The nation is still mired in a foreclosure crisis, with so many folks losing their homes. And there’s a “serves you right” mentality out there, which is sometimes justified. Yes, there were people who took on too much house with too little cash to make it work. Some people were clearly playing out of their league. And they knew it at the time. But not everyone who gets kicked out of their home is some kind of deadbeat. Many people who have lost their house keys sincerely thought they were making a sound fiscal decision several years ago. And they would have been just fine barring an economic collapse and a subsequent job loss or pay cut.
Anyway, most foreclosure talk focuses on a homeowner’s failure to live up to certain responsibilities. This is certainly part of the story. But do others have responsibilities, too? For instance, do companies that push for foreclosures have an obligation to present good cases on why homeowners should be removed?
Naturally, yes. If you’re going to kick mom, dad and kids to the curb, you better back it up in print with some solid documentation. Who disagrees with this?
Of course, this is where the burst balloon is hard to piece together. After an explosion, how do you find all the scattered parts? Well, you can’t really. And therein lies a widespread financial quagmire.
We know the entire real estate bubble could only expand by getting more and more people to leap into too-good-to-be-true mortgage deals. Those mortgages were then sold, packaged with other debts, sold on Wall Street, repackaged, sold again to various buyers.
It’s hard to dupe folks unless you can provide an illusion. And the lack of transparency regarding mortgages and debt in general is what allowed that debt to be sold and resold, with some making vast riches off the environment of deceit. Who knew that the debt package they were investing in actually included a loan for an unemployed ex-con who just purchased a six-bedroom home with very little money down? The debt package that included that mortgage was rated as good to go by the ratings agency that — turns out — had money to lose if they gave it an honest rundown.
Anyway, all this talk these days about “paperwork problems” in the foreclosure process sounds like some clerk just didn’t keep a good file on things. But it’s much worse than that. The whole system was set up to shade the truth. The mortgage debts were not spelled out clearly to the debt buyers, because if they knew the truth, they wouldn’t buy a load of garbage, would they? Would you invest in the ex-con with no job who was encouraged to take out a loan on a six bedroom home? Of course not. He’s a train wreck waiting to happen. He’ll never pay up. But would you invest in a mortgage backed security rated as a solid investment by people “in the know?” Well, that sounds like a pretty good place to put your retirement money. How were you to know that the investment included the neighborhood crook and many other sketchy loans all bundled together in a rotten bouquet that managed to look pretty?
Wall Street banked on us not picking up on the illusion of legitimacy.
So now, you have all these people holding pieces of bad mortgages. And that intentional lack of transparency which helped float the bubble during the good times is now sinking us during the bad times.
A straight-up mortgage with a bank is a pretty simple thing between the homeowner and the bank. That’s the way it used to be. It’s pretty easy to comprehend such cases. But when the bank sells off that mortgage, which is then resold six times, then what happens when things go bad? Where is the paperwork? Who is responsible? How does one partial debt holder know what the other partial debt holder is doing? How does the homeowner know he’s being dealt with fairly?
An individual homeowner’s plight is generally not treated as a newsworthy matter. So you don’t see a heck of a lot of reporting on particular paperwork issues in foreclosure cases, even though we’re surrounded by those cases and we hear vague talk of “paperwork problems.” Instead, you see general stories about foreclosure numbers — like the kind we run, which note the trends in our county.
But there are individual foreclosure nightmare stories out there, such as the story of David and Dorothea Kramme, who were paid up on their mortgage but faced foreclosure because their bank was confused about the state of the Kramme’s mortgage. In the aftermath of a “cut and paste” mortgage-trading environment, such confusion is bound to happen, isn’t it?
Last week, The Atlanta Journal and Constitution reported that a Marietta couple has filed a federal lawsuit over their claims of wrongful foreclosure. They are asking the state to investigate allegations of fraud. The suit alleges that a mortgage ownership tracking firm was “part of a scheme to craft fraudulent documents in order for mortgage owners to transact foreclosures.”
In a recent Rolling Stone article, a reporter sat in foreclosure court in Florida, known as “the rocket docket,” where a judge deals with upwards of 20 foreclosure cases an hour. The interesting parts of the article included the reporter’s review of documentation from the companies seeking to kick homeowners out of their houses. For instance, one set of foreclosure papers against a Jacksonville couple traced ownership of their mortgage from the original lender, Novastar, to JP Morgan and then to Bank of New York. According to the documents, JP Morgan transferred the mortgage to Bank of New York on Dec. 9, 2008. But according to the same documents, JP Morgan didn’t even receive the mortgage from Novastar until Feb. 2, 2009 — two months after it had supposedly passed the note along to Bank of New York. In other words, the dates were bogus. So, was the “paperwork problem” a clerical error or fraud?
A foreclosure attorney interviewed in the Rolling Stone article said these types of discrepancies are not the exception to the rule. It’s more unusual, he said, to find no abnormalities in the paperwork.
If these are just clerical errors, why are so many turning up? Is there widespread incompetence, or is this an attempt to manufacture evidence against homeowners when that evidence simply doesn’t exist, a nasty byproduct of an age of fiscal illusion, new lies necessitated by old lies?
Naturally, there will be righteous indignation from many who say we’re just witnessing honest technical problems. There will be a deep desire to believe them, too, a real urge to bury our heads in the sand.
Because we’ve already lived through “too big to fail.” And how many of us can stomach mortgage fraud that’s “too big to prosecute?”
Zach Mitcham is editor of The Madison County Journal.