Alternative Musics: foreclosure list

It is distressing to watch/read the Beltway media struggling to avoid an honest description of what is happening in Washington as the Tea-GOP-ConservaDems lay siege to America’s future. This appearance by economist Jeffery Sachs [video of his trying to overcome the media's ingrained framing] illustrates the problem.

Never mind Congress’ total indifference to America’s real problems. In the real world, there is massive unemployment, record poverty and inequality, 50 million without health insurance, pointless wasteful wars, strangling states and cities, millions facing foreclosure, global climate threats, and a collapse of the rule of law, etc. As Matt Taibbi documents in his Why Isn’t Wall Street in Jail?, no elites have been held accountable for creating these catastrophes. Yet there isn’t a single initiative from the Tea-GOP Congress to deal with any of this. So why isn’t Congress’ and the Administration’s neglect of these real crises the lead story on every media every day?

It would be ludicrous if the media thought the Tunisian and Egyptian regimes just fell because of public concerns over the next fiscal year budget deficit. Every poll tells us our citizens, like the protesters there, regard that issue as far down the list, well behind the lack of jobs, education and an economically fair and secure future.

What we are witnessing in Congress and in states with radical Tea-GOP Governors is an unrelenting assault on all of the economic and intellectual foundations of our present and future. They’re waging war on us, effectively targeting the economic security and future of a majority of Americans. Oh, the rich will do just fine; the Obama Administration and Congress will take care of them as they did in December. You and your children and their future are the targets.

If this were a conventional war — think WWII — the enemy would be bombing our bridges and rail lines, blowing up government centers, attacking police and firemen stations, and letting our factories burn. They’d be undermining basic research, stealing technology, and targeting our schools hoping to cripple our intellectual ability to advance, feed ourselves, produce what we need and hold the nation together. They’d work to incapacitate and strangle state and local governments, to demoralize and crush the public’s confidence. They’d try to cripple the public health system and leave us defenseless against massive outbreaks of disease. They’d dismantle environmental protections designed to protect public health from toxic water, deadly emissions, and unsafe consumer products. And on and on.

Take a close look at that list. Which part of this coordinated attack on the nation’s economy and civilization’s foundations do you think is not happening? The nihilists have a defunding equivalent for every single one of these wartime tactics for defeating a nation. They’re being proposed today in your Congress and many State legislatures.

The effects will be the same. Instead of literally bombing existing rail lines and bridges, they’re denying the funds needed to keep dangerously deteriorating infrastructure from collapsing or to build new infrastructure for future growth. If you refuse to build needed new schools, or new water treatment plants, or new pollution control facilities, it’s just like building them but blowing them up later. States have been forced to fire over 400,000 public employees — teachers, administrators, firemen, police, sanitation and health workers, and if the current proposals force another million into unemployment, the national leadership’s reaction is “so be it.”

We hear public service announcements everywhere these days. “If you see something, say something.” If you observe suspicious activity that could endanger the public, report it. Okay. So, if they’re effectively destroying our bridges, our rail service, our police and fire stations, our schools and public health facilities, how should we respond? If we see this happening, should we report it? Should we surround the capital and not let them in? Should we make a citizen’s arrest and turn these thugs over to the authorities? How about this and this (h/t Adam 503 from comments)?

And who are the responsible authorities? We don’t seem to have a Justice Department, and the nihilists would defund even the modest enforcement efforts of regulatory agencies. Our President is a modern-day Chamberlain; if only he can reach a “grand bargain” with the nihilists, cut social security some, let only a few more old people freeze in the dark, and give up on raising taxes, they’ll settle for Poland; they’ll give us budget peace in our time, beyond the current continuing resolution, and let the debt limit rise. Right.

All of this destructive activity is happening right before our eyes, while the media pretends this is only a political argument, with lists of competing economists, about how quickly the nation’s debt should be reduced. Gibberish.

When the President and Congress hand the richest people in America $120 billion now and make it more likely for trillions later, there is no serious debate about debt. This is not about debt; it’s about a redistribution of wealth, security and influence, from the poor and middle class upwards to the wealthiest.

As for the long-run deficit/debt issue: our media can’t seem to remember that every reputable study has shown the problem is caused not because seniors get too much care but because health care costs are too high and rising too fast — we pay providers too much, up to twice as much as other nations, to provide less than universal care. Solve that and the long-run deficit problem disappears; ignore it, and rising health costs endanger the whole economy, not just the federal budget.

Decades ago, when we understood we were at war, the ratio of government debt to the economy was vastly larger than it is today. We used deficit spending to win the war and save the economy. Yet we defeated the world’s most evil regimes and emerged as the strongest nation in the world. Despite that debt, or actually because of the foundations it set, we embarked on one of the greatest, most broadly shared expansions of human prosperity in history. Today’s nihilist coalition doesn’t want you to know that.

At the time of the now famous Ibanez decision, in which the Massachusetts Supreme Judicial Court dealt the securitization industry a not-all-that-surprinsing loss by saying that lenders and servicers had to be able to produce reasonable evidence that the mortgage had indeed been transferred to the party that was trying to seize the house. The court wrote:

When a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale or foreclosure…. A plaintiff that cannot make this modest showing cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title.

Also note this section of the concurring opinion by Judge Cordy:

Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it….The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments.

We were reminded of an outstanding mystery in the Ibanez case by a story tonight by Abigail Field on the role of carelessness by lawyers in the mortgage mess. She mentions a stunning aspect of the Ibanez case, one that quite a few observers, including yours truly, discussed privately at the time: that neither of the banks involved in the case produced a decent set of transaction documents (US Bank didn’t even provide a copy of the pooling and servicing agreement).

It is hard to convey how surprising this revelation is. If you have participated in any kind of corporate transaction, even at the small business level, your attorney as a matter of course will keep a signed copy of the agreement and any important related documents. The servicers and trustees would know that full well. So why did no one call issuer’s counsel and get the paperwork?

Field puzzles through this lapse and comes up with an incomplete list of possibilities:

So, the issue of partial deal documents that came to light in Ibanez and continues to crop up elsewhere means one of three things:

1. Securitization deals were so carelessly done that, despite all the proper documents being created, closing sets don’t exist.

2. Securitization deals were so carelessly done that not all the proper documents were created (such as lists of the mortgages involved) and so closing sets don’t exist.

3. All the documents and closing sets are fine, and the big banks have grown so incompetent they can’t give their foreclosure attorneys deal documents that they do have or could get from their securitization counsel.

I have trouble with her theories 1 and 2. The firms that did securitizations were white shoe firms, some of them of the cusp of top tier, the others just a wee notch below. And this was a bread and butter business. The donkey work of making sure all the documentation is in order is junior level time, which is marked up fully and thus nicely profitable. There would be no reason for the law firm to scrimp on it, and no reason for the client to want the law firm to cut corners.

MBS Guy has an opinion much more in keeping with mine:

I am even more convinced that the failure of the banks’ attorneys to track down the actual legal documents was not “carelessness”. I find it too hard to believe that the attorneys were this incompetent on an appeal of a major issue to the state’s supreme court. They had plenty of time (over a year).

Every deal I ever worked on had a full set of closing documents prepared in a binder. The issuer’s counsel law firm typically sent all of the documents to us via CD. We had stacks of them.

I suspect the foreclosing attorneys requested the documents and the requests were rejected by clever attorneys for the issuers who saw the potential liability and didn’t want to create a clear paper trail back to them.

If the low level foreclosing attorney looks incompetent in assembling his case, that’s one thing. If a big Wall Street law firm made a major mistake about the legal basis for selling loans without proper title in Massachusetts or any other state, well, that’s a whole different story.

Professor Adam Levitin has similarly pointed out that the major securitization law firms are in a sticky position, since they have legal liability on opinion letters.

But how would that operate? Those opinion letters were in an “if-then” form, “if you followed the steps you set forth, then you have a true sale.” But it now appears that much if not all of the securitzation industry opted, sometime after 2002, to change its procedures for how it handled promissory notes and liens without changing its contracts. That means, as we have pointed out repeatedly, that the parties in the origination process made very specific commitments to investors that they violated repeatedly, as a matter of business practice. Yet astonishingly they didn’t change the agreements to reflect what appears to have been a widespread adoption of new practices. Instead, they let the disparity, and the attendant liability, go unremedied.

It seems inconceivable that some of the players involved did not get counsel’s advice on this issue (I’d be stunned if Goldman didn’t; the firm is obsessed with having legal cover for its actions). But the breakdown was primarily in the custodial/trustee end of the process, which is a particularly low fee activity. So it is possible that the trustees or custodians conferred with their attorneys and did not formally bring issuer’s counsel into the loop. At the same time, these bad practices appear to have become so deeply embedded that I find it hard to believe that everyone on the sell side of these deals did not know what was happening as the new procedures became widespread.

As Field intimates, and I’ve said separately, until we see lawyers disbarred and facing charges, we can be pretty certain that we are only scratching the surface of mortgage abuses. But it is beginning to look like that day is not too far off.

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Alternative Musics

Saturday, March 5, 2011

foreclosure list

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