September 21, 2010

The Disintegrating Mortgage Front


Yves Smith at Naked Capitalism continues her documentation of the mortgage system unraveling. As I’ve written about several times before, the sale and securitization system has devolved, with mortgage mills set up to evade many layers of local and state taxes while the mortgages themselves are disintegrated into a mind-boggling atom-smasher of tranches of CDOs and CDOs of CDOs. The physical note often disappears somewhere along the way. Nobody could legitimately figure out who actually owns these mortgages, in many cases. The mortgages themselves have effectively ceased to exist.
This reads like a satire on a land distribution system where the physical land is viewed abstractly even by those who physically squat on it and call themselves “owners” (but are really debtors). But under today’s legal system the land is really owned by the parasite finance sector.
But as Smith has extensively written, even according to their rigged law they’ve been abdicating this “ownership”. Legal ownership is anchored in the note. But where the note can’t be produced, as is happening more and more, no one can legitimately claim this ownership, or any right to foreclose or sell. As debtor advocates say, Always make them produce the note!
None of this was a problem as long as the bubble was inflating, prices were always going up and foreclosures were rare. But like with so many other things (it’s simply astounding how much lawlessness was let ride during the bubble inflation), as soon as the bubble burst everything started coming undone. There’s been an avalanche of foreclosures, which would have been hard to deal with even under circumstances where legal practice was on the up and up. But in today’s disaster there’s also the chaos of uncertain legal right for any particular actor to do anything. It seems that in many cases the foreclosing bank itself doesn’t know whether or not it actually has legal ownership and therefore any right to foreclose. Needless to say, they don’t care, and in many places the court system is looking for ways not to care as well.
Here’s a summation of recent developments, especially in Florida.
Florida is one of the states hardest hit by the collapse of the housing bubble. Everywhere underwater debtors are walking away or being foreclosed upon. It’s such a landslide that an oligopoly of three mills has been churning out foreclosure paperwork night and day. The state has called judges out of retirement to set up a special foreclosure tribunal with the proclaimed goal of processing foreclosures as fast as it can, usually without being overly diligent about the actual legality of any given foreclosure.
The cries of abuse and lawlessness have become so universal that state attorney general Bill McCollum, certainly not known as a friend of the people, has felt constrained to initiate an investigation of the mortgage mills.
Meanwhile Naked Capitalism recently divulged how big banks like Wells Fargo are trying to wash their hands of the mess they presided over by forcing buyers of foreclosed properties to absolve the bank of any responsibility in case the foreclosure turns out to have been fraudulent because the foreclosing party didn’t actually own the deed. The banks want to shift all the risk onto the buyer (the pain is of course sustained by the foreclosed debtor), and if necessary the legal blame onto a lower-level servicer.
In response to McCollum’s investigation, Florida congessman Alan Grayson has written a letter to the Florida supreme court asking it to suspend the operations of the quasi-legal mortgage tribunals. The state itself has acknowledged there may be a structural problem with the legality of the mortgage and foreclosure disposition, so how can the state continue to stampede the foreclosure process like this?
Not coincidentally, on the same day as Grayson’s letter was publicized Bloomberg reported that GMAC has suspended all foreclosures in 23 states, including all but one of the judicial recourse states. This follows upon allegations of systemic and systematic fraud on the part of GMAC officers. On its face it seems that GMAC is massively exposed to liability for fraud and is scrambling to retrench before it continues going before judges under oath. (I don’t know how the perjury system works on signed affidavits in non-judicial states, but it sounds like there’s less danger there.)
GMAC responded to the Bloomberg story claiming that it’s only suspending ongoing foreclosures, not halting new ones. We’ll see what that means.
As we see, not only is this land distribution illegitimate in both moral and practical terms. The banks in their greed and carelessness have also inadvertently abrogated their “ownership” even according to their own corrupted law. Now the system has to try to do what it does everywhere else – scramble to bail itself out, to cobble together a temporary kludge to keep itself propped up just a little while longer. So they’ll have to somehow find a way to retroactively legalize this lawlessness, or at least politically normalize lawlessness just as they’re trying to normalize permanent mass unemployment.
Even as it sways with greater vehemence in the rising wind, the Tower of Babel keeps being built higher, each layer more heavy than that below it. Even as they must prevent the bubble from deflating further, they must try to reflate it and keep it inflating forever. Even as they try to reflate the bubble they find its very legal basis devastated, and must try to construct a passable pseudo-law to pose as the real one. And they must do all of this as they struggle to maintain political control.
I hope the efforts of bloggers and rare MSM reporters like the NYT’s Gretchen Morgenson will get these stories and the truth they convey out into the public consciousness. It’ll help toward weaning people from the “ownership society” scam, one of the most pernicious scams encouraging debtors to cling to their debts, that is to the system itself, against their own interest. The HAMP scam was founded upon this goal. But eventually the entire scam must founder and fail.


  1. This is interesting stuff.
    I remember quite some time ago hearing some people in the financial sector (no crooks…) say that the financial instruments had become SO COMPLEX, SO ABSTRACT, AND SO INTRICATED that it was really impossible to understand, to get a grasp on those so called.. instruments or tools that were being touted, and even 10-15 years ago concerned people were murmuring about… WHERE WE ARE NOW. (Actually, people like William Blake were shouting at it at the beginning of the 19th century…)
    I had this discussion on another blog, about just WHO was responsible. Looking at YOUR take on it here… although it is very tempting and logical to imagine that someone… somewhere is behind all this, and we can pinpoint responsibility in terms of.. FLESH AND BLOOD PEOPLE, well.. I think that is wishful thinking at this time.
    I don’t really think that this out of control system is really benefitting a.. CLASS of people, for instance.
    Maybe… some isolated individuals, here and there. But.. even THEY have no real control over the bloated, overinflated symbolic systems that we are currently dealing with.
    You might think that we can say.. “they”, and that corresponds to flesh and blood people.. but.. what if “they” are not there behind all this ?
    I think that we are basically telling ourselves that “they” are doing this to maintain the illusion in our own eyes.. that SOMEBODY is controlling what’s going on.
    But my experience as a shrink has taught me.. that WORDS, for example, THEY have their own agenda. They are pretty powerful little critters. On the page. In mouths. THEY are controlling what’s going on quite well, right now…in my opinion.

    Comment by Debra — September 22, 2010 @ 2:46 pm

    • “But my experience as a shrink has taught me… that WORDS, for example, THEY have their own agenda. They are pretty powerful little critters. On the page. In mouths. THEY are controlling what’s going on quite well, right now…in my opinion.”

      Excerpt from BNW Revisted;

      “And even to¬day we find a distinguished psychologist, Professor B. F. Skinner of Harvard, insisting that, “as scientific explanation becomes more and more comprehensive, the contribution which may be claimed by the indi¬vidual himself appears to approach zero. Man’s vaunted creative powers, his achievements in art, science and morals, his capacity to choose and our right to hold him responsible for the consequences of his choice — none of these is conspicuous in the new scientific self-portrait.” In a word, Shakespeare’s plays were not written by Shakespeare, nor even by Bacon or the Earl of Oxford; they were written by Elizabethan England.”


      Comment by rene — September 22, 2010 @ 4:19 pm

  2. Foreclosed on but no mortgage . . .


    Comment by Tao Jonesing — September 22, 2010 @ 10:56 pm

    • I’ve seen stories like that, and far worse. This one is relatively mild, if BofA really is going to fix the mistake without any further “glitches”.

      It’s quite a commentary on how much the banks are acting efficiently and in good faith, how well-constructed their system is, and how much they care about fixing it.

      Comment by Russ — September 23, 2010 @ 4:34 am

  3. […] […]

    Pingback by Volatility Blog Covers More on Florida Debacle | Get Smart About Banks — September 23, 2010 @ 1:07 am

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.

%d bloggers like this: