The Fourteenth Banker Blog

October 7, 2010

CNBC Article Wants Banks to Skate on Foreclosure Mess

Filed under: Running Commentary — thefourteenthbanker @ 1:38 PM

CNBC has this article up this morning decrying the politics of foreclosure. Yes, it is political. But look at the nonsense of his argument.

Yes, the process is flawed because the banks clearly aren’t equipped to handle the numbers.

Yes, there may be some loans that could have been saved, but the vast majority can’t.

Still lawmakers want to freeze all foreclosures to make sure all of them are fair because, as Speaker Pelosi writes, “People in our districts are hurting.”

The question is, how much would a foreclosure freeze hurt the greater housing market?

What do these questions have to do with it? Either there is a legal process and the banks spend the money to follow it, or they bear the consequences. That is free market capitalism. So far, no one has proposed a new law or regulation. They are just asking the banks to follow the laws that were in place when these mortgages were originated and sliced and diced into securitized assets. If it now costs more to process the risks that were in those portfolios, the folks that made the bets should pay the costs. Simple and elegant.

I asked some mortgage mavens and got the following responses:

Josh Rosner, Graham-Fisher: With REO sales being a large part of supply we would see home prices artificially and unsustainably rise, foreclosure volumes paint a false picture of stability and investors in MBS would be further harmed as their losses grow. Once the moratorium ended prices would fall and foreclosures would skyrocket. But, it would paint a prettier picture than reality heading into mid-term elections.  14 here. This is nonsense. Nothing much will change before the mid term elections. Red Herring.

Guy Cecala, Inside Mortgage Finance: Instead of having a ton of mortgage borrowers who haven’t made any payments in at least a year, we would have a ton who haven’t made a payment in a year-and-half. Keep in mind we will have new problem loans entering the system throughout any moratorium whether we acknowledge them or not. Do we seriously believe that a foreclosure moratorium can change the outcome of potentially 5 million or more homeowners losing their homes over the next two years? Ultimately, if we don’t do something to handle distressed properties more efficiently (and faster), the housing market is going to remain stuck in limbo with no recovery in sight.  14 here. So we trample legal rights to process distressed assets efficiently? That is a slippery slope.

Janet Tavakoli, Tavakoli Structured Finance: Banks are vulnerable to lawsuits from investors in the [securitization] trusts. This problem could cost the banks significantly more money, which could mean TARP II.

Is this really so bad that we will need TARP II?  That seems like fear mongering. The lawsuits will drag out for years and will not cause a sudden collapse of banks unless people figure out the banks are not solvent anyway, in which case we need to clear the banking market the way they suggest we clear the real estate market. Then we can capitalize a new banking sector. If $700 Billion were put into capitalizing new banks, we would not need to old banks at all. Let them wind down.






  1. WaPo didn’t publish all of my comments. To be clear, I was opposed to TARP I and offered alternative suggestions in September 2008,(See:, and I’m opposed to any additional TARP, yet Congress seems intent on protecting banks’ interests over taxpayers and the integrity of the currency. You may see more recent comments in the “News” section of my web site.

    JT Note: Reuters reported there is a bill that flew threw Congress to the White House to protect banks from the consequences of the “flawed paperwork” and to make it harder for borrowers to challenge improper foreclosures:

    In foreclosure controversy, problems run deeper than flawed paperwork
    Washington Post – October 7, 2010
    By Brady Dennis and Ariana Eunjung Cha

    Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.

    [JT Note: The SEC is a failed regulator. This step is not optional when securities are created and underwritten, and underwriters should be held accountable.]

    But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks’ paperwork problems have been laid bare, she said.

    The result: “Banks are vulnerable to lawsuits from investors in the [securitization] trusts,” Tavakoli said.

    Referring to the federal government’s $700 billion Troubled Assets Relief Program for banks, she added, “This problem could cost the banks significantly more money, which could mean TARP II.”

    JT Note: This was far from the only problem with the securitization process. It was a massive, widespread, interconnected Ponzi scheme with various types of concurrent fraud. So far our regulators, court system, and Congress have failed in their duties.

    Comment by Janet Tavakoli — October 7, 2010 @ 1:52 PM | Reply

  2. “JT Note: This was far from the only problem with the securitization process. It was a massive, widespread, interconnected Ponzi scheme with various types of concurrent fraud. So far our regulators, court system, and Congress have failed in their duties.”

    Said like it is!!!

    Until we throw at least some people behind bars nothing in banking will change. I spend 9 hrs a day with fellow bankers and I tell you none of them have even paid attention to this new development…..why? Because their life went on, their second homes in Hawaii are perfectly intact, so why should they care if your primary residence just got forclosed on? You must have been stupid!

    Comment by Vocalbanker — October 7, 2010 @ 2:51 PM | Reply

    • Vocalbanker,I would love your input on the reasons why people have not been charged and convicted of massive multiple frauds. I speak of the failure of the duly empowered , both elected and career, law enforcement people involved. After all, six or seven years ago the FBI warned of massive fraud underway. It was obvious to me that there was massive fraud going on in the retailing of new homes. That is, the sales people understood how to get financing to close their sales by what amounts to the term ” by any means”. My firm did almost no residential work but I came to know quite a few developers over the years. The motto is always ” whatever it takes”.

      We also know now a great deal more about consumer fraud that took place in securing a mortgage in the first place. Were the vast majority of consumers seeking new loans or refi’s as fraudulent in their intentions as any loan originator or investment bank downstream? I personally think the answer to the foregoing question is ” yes”!

      Might it be that there are simply too many criminals at the top? Look at the Dot Com busts. Who got selected for sacrifice ? It certainly was not the main stream of CEO’s and CFO’s but the outriders . Those outside the cozy Wall Street Network. Why have those at the top not volunteered a bunch of outrider perps again to satisfy the public frenzy? A sort of financial system decimation as practiced on Roman Legions guilty of cowardice as a group.

      Comment by Jerry J — October 7, 2010 @ 11:01 PM | Reply

      • Jerry, I think you’re absolutely right! At this point it is “cowardice as a group”.

        Also I think you make a mistake when you call anyone today in our society as ‘duly empowered’. Other than the oligarchs and their croonies there are no ‘duly empowered’ folks anymore, not even our ‘duly elected’ representatives and senators.
        Our problems are very serious and at least some of us know that we are heading towards a very serious decline. Our founding fathers knew that it was important to call ourselves ‘the land of the free’ because without freedom one cannot unleash creativity.
        That’s why I say bankers are sleeping at the switch, the powerful at the top have systematically promoted ony the ones that will carry out their mantras…..and all is done in the name of ‘good for the shareholder’.
        Maybe that’s the model that might ultimately crumble.
        As for any of ours desire to see crooks behind bars, it’s not going to happen. Unless we have some serious campaign contribution reform we will not be able to see duly empowered candidates that can bring about the much needed changes.

        Comment by Vocalbanker — October 9, 2010 @ 11:21 AM

  3. […] What’s that you say?  CNBC was shilling for the banks?  Say it ain’t so.  Here’s a snippet from the Fourteenth Banker, full article here: […]

    Pingback by Letting Banks Continue to Skate is Not an Option « Findsen Law — October 7, 2010 @ 9:40 PM | Reply

  4. I think there are only two scenarios possible:
    1) The laws are changed retroactively to protect the banks
    2) We happen to have a war to keep everyone’s mind off the banks, and it just happens to require some extraordinary measures

    How many times do you have to be shown that the banks own the government(s)?

    I just read that the global currency market trades the equivalent of the US GDP every 3.7 days. The financial sector is a monster, like The Blob, that just grows and grows and grows. It is out of control, a runaway chain reaction, a China syndrome…

    Is it any wonder that the sector can buy and sell governments?

    Comment by Eric W — October 7, 2010 @ 11:29 PM | Reply

    • How does this ownership work in the Federal System? I mean just how does big finance get to the Federal apparatus, the state apparatus and all 2200 counties to boot? Who owns whom? Might it be more a mutuality of fears between individual elected persons and big finance? Big finance understands their power only in sophmoric terms as I see it. Big finance is obsessed with freedom of movement to pursue profits. This obsession is also the majority pholosophical basis of the citizenry. The US citizenry has alway been anti statist. The citizenry want to pursue their goals in the same manner as big finance. What the citzenry is pissed at is the success of Big Finance at their expense. This same citizenry would love the result if it were theirs. Enter the politician who exists in the minds of the citizenry to push their personal advantages at the expense of other citizen personal advantages. People are very vocal about the righteous duties of politicians to them the revered little guy. I think it fair to observe that the righteous citizen is very narrow minded in their righteousness. So the politician exists in the interstices of various righteous citizen understandings. The politician must appease enough of these divergent groups to achieve and stay in office. Big finance and other biggies buy off the politicians with campaign finance so that the money is used to grift the individual citizen’s righteousness. The money is spent to get the citizen to vote for the politician. Why is it so expensive to get elected if it were not so very costly to cater to the divergent citizen’s ” beliefs”? If big finance owns government it is because government fears big finance will jeopardize the government’s mandate. Similarly, the elected official understands they can no longer control big finance. Government is not up to the task within the parameters of satisfying the sacred beliefs and consequent righteousness of citizen groups. There is no structure that could achieve such a result.

      So what happened in big finance. Pursuit of profit under the belief structures that there was no need for governance caused a dangerous drift into multiple failures of the politico economic system. US employment was destroyed when profits were utterly dependent on the purchasing power of US employment. A classic Marxist understanding. The problem was beyond the politicians because the citizen belief structures were that they are parasites. Politicians understand they are parasites.. hence the need for massive campaign funds to cater to the beliefs of the citizenry. The citizen must knowingly elect a parasite so they delusionally look for a politician that is not a parasite. The non parasite , if found and elected, is simply drowned by the parasites.

      What has happened is that complexity drove the need for a false simplicity that is not even remotely possible given a high tech society . The high tech nature of the way we live requires more and more permanent security at the expense of cherished simplicities. This is politically unacceptable to the anti statist beliefs of the citizenry. Yet they desire both results and that is not possible. That suggests a collective insanity.

      Have I been describing the process of where the society reachs a point where further effort to maintain the politico -economic system simply no longer works? Almost all efforts fail from multiple oppositions. Specifically, I am presenting my version of the views of Joseph Tainter discussed in “The Collapse of Complex Societies”.

      Comment by Jerry J — October 8, 2010 @ 11:56 AM | Reply

      • I would like to add this. Big finance wants control over others but wants to be exempt from control. What could be more American? What better way to remove the barriers from profits by aiding the politicians in their horribly expensive election campaigns? Every manager in America is schooled in aiding the removal of barriers to profit generation. Technical complexities seem to demand a state apparatus not far different than the Peoples Republic of China.

        Big finance is doing what comes naturally and the little guy’s are also doing what comes naturally. This tells me the social complexities are too diverse for the present system to handle.

        Comment by Jerry J — October 8, 2010 @ 12:59 PM

  5. Affidavits, Perjury and Fraud on the Court

    An affidavit is a legal document which can substitute for live witness testimony in court. All testimony in court is governed by the rules of evidence or by statute. All testimony requires that the witness swears to tell the truth, is competent and has personal knowledge of the facts they are testifying about. An affidavit is no different, in most if not all jurisdiction, the affiant swears to tell the truth by being placed under oath by the notary, the affiant states in the affidavit that they were sworn, are competent and that they have personal knowledge of the facts in the affidavit. The notary attests to the oath of the affiant and that the affiant is who they claim to be.

    If a witness lies in court or in an affidavit then they could be charged with perjury. Perjury is lying to the court.

    The affidavit issue is being portrayed in the MSM at a paper work problem. Lying to the court is not a paper work problem. Attorneys are prohibited from making a material misrepresentation to the court of fact or law. Further, attorneys in most jurisdictions have an affirmative duty to report known perjury by their clients to the court.

    The problem with the affidavits is perjury on behalf of the affiants and possibly the notaries depending on the notaries’ knowledge that the affiants had not reviewed the files, the promissory notes, the mortgages, or the records of default.

    Further, you can reasonably argue that the entities pursuing foreclosure (banks or servicers) have perpetrated a fraud on the court by submitting perjured affidavits. If the attorneys representing the entities have knowledge of the fraud or are preparing questionable documents then they may also be involved and subject to penalties.

    At the heart of any trial or hearing is the determination of the truth of the matter. It is the very purpose of the rules of evidence and what law and fact is presented to the court. If the affiants lied, as it appears, then the truth of whether they owned the note and held the mortgage and the borrower was in default is at issue. Courts, Attorneys General, and bar associations need to serious consider actions that will assure compliance with the rule of law.

    This country cannot stand as a democracy if there is one set of law for the banks, corps, elites and another set of law for the rest of us. Perjury and fraud on the court is very serious matter. It is not a mere paper work problem.

    Comment by ella — October 8, 2010 @ 1:44 PM | Reply

  6. Bloomberg carries a piece today that Bank of America and others will announce a nationwide halt to foreclosures including auctions. The problem went mainstream and the angst is really building. Articles are now surfacing about the problem of losing clear title when loans are paid off if the Note is lost or the chain of title is interrupted. The litigation will be awesome. The problem is in a traditional state activity , hence Federal override will be extremely improbable. Besides, any attempt at an ex post facto law will run into a constitutional problem. Ex post facto is too simple to be subjected to an end run. You cannot make something legal yesterday illegal yesterday today. Besides making the literally millennia old concept of a Statute of Frauds illegal is way , way beyond the pale. That must be done here for banks to get out of their carelessness to kowtow to the electronics frenzy. Anyone could claim money due on a debt without proof of ownership of the debt. The property owned by the claimant against the debtor is the NOTE of the debtor. Even using a facsimile stored on computer software requires a valid traceable chain of title to the Note. Probably, 90 % or more of the Notes were transferred to enable securitization. Lets say my bank was the originator. They sold it to WaMu non recourse. WaMu sold it recourse to Fannie. Fannie sold to a bank in Dusseldorf who sold to a local investor. My point is that the chain of title proves the right of the claimant to be paid. If there is an original Note blank endorsed without a chain of subsequent endoprsements at least the Note can be conveyed back to the maker on payment. No Note no claim and I have it. Then, a facsimile shows up claiming payment. I have the Original Note and that stops the facsimile with a referral to the States Attorney for prosecution. No Note and no traceable chain of title should mean you have no property . Remember, a copy of the Note was filed when the Mortgage was recorded in most states, if not all.

    The banks cannot win on this one and their bluff has been called. Do you blame them for trying?

    Comment by Jerry J — October 8, 2010 @ 2:38 PM | Reply

    • In a fair, or just world the banks could not win.

      However, if memory serves Citi merged with an investment bank while it was illegal to do so, and the law was changed (Gramm-Leach-Bliley, 1999) after the fact so it would be OK.

      Mark-to-Market was changed to Mark-to-Myth to hide losses that had already taken place.

      Denninger is currently reporting that HR3808 will become law without the President’s signature, retroactively bringing notarization qualifications down to the lowest level.

      Welcome to the Soviet States of America, kleptocracy and all.

      Comment by Eric W — October 8, 2010 @ 3:02 PM | Reply

      • I would think that Obama saying he is pocket vetoing when Congress is still in technical Session would make him a laughing stock. He would be forced to veto the Bill period. Let me put it this way, if the bill becomes law from failure to return the bill unsigned as prescribed in the Constitution would really hurt the President. That said, if the President allowed this bill to become law without his signature , he will have again proved he fears the consequences of bank failure and is in bed with the banks. But the deception would carry a very difficult political stigma far, far worse than just approving the bill. He would be about as dumb a politician as there could be.

        Comment by Jerry J — October 8, 2010 @ 5:41 PM

      • The Citi situation was, if I remember correctly, the acquisition of a state chartered corporation by Citi, also a state chartered corporation, the holding company and the investment bank. The prohibition violated was the Federal public policy law prohibiting banks, National Associations and State Banks, from engaging in investment banking. The NA involved was a subsidiary of Citi. The Bank Holding Company Act came into law two decades after Glass- Steagal. Without doing tons of research,I suspect that the prohibition in Glass Steagal did not carry through the same way in the BHC Act. ( When Glass Steagal was passed their were no bank holding comanies.) Very likely, the BHC act provided a civil fine for violating public policy. That is, the fine may have been a pittance and was simply endured. The parties knew that Glass Steagal was on the way out. Simply put, it is unlikely that criminal statutes were broken by Citi. It would have been incumbent of the US Government to civil sue to force divestiture. I do not remember if the USG filed suit. Anyway, after Gram – Leach- Bliley the whole thing would have been moot going forward. Citi undoubtedly made a rational choice to ignore Federal policy and almost surely had legal opinions up to their eyeballs on the consequences of their ignoring Federal policy. This kind of crap goes on every day in any major business. It has nothing to do with outlawing legal behavior yesterday by acts of law today. Just because the government wants something you do not have to give it. You just need to suffer the slings and arrows of the government if the administration chooses to apply them. As J P Morgan told Theodore Roosevelt. Words to the effect that why are you so upset Mr. President. You send your man and I will send my man and they can straighten things out. That is what gentlemen do that that run big countries. That is what happened. Citi understands their position. Above all, they usually know how things are not done and avoid getting into that trap. ( I suggest that the present banking collapse was the way things were not done and as a result the big financial players are finished.) The government obviously chose not to pursue this on the same basis that a States attorney may choose not to pursue a case. They always have discretion. George Washington had all kinds of executive discretion as President , a man of power. If you did not have discretion you are at the mercy of every do gooder and policy hack in the country.No point in even entering office. There are ways that one is not a crook with a crooks result. Can you imagine all the conniving crooks in ancient Athens? They got to old Socrates although the City State later regretted it’s act with the Hemlock. But da boys in city hall got their wish.

        It is all in how you do things. Meyer Lansky ran his Florida gambling carpet joints in Hallandale. To pay off the city itself Meyer’s employees were regularly told to report to City Hall where they were arrested paid the $200 fine and waited a week or two to do the same thing. Hallandale loved the huge fine income and The Little Man loved being left alone. He also hired loads of people in Hallandale at nice wages. The gamblers from Miami loved it too. The law was satisfied too, it seems. My Dad’s friends were among those arrested on schedule in Hallandale. They never tired of talking about the civilized days when Sophie Tucker and other big names played Meyer’s carpet joint in Hallandale.

        It worked somewhat the same in my home town too. Less blatant.

        I bet one could learn a lot from looking into the details of Citi’s deal.

        Comment by Jerry J — October 8, 2010 @ 7:52 PM

    • Jerry, I hope you are right.

      I just spoke with a title officer who claims that they are having a difficult time getting Recons from BOA. BOA claims that they have not been paid the Recon fee when in fact it has been paid. She said there was a similar problem in CA but the title companies obtain new legislation which allows the title co to prepare and file a Recons if they have request same from the holder and the holder has not responded. I had no idea that we were even having trouble at this level.

      Comment by ella — October 8, 2010 @ 4:01 PM | Reply

      • Ella, I take it that BOA is unable to prepare a Reconveyance of Deed without committing fraud or perjuring the bank and it’s officer’s and employee’s or both for all connected parties? To show that you as the former borrower have extinguished your debt to the person holding title receive what amounts to a warranted release from the actual owner of the debt along with the Original Note. I take it that the actual owner of the Original Note cannot be found and the owner is incapable of issuing a Reconveyance and valid extinguishment of claim. Any asserted Reconveyance by anyone not an actual owner of the debt acknowledging payment would be an act of fraud. The debtor paying off the obligation has no assurances, iron clad at that, has paid the right party and is defrauded of his payment to extinguish the debt. Phew!

        The foregoing must be very common if BOA is unable to issue a Reconveyance and I doubt this has ever happened before outside of simple acts of theft . That is, the system itself has fallen.

        The solution is impoundment of funds and a release by judicial order by the courts if the debt owner is unable to be found?

        Comment by Jerry J — October 8, 2010 @ 6:07 PM

  7. I have a really basic, possibly stupid question. Suppose I’m five years into my thirty year mortgage. If I pay it off in twenty-five years, will there be a bank to sign off and say I finally own my house free and clear, or will I have to keep making payments forever because no one actually knows what’s going on with actual individual mortgages?

    Comment by midwestwife — October 8, 2010 @ 9:29 PM | Reply

    • Actually that is a smart question. I think many people are asking themselves the same thing. First off, here is a link to a description of the problem.

      When you purchased your home you signed legal documents including a Note and probably a Deed of Trust or Mortgage. It is possible, but probably not too likely, that your documents were completely lost except for perhaps an electronic copy. It is possible that the Note was not endorsed over properly to whomever is supposed to own it now. It is highly probable that there is a good electronic record of your Note and all the payments you have made. If you keep making the payments, the chances of someone saying you had not made all the payments is very small. If you are concerned about that you might keep records of the payments you have made. Most payments these days are made by electronic draft or by check. So the bank statements will have records of these. You can make sure you have a copy of your bank statements. These can be downloaded and saved electronically and then should be backed up somewhere.

      As far as whether you will get back a note marked “paid”, I can’t predict that. I suspect some protections will be worked out so that people can be sure they get clear title and can convey their property if they choose.

      In any case, I don’t know what options you have today. I have considered requesting copies of my loan documents to see if they can be produced. But unless you are defending a foreclosure action, I don’t know what you could do differently if they were not produced.

      Perhaps others can add their thoughts.

      Comment by thefourteenthbanker — October 9, 2010 @ 2:48 AM | Reply

  8. Jerry, unclear. Title tells me they have proof of loan pay off and payment of Recon fees. BOA is demanding payment of the Recon fee, even though it has been paid. But it is a good bet that they have lost the note. Eventually, their is compliance. Local title co. are trying to protect the chain of title.

    Comment by ella — October 9, 2010 @ 7:05 AM | Reply

  9. there not their.

    Comment by ella — October 9, 2010 @ 7:05 AM | Reply

    • Ella, the more you delve into the documentation problem, the more problems that show up in future transactions. Consider this head banger which will become very common quickly unless the banks are forced to find the documentation.

      Let’s say I have a mortgage outstanding that I have never missed a payment on and I want to refinance even though I am underwater on the house. To make it more interesting, I live in a non recourse state where the note is fully satisfied no matter what the bank sells it for. Let’s say that I am refinancing to at least cut my service costs on paying for an underwater house. In short, I am on the edge of deciding to jingle mail.

      Ok, I go for a loan and the new lender is unable to secure it’s interest properly because another loan, one that lender will fund paying off, will not clear away. So, the lender turns me down.

      Therefore, I jingle mail. There would soon be millions of these scenarios if the document problem is not solved to re-establish the traditional system.
      If the government forces acceptance of bad documentation to make the banks whole, they would be required to force banks to loan on defective prior loan documentation. If they did not, having interfered, funding sources for loans other than Fannie and Freddie etc would stay dried up. I cannot concieve of the GSE’s accepting this scenario other than by force of law. Failing to rectify this problem will fllod the real esate market with more foreclosed houses adding clouded title to boot.

      What do you all think?

      Comment by Jerry J — October 9, 2010 @ 11:36 AM | Reply

      • Today’s WSJ carries a Banner Lead. ” BofA Halts Foreclosures”. In the article, Freddie Mac pressured BofA into the halt. Clearly, the real life situation is that Obama people pressured the GSE’s to put the heat on the big banks to halt foreclosures. It is , after all, 24 days away from the Mid Term Elections.

        Comment by Jerry J — October 9, 2010 @ 11:46 AM

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