The Fourteenth Banker Blog

September 30, 2010

More on Foreclosure Abuse

Filed under: Running Commentary — thefourteenthbanker @ 4:15 PM

To begin with, I agree with this quote by Mke Konczal on New Deal 2.0:

Before I tell you more about what I think about the Florida situation, I’ll tell you I was raised by a family in law enforcement, and as such, I tend to think people who are arrested are usually guilty.   And I think that the people who are ending up inside the Florida bankruptcy courts are usually going to be people that shouldn’t be in their homes.

It’s because of the fact that I and others usually believe this to be true that I think due process and trust in the process of our courts is so incredibly important. It’s necessary to force the parties at hand to marshal evidence that they swear is true, and to present it to an impartial judge to render judgment after full consideration. This is America, where everyone gets a chance before the court. If this system breaks, the weak and the innocent are the ones who suffer.

So it’s because of this background that I feel sick to my stomach learning of a random sampling of foreclosure cases conducted by the Florida Bar News has just found “that 20 percent or more of the cases set for summary judgment had some procedural or paperwork problems.”

That said, here is an update on developments in Ohio.

Per this press release, Ohio Secretary of State Jennifer Brunner has described how her office is currently fighting illegal foreclosures. In her state, she identified that notary’s were being falsely attached to foreclosure documents. Essentially at the directive and according to the policy of their employer, notarization was done in bulk on documents processed in bulk. The notarys affixed their signatures and stamps to the documents when they were aware that what was being sworn in the documents was false.  Specifically,

REFERRAL OF CHASE HOME MORTGAGE AND MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. TO FEDERAL PROSECUTOR: Secretary Brunner, in two letters dated Aug. 11, 2010 and Sept. 1, 2010, referred matters of alleged notary abuse in thousands of home mortgage foreclosures by Chase Home Mortgage and the Mortgage Electronic Registration Systems, Inc. to U.S. District Attorney Steven Dettelbach in Cleveland. Citing two depositions, (onetwo) of Chase employee Beth Cottrell, taken in Columbus in May of 2010, and a deposition of MERS Secretary and Treasurer, William Hultman taken in New Jersey in April of 2010.  These depositions contain sworn testimony that at Chase Home Mortgage, 18,000 documents per month are executed and notarized per month by eight people, with admissions that:

  1. it is the notary and not the document signer who gives an oath who fills in numbers in the affidavits used in court ordered foreclosures,
  2. no oath is administered for the signing of each document,
  3. notarized documents are not verified by the person signing and giving oath that they have personal knowledge of the contents of the documents, but rather, signers are relying on verification by others,
  4. documents are signed in bulk and notarized in bulk separately,
  5. notaries know this at the time they notarize documents in this process.

This is obviously a shortcut to deal with a large volume of foreclosures without incurring the cost to actually verify that what is being presented to the court is in fact a true and accurate rendition of the legal facts. In the Secretary’s words:

“Mortgage foreclosure documents must be notarized according to the law. Requiring this is not an afterthought or an exercise of form over substance—the law must be followed when taking away someone’s home, regardless of the circumstances.

For too long thousands of homes have been taken from consumers without proof that the foreclosing party actually has that right. Our courts must be cautious and require absolute adherence to the law. As the officer in Ohio who licenses notaries, I cannot stand idly by and watch financial institutions concoct a chain of title they never had by abusing the notary process.

It’s not fair to consumers or to the employees who by virtue of their jobs, are signing these documents. I urge the U.S. Department of Justice to take up this investigation with vigor and purpose to protect consumers and hold financial institutions to the standards of scrutiny and exactitude required by law, even if it means prosecuting some of our largest corporations. These apparent violations of state law point to schemes that merit federal investigation of large institution lending practices and use of the U.S. Postal Service.”

It may seem nit picky to refer notarizations to the Federal Prosecutor. I suspect that this is one way to raise an issue with the entire process and not just individual cases.

One question that should be asked of GMAC is why they are suspending foreclosure activity in only 23 states? The obvious answer is that these are judicial foreclosure states and there is greater legal burden to prove the foreclosures are in fact proper. However, the reason these improper documents are often submitted to the courts is to remedy issues where the servicer cannot prove that the supposed note holder is the party at interest. If this situation exists in 23 states, surely it exists in all states. These corporations are apparently not interested in making sure foreclosures are done properly in all 50 states, just in those where they have the most legal jeopardy. What are the representatives of the people and the legal system doing in the other 27 states to protect their citizens?

According to CNBC, these issues are very material to the financial system and the economy.

Worst case is that the current foreclosure problems turn out to be industry-wide and trigger a landslide of legal challenges that lock up foreclosures resolutions for a year or more,” says Guy Cecala, publisher of Inside Mortgage Finance.

That means all kinds of borrowers would sit in their homes free of charge, banks would be unable to get any return at all, and the housing market would still be facing the inevitable: “We may then see a [foreclosure] surge at some point in the future,” notes Treasury’s Maggiano.

We’ve talked an awful lot about artificial government stimulus skewing the housing recovery as it tries to help; that’s nothing compared to the potential for this latest scandal to wreak havoc on housing yet again.

I wonder what the position of the Fed is on this? They hold on their books some $1.1 Trillion of Mortgage Backed Securities. It appears the Fed may find itself at cross purposes with the rule of law. They have a supervisory responsibility for safety and soundness in the banking industry. They also have funded the banking system through purchases of MBS. I’m sure they will be very quiet on this but I wonder what the auditors think about the values these MBS are carried on the books?

Comments welcome.

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3 Comments »

  1. 14th, are you asking about the MBS carry values on the books of each Federal Reserve Bank? Look at Note 4 to the consolidated Balance Sheet . The September 30th posting just hit. This is the H4.1 report. The MBS are carried at cost. That is at outstanding principle value of each mortgage plus accrued interest. Had these mortgages been bought at less than par, the FRB’s would have posted a mark up gain to carry them at par. That would have quite detectable. Note too that the MBS asset value is essentially ” unfunded” since the purchase proceeds were obviously a simple credit to the sellers Federal Reserve Deposit Account. Outstanding reserve account balances exceed or equal the total MBS purchase. The FRB’s use a hybrid GAAP available only to FRB’s being a quasi governmental unit. That is they carry at outstanding principle balance plus accrued interest. Just think of the hundreds of billions of mark down reserves on the books of the banks for these receivables freed when they were transferred to the FRB. Resrves that are ” releaseable” to use accountants lingo in construction. There is no audit issue on the FRB books or the banks because they were outright sales to the FRB. Essentially the banks made a bookkeeping entry. Debit their reserve deposit account carried as a cash equivalent and credited their MBS investment account. But this is a cash account they cannot take down except for a very small portion. At most 10 % of the aggregate value using Reverse Repos. Of course, they could always take currency. But how do they invest currency without getting it mostly back requiring them to turn it back in for an increase in their Reserve Account? Meaning parkable or do we pick up the income now? We are a virtually cashless society and the currency must circulate not be redeposited back in the bank.

    I see the FED as having been in a box since they started buying MBS’s. All that happens in real world terms is that most of the MBS’s moved off the banking system balance sheets and into a static cash account that is mostly sequestered and should be treated as such. That is non current and not a Cash & Equivalent.

    What do you bankers think about this? I see at a the only bluff Bernanke could make to end the panic.

    Comment by Jerry J — September 30, 2010 @ 4:48 PM | Reply

    • Ignore the sentence on parkable currency. It is in the wrong place. I inserted the sentence in relation to bank MBS mark down reserves freed up. Verdamdt!

      Comment by Jerry J — September 30, 2010 @ 4:51 PM | Reply

  2. “These corporations are apparently not interested in making sure foreclosures are done properly in all 50 states, just in those where they have the most legal jeopardy. What are the representatives of the people and the legal system doing in the other 27 states to protect their citizens?”

    this is it, corrupt oligarchs fully supported by even more corrupt polititians unwilling to stand up for 95% of America. Impotent power brokers!!!!!

    Makes me sick. And for those delusional out there who think that Jamie Dimon didn’t know that his croonies were pulling this sh$&@ think again.

    THESE CEO’s NEED TO BE PROSECUTED and the EVP of MORTGAGE banking needs to be prosecuted. This is Enron times 100 WHERE THE HECK IS THE JUSTICE???!

    There is so much hard evidence, all these impotent polititians need to do is email me and I’ll show them how these TBTFs are carrying on their unscrupulous ways not just against their customers but also their own employees. There is hard evidence of stealing from customers and employees alike.

    But wait, the polititians are busy raising money from the same corporatists. Surely they can’t bite the hand that feeds.

    We so badly need campaign finance reform. Did anyone hear how hopeless senator Kaufman sounded when huffpo interviewed him on this issue?

    We’re screwed!!!!!royally screwed!!!!!

    Comment by Vocalbanker — September 30, 2010 @ 9:01 PM | Reply


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