal reduction. Each foreclosure of an underwater mortgage reduces the principal recoverable on that loan. The rub is that foreclosures result in larger principal reductions than do loan modifications, which reduce the loan balance to market value, where homeowners can afford to pay. This is so because once a foreclosed property goes into REO inventory, it usually sells at a 20% discount to market value (and it also depresses the value of surrounding properties). Wouldn't it be better to avoid this deep discount and keep a homeowner in his home with a principal reduction to market value, rather than putting that homeowner on the street where his ability to become a consumer again will be delayed so much longer?

The House Judiciary Committee reconvened this hearing for December 8, 2010. I was about to leave Maine when I was advised at the last minute that the Republicans were now demanding another delay of one week. While I have agreed to return to Washington for this now twice delayed hearing, I wonder how much value I can really bring to that Committee's process. Relatively few committee members are even willing to show up, and the lame duck House of Representatives leaves me doubtful about really being heard and having a meaningful impact.

I came away feeling that I may be more useful in focusing on solutions up here in Maine in the hope that they may continue to ripple outwards. Because not much is happening in Washington.

Thomas Cox is a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney’s Saving Homes (MASH) program. He represents homeowners in foreclosure and assists and consults with other volunteer lawyers in providing pro bono legal services to these Maine homeowners.

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Blame Dishonest Banks, Not Ethical Lawyers Exposing Foreclosure Frauds

Nov 29, 2010Thomas A. Cox

foreclosure-gavel-150Thomas A. Cox, a volunteer lawyer from Maine who outed the first robo-signer, wrote a letter in response to attacks against those who are defending homeowners facing foreclosure.

foreclosure-gavel-150Thomas A. Cox, a volunteer lawyer from Maine who outed the first robo-signer, wrote a letter in response to attacks against those who are defending homeowners facing foreclosure. He demands that the blame be placed on the banks, where it belongs -- not on the lawyers working to expose fraud.

Dear Judge Sarokin:

I take issue with your Huffington Post article of November 22, 2010, in which you criticize lawyers defending homeowners in foreclosure cases. You assert, "To oppose the foreclosure, when both the borrower and lawyer know the mortgage is in substantial default, to my mind borders on the unethical." Not only is this assertion grossly unfair to these overworked, dedicated and ethical lawyers, it is based upon a fundamentally false premise as to the mechanics of the foreclosure summary judgment process. Inexplicably, you fail to offer the slightest criticism of the foreclosure industry and the ethics of its lawyers, who have presented thousands of false (and literally perjurious) affidavits in foreclosure summary judgment motions all across the county.

You have had a long career as judge in both the United States District Court (N.J.) and the Third Circuit Court of Appeals. I have had the privilege of practicing law for many years, in both the Maine State and Federal Courts as well as before the First Circuit Court of Appeals before my retirement. The arc of our respective careers encompassed the (quite different) bank crisis of the late 1980s and early 1990s in which there was also a great deal of foreclosure activity, although at nothing near the extraordinary levels of these times.

During that banking crisis, much of my legal work was devoted to representing banks and the FDIC in the same Federal Court system in which you worked, using the same Federal Rules of Procedure that you used. For the past two and a half years, I have been engaged as a full-time volunteer to represent homeowners in foreclosure cases in these same courts. The rules relating to the handling of summary judgment motions in foreclosure cases have not changed in any substantial way since you were on the bench, yet inexplicably you misstate their requirements. In doing so, you excuse loan servicers and their lawyers for presenting of false affidavits in thousands of cases. I cannot believe that you would ever have tolerated the presentation of false or perjured testimony in your courtroom, and I cannot understand why you are willing to excuse it now.

You excuse the perjurious affidavits by implying that attacks on those documents, based upon the lack of personal knowledge of the affiants, are unfounded. You state:

It would be virtually impossible in any bank (even in those in which the mortgage remained with the issuing bank) for one person to know how much was loaned and precisely when and how much was paid on account. In this day and age, all of that information comes via computer printouts -- not personal knowledge.

In making this statement, you display an apparent failure to recall what the Federal Rules of Civil Procedure say regarding summary judgment affidavits. Rule 56(e) explicitly requires that all such affidavits must be made upon personal knowledge. There is no exception in that rule for foreclosures or for mortgage loan servicers, yet you imply that they should not have to respect this requirement.

You fail to recognize that the required personal knowledge is not of the details of the loan and the balances due. Rather, what is required is knowledge of the requisite facts to authenticate and establish the accuracy of their employers' business records and computerized accounting systems. I filed many summary judgment motions on behalf of my FDIC and bank clients, and in not one instance did the affiant have knowledge of any of the details of the loan or of the balances due. In every instance, however, my witnesses did have direct personal knowledge of the facts relating to the keeping of the records for these loans and for the systems used to calculate loan balances. I never lost one of those motions for summary judgment, and I would have been greatly embarrassed if I had.

Today, I have yet to see a single affidavit from a loan servicer witness that adequately meets this personal knowledge requirement. As a consequence, I estimate that I, and the lawyers with whom I consult, win about 75% of the time by opposing these summary judgment motions based upon false affidavits. Yet the lawyers presenting these dishonest affidavits show no sense of shame when they lose, because in the 90% of the cases where they are unopposed, they win by default, collect their fees and go home happy. This failure to present honest and competent evidence arises not out of an inability to meet the requirements, but out of their stubborn refusal to devote the necessary resources to honestly comply with the rule.

You assert, "I am concerned with the stability of contracts, the rule of law, if they are abandoned at this fragile time in our economy." But you imply that it is foreclosure defense lawyers who are jeopardizing the prized concept of "the rule of law" when they attack these improper foreclosure filings. These lawyers are performing the highest calling of our profession as they expose the blatant dishonesty of the nation's largest financial institutions. None of our present knowledge about this outrageous and widespread phenomenon would have been revealed but for the efforts of the hardworking and ethical lawyers representing homeowners.

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So much do these institutions try to hide this dishonesty that GMAC Mortgage, LLC attacked me personally for exposing the abusive affidavit signing practices of its Limited Signing Officer, Jeffery Stephan. One of his many affidavits had been filed in a case in which I was representing a Maine homeowner, and the local judge accepted it as true. Thereafter, I deposed Stephan and revealed that he did not bother to read any of the affidavits that he signed, did not know whether they were true, and did not know they contained major errors. He even readily admitted that he did not appear before the notaries he supervised when they signed statements that he had personally appeared before them to be sworn. Stephan signed between 8,000 to 10,000 documents a month (not all were affidavits), and his affidavits were sent to courts all over the country. When I discovered this outrageous fraud, I shared the transcript of my deposition on a listserv with other lawyers from around the country who represent homeowners so that they could protect their clients from being victimized by his false affidavits.

GMAC Mortgage wanted to keep Stephan's testimony under wraps so badly that it tried to obtain a court order to stop me from sharing it with other foreclosure defense lawyers, and it asked the court to fine me personally for what it called my "malicious dissemination" of the transcript. I was outraged by these efforts to intimidate and gag me, having never experienced such offensive conduct in my forty years as a lawyer. I fear that many younger or less experienced lawyers might have been cowed into silence by any similar efforts. Our judge did not hesitate to deny the GMAC Mortgage motion to gag and fine me and in one case imposed lawyers' fees sanctions of over $27,000 against it for its bad faith filing of the affidavit from Stephan.

In the situation that I have just described, it is the "rule of law", for which you express concern, which worked exactly as it should in revealing misconduct by one of our major financial institutions. Our judge here in Maine had no problem with finding the conduct of GMAC Mortgage to have been carried out in "bad faith". When we showed the judge that GMAC had been caught in exactly the same conduct in Florida four years earlier, he stated, "despite the Florida Court's order, GMAC's flagrant disregard [of the law] apparently persists. It is well past time for such practices to end." What I find so troubling about your article is that you fail to condemn either the loan servicers or their lawyers for their clearly unethical conduct in presenting false evidence to the courts. In your failure to condemn such conduct, you also fail to use the stature of the office that you once held to inspire other judges to confront and root out misconduct.

You minimize the now indisputable fact that the nation's largest financial institutions have lied to courts in thousands of foreclosure cases. You raise no concern for the fact that our citizens' trust in the judicial system has been deeply shaken by the revelation that our financial institutions have foreclosed upon hundreds of thousands of homes by the presentation of false evidence in courts all over the country. In the plea at the end of your article, "let us not sacrifice the rule of law and the sanctity of contracts in the process," you imply that lawyers for homeowners are the ones at fault. But it so clearly is the banks, the trusts and their loan servicers who want to sacrifice the rule of law and who refuse to respect the sanctity of their contracts. They appear to have succeeded in far too many courts in obtaining special exceptions to our rule of law requirements. As a result, American citizens have been left to wonder whether they can receive fair treatment by our courts when confronted by large corporate adversaries.

Your expression of concern for our fragile economy suggests that you believe that the rule of law is a relative concept. You seem to suggest that it should be set aside when it comes to protecting homeowners in foreclosures in order to protect our recovery. One of the fundamental precepts of our Constitution is that the individual rights guaranteed by our laws must never be sacrificed. Due process of law is not a relative concept, it is an absolute. Our failure to preserve that concept is what led to the unconstitutional internment of thousands of Japanese Americans during World War II and must not be repeated here. There are no exceptions in the due process clause of the United States Constitution.

Finally, I must answer the implication in your article that there is a widespread practice among foreclosure defense lawyers of denying the existence of loan defaults when they are found. While you have been retired for many years, I have been working with many lawyers in actual foreclosure defense for almost three years. In addition, I am in constant communication with foreclosure defense lawyers all over the country. I have seen no evidence at all to support your assertion. While there will always be exceptions, I do not believe that there are widespread denials of defaults where they actually exist. What you seem to overlook is the fact that, even when defaults do exist, it is not only appropriate, but a matter of professional responsibility for a homeowner's lawyer to challenge the standing of any party asserting that default when that party clearly lacks standing to seek a foreclosure, when it is unable to prove that it owns the loan that it is trying to foreclose upon, or when it is unable to prove that it has provided the homeowner with the contractually created right to a proper notice of default and the right to cure it.

I greatly respect the office that you held as a judge in our Federal court system. But I can neither agree with the discredit that you lay upon the foreclosure defense bar, nor can I understand your unwillingness, as one having extensive judicial experience, to explicitly condemn the conduct of loan servicers and their lawyers. I sincerely urge you to reconsider your remarks, to retract them, and to make a public apology to all of the private bar and legal servicer lawyers who are struggling so hard, often for low pay, to preserve the integrity of our judicial system against the rampant dishonesty of the foreclosure industry and its exceedingly well-paid lawyers.

Respectfully submitted,
Thomas A. Cox
Portland, Maine
November 26, 2010

Thomas A. Cox is a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney's Saving Homes (MASH) program. He represents homeowners in foreclosure, and assists and consults with other volunteer lawyers in providing pro bono legal services to these Maine homeowners.

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Two Cords of Wood: An Intimate Look at Unnecessary Foreclosure

Nov 22, 2010Thomas A. Cox

home-foreclosure-documentRobo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis.

home-foreclosure-documentRobo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our “Foreclosure 411” series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the fifth part, volunteer lawyer Thomas Cox recounts some tough advice he had to give a client facing foreclosure.

Back in September, I was asked to give some unusual advice to a client. This woman, a resident of rural Northwestern Maine, wanted to know if she should buy the two cords of wood that she needed to heat her $48,000 home for the winter. I had previously told her that my bag of legal tricks was empty, and that I could not stop KeyBank from completing a foreclosure of its $28,000 second mortgage on her home. She was having trouble accepting the fact that it would really evict her, since she owed $50,000 on her first mortgage to a local bank, a loan on which she was current in her payments, which meant that KeyBank could recover nothing by foreclosing on its second mortgage. She told me again how, even though she had lost her job in the local paper mill, she had found other, but much lower, employment income and that she was able and willing to make reduced payments on the second mortgage. But KeyBank refused to accept reduced payments.

I had to tell my client that she should not buy the firewood, as I knew that it was planning an eviction within days. I had managed to penetrate the executive offices in Cleveland, Ohio, telling the "Executive Client Relations" person in the "Office of the President" how foolish it was to evict this woman, who had reduced income but a real willingness to devote as much of that as she could to continued second mortgage payments. The letter that I received in response told me how much KeyBank "valued" this woman as a client, how it "is committed to providing her with excellent service," and how it regrets "any inconvenience or frustration your client may have experienced." The letter closed by telling me, "[W]e appreciate the opportunity to respond to your concerns with quality and integrity." That letter also told me that it was not willing to do anything at all to restructure this woman's loan or to stop the eviction process.

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After spending over $4,000 on foreclosure costs and legal fees, it purchased my client's interest in the property at its foreclosure sale (there were no other bidders for this worthless second interest) and it did evict this woman from her home at the beginning of October. She is now living in the basement of her daughter's house. Since the interest in this home that it purchased was still subject to the outstanding first mortgage, it then paid $50,000 to the first mortgage holder so that it could own full title to the property as it made plans to re-sell it. Thus, at this point it had over $54,000 invested in gaining full title to this property. Last week, KeyBank listed this property for sale for $44,000. It will surely net no more than $40,000, if it can sell it at all. This will leave the bank with a real cash loss of over $14,000, a woman living in her daughter's basement who was willing to pay at least some level on her second mortgage, her community with an empty and devalued property in its midst, and a very sour taste for all of us who try to help these people.

Looking only at this loan and the personal situation of its borrower, KeyBank's actions make no sense at all. However, along with all of the other major lenders and loan servicers in this foreclosure crisis, it does not look at these loans from a personal perspective. Everything is driven by "the numbers." Those numbers tell financial institutions like KeyBank that it makes economic sense to avoid the costs of evaluating these loans on an individual basis. The numbers tell them not spend the money to pay employees to make individual decisions on whether a situation such as the one described here makes sense or whether ways can be found to work with the homeowner. KeyBank and the other large financial institutions and loan servicers do not care if they needlessly ruin the lives of some of their customers, as long as they can minimize the expense of dealing with their individual situations. The only "quality and integrity" that these institutions care about is the quality and integrity of their bottom lines.

I used to represent KeyBank back in my bank lawyer days. It grew out of purchases of two venerable old-line Maine banks with roots going back into the mid-1800s. Even as late as the 1990s, when I was representing KeyBank of Maine, it was still a "local bank." There were bank officers assigned to dealing with loans such as this one who would make real human decisions on appropriate courses of action. Since these banks have gone national, they no longer care about how they hurt their individual customers, and they no longer care about the communities where those customers live. They are entirely willing to sacrifice a certain (and substantial) percentage of those customers on the altar of corporate profits. They can get away with this because they can lend money more cheaply then our local banks can -- Federal monetary policies allow them to borrow money at a cheaper rate. Is this what we want from our Federal government?

Sadly, my advice to my client was correct. It was good that she did not waste her limited resources on the two cords of wood, as she no longer has a house to heat for the winter.

Thomas Cox is a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney's Saving Homes (MASH) program. He represents homeowners in foreclosure and assists and consults with other volunteer lawyers in providing pro bono legal services to these Maine homeowners.

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Breaking Foreclosure Info: Countrywide Never Sent Mortgages to Trust

Nov 22, 2010Mike Konczal

mike-konczal-2-100The picture of fraud becomes clearer while regulatory action has stalled.

mike-konczal-2-100The picture of fraud becomes clearer while regulatory action has stalled.

Wow. Stopforeclosurefraud finds testimony from a New Jersey bankruptcy court case indicating that Countrywide was not passing along notes as part of the securitization process:

The new allonge was signed by Sharon Mason, Vice President of Countrywide Home Loans, Inc., in the Bankruptcy Risk Litigation Management Department. Linda DeMartini, a supervisor and operational team leader for the Litigation Management Department for BAC Home Loans Servicing L.P. (“BAC Servicing”V testified that the new allonge was prepared in anticipation of this litigation, and that it was signed several weeks before the trial by Sharon Mason.

As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affixed to the note. She testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.

Both Yves Smith and David Dayen have write-ups of this news that you should read.

Why is this a big deal? It might be helpful to go back to the diagram we used for Part 1 of the Foreclosure Fraud for Dummies series that explained the chain of securitization.  Let's update it for the Countrywide situation. As you can see at each point, conveying and transferring the note plays a crucial part in creating these mortgage-backed securities (please click through for larger, easier to read, image):

(Thanks to Tom Adams for a discussion about this chart.)

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These are not technicalities -- these obligations come from secured credit and trust law, two fields where strict requirements are essential. We don't want confusion over conflicting claims to property, and we don't want tax-free trusts set up without the trusts doing their homework. The channels for the securitization are tax-free under a special type of law ("REMIC"), and in exchange for that the trusts have to be set up correctly from the get-go.

These laws are based on New York trust law, not congressional law. As Professor Adam Levitin noted in his testimony, between the New York trust law and the Pooling and Service Agreements there are very specific requirements for passing these notes down the chain. They are required to protect investors from malfeasance, avoid fraudulent transfer concerns, and create "bankruptcy remoteness" of that asset from the originator/sponsor.

And it appears that during the worst excesses of the mortgage bubble, the very basic rules of property transfer and record-keeping were ignored. The trust and its servicers have no standing to foreclose.

Key point: Tim Geithner and Treasury did not announce this breakthrough. The Federal Reserve did not announce this breakthrough. Even at this late stage, the actions of the trust, servicers and depositors are opaque to regulators and investors.

The only reason we know about this is from a New Jersey bankruptcy court. And it's only because of the people in the field deposing robosigners, piecing together the records, and fighting to get information about what is actually broken in the biggest piece of our stalled economy that we know any of this. Advances like this will disappear if Congress doesn't allocate the $35 million dollars it is supposed to for legal aid groups, and you can now understand why lawmakers are hoping this request dies quietly. And it also shows why Attorneys General will need to step up to the plate and take over this fight while the public needs to hold federal regulators accountable for their lack of effort.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Top Questions from a Foreclosure Attorney

Nov 19, 2010Bubba Grimsley

foreclosure-gavel-150Robo-signers. Moratoriums. Botched documents.

foreclosure-gavel-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our “Foreclosure 411” series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the fourth part, foreclosure attorney Bubba Grimsley quizzes himself on some telling numbers coming out of the crisis.

Q. How many clients have come to my group and said, "we would like our house for free, we are deadbeats, and we hear that you can get us a free house"?

A. ZERO.

Q. How many of our clients have a servicing error, or are what we call "servicer driven defaults" ?

A. ALL OF THEM (187 +/- at press time).

Q. How many robo-signers, if you slow them down enough, can turn back time? After all, the assignments they are executing MUST have been completed, in order to make them legal, in 2007 (best case scenario) but 2003, 2004, or 2005 is more likely.

A. ZERO.

Q. How many servicers have servicing software that recognizes a mortgagee currently in bankruptcy court (or protected by the automatic stay)?

A. I'm not terribly sure here, but our sources say ZERO.

Q. How many bankruptcy cases are filed each year in this country?

A. Roughly 1.5 million.

Q. What percentage of Chapter 13 cases fail?

A. 60%.

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Q. How many of these Chapter 13 cases are servicer driven?

A. GOD only knows, but it has to be HUGE. Once a Chapter 13 debtor loses their home, there typically isn't anything left to fight for.

Q. How many presidents have the guts to force a vote on Elizabeth Warren as Director (not some watered-down pantywaist position) for the Consumer Financial Protection Bureau?

A. ZERO.

Q. How many of us wish we had the money back we sent to Obama's campaign?

A. Me, for one.

Q. How does Bradley Arant Boult Cummings get to be GMAC's national foreclosure defense firm (cleaning up the mess the mills have made) and also get to "investigate" servicer abuses for Fannie and Freddie?

A. Beats me, but it's very funny, in a sick sort of way.

Q. How many businesses besides GM (which owns Ally Bank), other than banks, got saved by government bailouts?

A. NONE. Oh, and Halliburton doesn't count.

Q. Who will get the naming rights to the Treasury? AIG or Goldman Sachs?

A. Let's flip a coin.

Q. How many homes could have been saved if the Fed had used the $600 billion they are using to buy treasuries to pay down underwater mortgages? And what stabilizing effect would that have on the economy?

A. A hell of a lot.

Bubba Grimsley is a foreclosure attorney in Alabama.

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Foreclosure: Destroying Neighborhoods, Depressing Demand and Growth

Nov 17, 2010Dean Baker

house-in-hands-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis.

house-in-hands-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our "Foreclosure 411" series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the second part, Dean Baker warns that foreclosures have a corrosive effect on communities and consumers.

There are two obvious reasons that foreclosures should be viewed as a problem even by those who are not worried about being thrown out on the streets. The first is that depressions are a blight on neighborhoods. Banks often neglect properties following a foreclosure. This means both not doing appropriate cosmetic care and neglecting maintenance of the house. The result is that foreclosed properties can be eyesores that depress property values throughout the neighborhood. They can also be physically dangerous -- for example, if they contain exposed wiring or become a drug house. Either way, a neighborhood with a large number of foreclosures will be facing problems.

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The other issue related to foreclosure is that families often struggle to meet their mortgage payments, pulling money away from other types of consumption. This means that instead of spending money in restaurants or other types of demand-generating consumption, families struggle to send enough money to the bank to hang onto their house.

This situation could be rectified either with a mortgage modification that lowers mortgage payments, or alternatively by allowing the homeowners to stay in their home as a renter paying the market rent. In most of the markets that were formerly bubble-inflated, rents can be half as much as the monthly mortgage payment from a home purchased near the peak. By allowing either a modification or for people to remain in their home as renters, tens of billions of dollars can be freed up to support increased consumption.

Dean Baker is the co-director of the Center for Economic and Policy Research.

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A Housing Market That Works for Us

Nov 16, 2010Joe Costello

mortgage-crisis-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis.

mortgage-crisis-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our "Foreclosure 411" series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the first part, Joe Costello argues that we have to measure the economy not by the size of bonuses but the well-being of Americans.

My new house
You should see my house
My new house
You should see my new house
According to the postman
It's like the bleeding Bank of England
My new house
Could easily crack a mortal in it
-- The Fall

The National Association of Realtors recently released a housing report (h/t Calculated Risk) that states:

The Pending Home Sales Index,* a forward-looking indicator, slipped 1.8 percent to 80.9 based on contracts signed in September from an upwardly revised 82.4 in August. However, the index remains 24.9 percent below a surge to 107.8 in September 2009 when first-time buyers were jumping into the market to take advantage of the initial deadline for the tax credit last November.

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Whatever other numbers you want to use to measure the economy, housing remains key. Housing was the center of the bubble and it continues to deflate. And judging from every historical precedent, it's going to continue to deflate, no matter how many times Mr. Bernanke presses ctrl-alt-shift-$. Currently 25% of people are underwater in their mortgages, with estimates that it will reach 40% within two years. Which means that all the losses the banks are hiding are only going to grow larger. Now remember, the whole housing bubble was created to literally paper over the great imbalances in the American economy that had developed over several decades, and most significantly, the stagnation of wages. Which is also why all the cries for dumping ever greater amounts of fiscal stimulus into the economy without a serious look at correcting these imbalances is just as much a crack-pipe policy as they're smoking at the Fed.

We should stop the foreclosures, write down the mortgages so people can stay in their houses, and make the banks and bondholders take their losses, breaking up and recapitalizing where necessary. We need a reevaluation of how our economy works. Instead of judging the health of the economy by Wall Street bonuses and bank profits, we need to ask what sort of life it is providing for the vast majority of Americans. Are people living better? Not just in the amount of stuff they own, but are they more secure, healthier, and living fuller lives? GNP and profit/loss numbers aren't great metrics for measuring these things. We need a societal value shift.

Joe Costello was communications director for Jerry Brown’s 1992 presidential campaign and was a senior adviser for Howard Dean’s effort in 2004.

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Our Financial Infrastructure in Tatters: Announcing New Series on the Foreclosure Crisis

Nov 15, 2010Mike Konczal

mike-konczal-2-100Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 is asking leading thinkers and activists to help navigate the maze of the foreclosure crisis.

mike-konczal-2-100Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 is asking leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our new "Foreclosure 411" series will focus on the values inherent in explaining why we should care and what the crisis means to all of us. Mike Konczal introduces the series.

Why, with so many problems in the world, should you care about the current foreclosure crisis? Isn't this just a problem on the fringe, a case of deadbeats not paying their bills?

I wish it was that simple. However, this crisis is a complete breakdown in the infrastructure that handles the most important financial asset for a majority of Americans, and one of the primary means by which intergenerational mobility occurs.

The foreclosure crisis sits at the heart of each of the crises that are destroying our economy. There's a massive amount of bad debt and over-leverage as we emerge from a burst credit bubble. There's the broken financial system that was created in the past two decades, rife with incentives to rip off both investors and borrowers in order for middle-men to profit. There's the macroeconomic crises of deflation and mass unemployment, which are devastating households trying to survive. And finally, there's the tepid response from the Obama administration, embracing the idea that the problem would go away by now with a growing economy. This plan hasn't worked and there isn't any plan B in place.

These aren't new problems. We've known about them for a while now, and we are living out the consequences. In light of the likelihood of continuing unemployment and a lost decade for America, New Deal 2.0 has reached out to a variety of writers to look at the foreclosure crisis and its causes, problems and solutions.

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The financial system's ultimate goal should be to mediate the transferring of funds from borrowers to savers. Starting in the early 1980s, the private mortgage securitization system was supposed to bring the best in deregulation to this market. Private servicers could manage assets better with tax-free protection, the ratings agencies could dynamically assess credit risk, and the wonders of a deregulated financial market and a financialized economy would get credit exactly where it needed to go.

This has not happened. But beyond puffing up a credit bubble in housing, it has destroyed our ability to move on afterward, to dig out of the collapse. Bad investments happen all the time. People buy at the wrong time, get in over their heads, etc. The question is: what railings are around the system? In the private system, those railings are the servicers. For the public, it is our bankruptcy courts and property record systems. Both are being corrupted by this foreclosure crisis.

This alone is reason enough to be worried. All it takes is a random problem in our servicer system to get the average homeowner into trouble. This isn't about deadbeats or responsibility. All this system does is make it profitable to be a big bank (profitable as long as it doesn't have to record its losses). However, we don't want a financial system with only this objective -- we want a financial system that finds investment opportunities, provides contracts that are valid and well-informed, that makes sure property rights that involve debt and uncertainty are maintained properly, and that the borrowing and lending markets are as complete as they can be without being exploitative. This series will show you how that has failed.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Moratorium or a New Mortgage? FDR Sided with Main Street

Oct 21, 2010David B. Woolner

Roosevelt historian David Woolner shines a light on today’s issues with lessons from the past.

Roosevelt historian David Woolner shines a light on today’s issues with lessons from the past.

The recent furor over the issue of mismanaged and fraudulent practices among some of the nation's largest issuers of home mortgages has led to calls among some leading policy makers and others that it is time for the federal government to impose a nation-wide freeze on home foreclosures. While public anger over the issue continues to mount, and while Shaun Donovan, Secretary of Housing and Urban Development, has gone so far as to call the practices of some of the major banks "shameful," there has been no indication to date that the Obama Administration would support such a move. In fact, Secretary Donovan has said repeatedly that a moratorium on foreclosures would be counterproductive and would hurt homeowners and home buyers alike. The Secretary has also said that where there is evidence of fraud or evidence that a homeowner had been denied "the basic protections or rights they have under law, we will take actions to make sure the banks make them whole, and their rights will be protected and defended." But the general administration approach to the overall problem has been hands-off, perhaps best exemplified by Assistant Secretary of the Treasury Michael Barr's comment that "[T]his is not a problem for Secretary Donovan to fix. This is a problem for the banks and servicers to fix.''

In many respects, then, the Obama administration's approach to the foreclosure abuse crisis mirrors its approach to the overall housing crisis. This, like its Home Affordable Modification Program, is focused not so much on providing direct federal support to struggling families, but rather on trying to manage the problem indirectly, through the lending institutions themselves (the exact opposite approach that his administration has taken with regard to the federal student loan program).

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Nearly 80 years ago, the Roosevelt Administration faced a very similar problem when an estimated fifty percent of all urban mortgages in the country in 1933 were delinquent or in foreclosure. But instead of focusing their efforts on trying to solve the mortgage crisis through the banks, the Roosevelt Administration took a far more direct approach. (The Hoover Administration's approach to the foreclosure crisis was -- like the current administration's -- based on kproviding Federal aid to lending institutions.) Guided by the principle that FDR articulated in 1932 when he said that the objective of government should be "to provide at least as much assistance to the little fellow as it is now giving to the large banks and corporations,"  FDR set up the Home Owners' Loan Corporation (HOLC), a new federal agency whose purpose was to refinance existing home mortgages that were in default and at risk of foreclosure. As has been reported here before, in its brief history the HOLC (which shut its doors within three years) managed to refinance roughly twenty percent of all the urban mortgages in the United States. It also revolutionized the US mortgage industry by offering terms not based on the typical short-term mortgage agreement of the time (a non-amortized loan of seven to ten years terminating with a balloon payment), but rather on the far more affordable amortized mortgage of between 25 and 30 years. This not only made home ownership much more affordable for families with average incomes, but it also provided the lenders with much needed relief, as the HOLC bought out the previously at-risk loans.

We should also note that the HOLC was not considered an entitlement program. Roughly half of all of the applications it received were withdrawn or rejected as homeowners were required to demonstrate a history and determination to meet their financial obligations. Equally important, by the time the program closed its books in 1951, the agency had not cost the US taxpayer any money, but had turned a small profit.

The HOLC was a highly successful and profitable federal program, which along with the other New Deal financial and regulatory reforms, helped shore up the critical US housing market and bring stability and security back into the US banking and financial system. Moreover, by offering beleaguered homeowners direct federal assistance -- in essence attacking the root of the problem -- it eliminated the need for a moratorium on bank foreclosures.

As we continue to struggle with this seemingly never-ending mortgage crisis, perhaps it is time we heeded FDR's advice and shifted our attention from the large banks and corporations to the "little fellow." If the New Deal is any guide, doing so might just make us all better off in the end.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

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Mike Konczal on Bloggingheads: Where Have You Gone, George Bailey?

Oct 20, 2010

This week on Bloggingheads, Roosevelt Institute Fellow Mike Konczal joined Noah Millman, blogger for The American Scene and The Economist, to debate foreclosure fraud, Fed policy, the unemployment crisis, and more.

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This week on Bloggingheads, Roosevelt Institute Fellow Mike Konczal joined Noah Millman, blogger for The American Scene and The Economist, to debate foreclosure fraud, Fed policy, the unemployment crisis, and more.

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Mike uses the example of the Bailey Building and Loan to put the current mortgage scandal in perspective, noting that George Bailey had both the incentive and the authority to work out fair terms with the people of his community. Given today's securitization process, in which servicers are separate from lenders and ownership of mortgages is divvied up among any number of faceless corporate entities and even foreign governments, who's looking out for homeowners?

Noah notes that the current line from Wall Street is that we shouldn't get "hung up" on the details of the process because everyone knew what they were getting into and there will always be winners and losers. However, he points out that most homeowners don't view their mortgage as a bet. Mike also addresses the claim that delaying foreclosures will keep neighborhoods vacant and prevent the housing market from reaching its new normal. In banking, he says, "the first rule is you never foreclose on a home, and the second rule is you never foreclose on a home." He argues that the endless wave of repossessions and the lack of negotiation are symptoms of a "sick system" that has become like a car without airbags.

For more, including Mike and Noah's take on the labor market, the currency wars, and the flaws in the stimulus bill, check out the video above.

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