Category: Corporate Statism
(Astro) Turf Wars
The Tea Party was created by the corporations, and now we can prove it:
Comcastic
While I certainly have my problems with Evil Comcast buying NBC and further consolidating their undemocratic corporate monopoly, I do like the Christmas show they display in their lobby and highly recommend it to anyone who’s in town, whether you have kids or not.
They have different shows all year, but I especially like the Christmas one. And it’s free!
Corporate media: No fraud, just an oopsy!
It’s the strangest thing. Most of the national media is talking about this as if it’s just sloppy paperwork — instead of systemic fraud:
DEERFIELD BEACH, Fla – Bank of America, Chase, and other huge banks have stopped foreclosures due to potential problems with paperwork.
Now, a South Florida law firm says it has hundreds of cases in Palm Beach County that prove some of those banks may have been committing a crime.
The law firm calls them “robo signers,” people who rushed faulty foreclosure paperwork through the court system.
Within a tower of foreclosure depositions shown at the Ticktin Law Group’s Deerfield Beach office, senior legal counsel Peter Ticktin says the group has discovered the groundwork of an illegal home foreclosure system.
Ticktin said, “It’s massive, it’s criminal, it’s wrong and it’s proven with what lawyers call a mountain of evidence.”
Continue reading “Corporate media: No fraud, just an oopsy!”
Protecting the bankers
The reason they’re faking the mortgage documentation is that if the bankers admit what’s wrong with the chain of title conveyance, the mortgage loans are no longer eligible for the trusts the bankers sold to investors — and under their own terms of agreement, “true sale” was probably not achieved and the liability reverts to the banks.
Investors are likely to sue to recover their money. The government will probably stand behind Fannie Mae and Freddie Mac investors, but private banks are another matter. Some major dominoes are about to fall.
It’s important that we don’t fall for the media misdirection here: It’s not “poor banks getting screwed by mortgage deadbeats.” It’s really “poor investors getting screwed by banks who knowingly sold them worthless mortgage bonds.” Felix Salmon:
This kind of information was valuable to Citigroup: it showed them that the quality of the loan pool was much lower than you’d think just by looking at the ostensible underwriting standards.
Armed with this information, Citigroup would do two things. First of all, it would take those 582 rejects and put most of them back to the underwriter. Essentially, they said, the loans weren’t as advertised, and they didn’t want them. But Citi would still keep some of them in the pool.
But remember that Clayton had tested only a small portion of the loans in the pool. So Citi knew that if there were a bunch of bad loans among the loans that Clayton tested, there were bound to be even more bad loans among the loans that Clayton had not tested. And those loans it couldn’t put back to the originator, because Citi didn’t know exactly which loans they were.
If there had been any common sense in the investment banks, that would have been the end of the deal. But there wasn’t. Rather than simply telling the originator that its loan pool wasn’t good enough, the investment banks would instead renegotiate the amount of money they were paying for the pool.
This is where things get positively evil. The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.
Continue reading “Protecting the bankers”
Yep
Mortgage bonds
No wonder the banksters are so jumpy. Felix Salmon:
This is where things get positively evil. The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.
In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. And the less money they paid for the pool, the more profit they could make when they turned it into mortgage bonds and sold it off to investors.
Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors, who were kept in the dark about that fact.
I talked to one underwriting bank — not Citi — which claimed that investors were told that the due diligence had been done: on page 48 of the prospectus, there’s language about how the underwriter had done an “underwriting guideline review”, although there’s nothing specifically about hiring a company to re-underwrite a large chunk of the loans in the pool, and report back on whether they met the originator’s standards.
In any case, it’s clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back. Prosecutors, too, are reportedly looking at these deals, and I can’t imagine they’ll like what they find.
The bank I talked to didn’t even attempt to excuse its behavior. It just said that Clayton’s taste-testing was being done by the bank — the buyer of the loan portfolio — rather than being done on behalf of bond investors. Well, yes. That’s the whole problem. The bank was essentially trading on inside information about the loan pool: buying it low (negotiating for a discount from the originator) and then selling it high to people who didn’t have that crucial information.
This whole scandal has nothing to do with the foreclosure mess, but it certainly complicates matters. It’s going to be a very long time, I think, before the banking system is going to be free and clear of the nightmare it created during the boom.
Update: KidDynamite asks a good question in the comments: were the bond investors able to do their own due diligence on the loan pool? The answer is no, they weren’t — the prospectus did not include the kind of loan-level information which would enable them to do that.
What we can learn
The foreclosure thing
Hey, so who actually “owns” these foreclosed properties anyway? Funny you should ask… Sometimes the party named as the plaintiff in a foreclosure will purport to be some sort of trust, other times it will be something called the Mortgage Electronic Registry System or MERS. Either way, it is a total joke. Most of the time no one actually knows and it doesn’t matter becausemore than half of the $10.7 trillion in mortgages outstanding in this country are owned or guaranteed by Fannie Mae and Freddie Mac i.e. you, and hundreds of billions of others are guaranteed by other federal agencies or programs.
So put yourself in the shoes of these rightful owners, since they’re yours anyway: do you really want to evict millions of homeowners in the worst real estate market since the cholera epidemic, just so your houses can be ransacked by the lockup mercenaries, disemboweled and converted into meth labs by local entrepreneurs and blamed for the downward spiral in the values of surrounding properties many of which you also own? No of course not, only the mortgage servicers want that. You want to try and cut a deal with the homeowner, like Tim Geithner was supposed to facilitate with that “making home affordable” program that Rick Santelli used to launch a thousand tea parties, except that in his infinite ignorance Geithner outsourced that whole endeavor to the servicers who predictably sabotaged it entirely. Some private mortgage investors have tried to sue the servicers for this very reason, but it’s hard to even know who wants what because…
4. The entire industry stopped keeping track of who bought and sold.This brings us back to the aforementioned MERS. Headquartered in Reston, MERS was founded by this guy Paul Mullings who is now an executive at Freddie Mac and it is currently helmed by a fellow named R.K. Arnold who according to one account spends his leisure time collecting military toys. MERS was created to sidestep the process by which buyers and sellers of homes used to record transactions with local authorities by just entering deed and lien information electronically into a database. MERS did not even have to lobby anyone to change any laws do this, apparently: “The mortgage industry just changed how the land title system worked without getting anyone’s okay,” a law professor explained to the Washington Post. Various libertards are now arguing that since mortgages change hands a lot more often than actual houses do, MERS is the only “efficient” way of doing things, which might be true were there any evidence they were actual “doing” anything; two lawyers I spoke with and everyone quoted by anyone else who has actually done any reporting into the matter say that MERS has a pretty sloppy record of recording this stuff, since it has almost no employees of its own. That has not stopped MERS from volunteering its name to be used on the “plaintiff” side of millions of foreclosure actions, despite having no claim to anything at all except a poorly-kept database no one uses, but they have stopped doing that so much in recent months because a lot of judges have decided it might be against the law. But really, should someone have to have a claim on your house to file a foreclosure notice on it?
5. Homeowners Associations are still foreclosing on the houses of members who are delinquent on their dues by amounts of $150 or so.Seriously, how is this legal? How do I keep reading the same story over andover? Because we live in a banana republic that is carrying out some sort of unmanned drone attack on our so-called property rights for no apparent reason other than to juice the official indicators of housing market “activity” and that sort of thing such that Steve Pearlstein will continue telling us it’s all okay, business as usual, that the whole snafu will be resolved very, very quickly, safe in the knowledge that anyone who begs to differ is guaranteed to lose the audience within the first 160 characters anyway.