Flaws Cited in Foreclosure Review By Alan Zibel - Wall Street Journal - April 3, 2013, at: http://online.wsj.com/article_email/SB100014241278873239163045784008829358200...
It would be interesting to know how many of the 'wrongfully' foreclosed borrower 'victims' were in judicial foreclosure states and how many such 'victims' were in states in which the mortgage / trust deed had a power-of-sale clause. And, in each case, it would be interesting to know what number of borrowers were actually in serious default when the foreclosure notice was served, and how many borrowers not in default were served with a notice of foreclosure.
It seems one of the issues which has seriously complicated the foreclosure process arose out of the mis-management of note holder, mortgagee and land title records in the Mortgage Electronic Registration System (MERS). The Mortgage Electronic Registration System was conceived by Fannie Mae, and the development of the Mortgage Electronic Registration System was overseen and financed by Fannie Mae and Freddie Mac.
MERS is apparently seriously flawed. The system has few controls, a peculiar (or non-existent) managerial hierarchy, and MERS doesn't seem to be properly audited (or auditable).
"Reston Based Company in the Middle of Foreclosure Chaos" by Brady Dennis & Ariana Cha - Washington Post 10/8/2010, at: http://www.washingtonpost.com/wp-dyn/content/article/2010/10/07/AR2010100702742.html
"Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory" By Christopher L. Peterson - SSRN, at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1684729
Wall Street Journal - Developments February 7, 2013By Alan Zibel
Rep. Elijah Cummings (D., Md.) is among lawmakers calling on
President Obama to nominate a permanent director for the FHFA.
When will the White House finally have something to say about President Barack Obama’s pick to run the FHFA?
That question is on the mind of 45 House Democrats. The lawmakers, led by Reps. Elijah Cummings (D., Md.) and John Tierney (D., Mass.), sent a letter on Thursday to President Barack Obama urging him to nominate a director of the Federal Housing Finance Agency–-the federal regulator for Fannie Mae and Freddie Mac.
“We believe your re-election is a prime opportunity to put forth a new candidate who is ready and willing to implement all of Congress’ directives to meet the critical challenges still facing our nation’s housing-finance markets,” the lawmakers wrote.
The agency’s acting director, Edward DeMarco, has been criticized by Democrats on Capitol Hill, administration officials and liberal groups, all of whom have been calling on Mr. Obama to replace Mr. DeMarco.
Representatives for the White House and Mr. DeMarco were not immediately available for comment.
Why all the fuss about a seemingly obscure regulator? The most prominent area of conflict has been the FHFA’s refusal to accept the Obama administration’s offer to subsidize the cost of debt forgiveness for troubled homeowners.
Obama administration officials argued that Fannie and Freddie could actually save money by doing so but Mr. DeMarco said no, arguing that any potential savings would not be large enough to overcome other costs.
As Developments reported in December, the White House has been exploring potential leaders for the agency.
But the matter does not appear to be especially urgent for the administration as it focuses on confirming leaders for cabinet-level agencies such as the Treasury Department.
Another issue is that it may be difficult to find a FHFA nominee who could clear the Senate, where Republicans are likely to be skeptical of any choice: The administration’s first choice to run the FHFA, former North Carolina banking regulator Joseph Smith, withdrew his name more than two years ago in the face of intense Republican opposition.
Many on the left would like Mr. Obama to use a recess appointment to install Mr. DeMarco’s replacement. But that outcome is now highly unlikely, now after a federal court ruled that Mr. Obama’s use of that method to install three members of a federal labor panel was unconstitutional.
An historical observation relating to this pressure from the left on federal housing policy:
On Thursday (1/17/2013) The U.S. Federal Reserve Bank released the transcripts of its 2007 meetings. [Late 2007 was when the the great housing and mortgage bubble began to suddenly deflate.]If you depend upon the most knowledgeable economic and financial experts to anticipate the economy’s behavior, and / or to give you advice on how you should behave, so as to grow and protect your assets, the two articles below may cause you to doubt the ability of such experts, and to confirm the existence of Black Swans.(1)
Timothy Geithner's flat-footed reaction is even more amazing when you realize that Geithner worked in the Japanese Embassy, as a Treasury Department attaché, at the beginning of Japan's "Lost Decade".Japan's "Lost Decade' was a financial crisis which began with the collapse of the Japanese commercial real estate bubble. The collapse of the Japanese commercial real estate bubble created problems for the Japanese economy which are very similar to the problems U.S. and global economies have been experiencing since 2008.(2)From a January 18, 2013 New York Times article, "Days Before The Bust, Fed Doubted Need to Act" By Benyamin Applebaum (at the time of the Federal Reserve's transcript's creation William Poole, was the Chief Executive Officer of the Federal Reserve Bank of St. Louis).“The outcome would have been different only if the Fed and others had reacted back in 2004, 2005, 2006” to curtail subprime mortgage lending, Mr. Poole, now a senior fellow at the libertarian Cato Institute, said on Friday in an interview on CNBC.(3)Footnotes:(1) For more on Black Swans see Wikipedia entry, at: http://en.wikipedia.org/wiki/Black_swan_theory(2) For more on Japan’s Lost Decade see Wikipedia entry, at: http://en.wikipedia.org/wiki/Lost_Decade_(Japan)(3) For the full CNBC interview with Mr. Poole go to YouTube and watch, An Interview with former President of the St. Lewis Federal Reserve, William Poole:More:"The Role of the Government Sponsored Enterprises and Federal Housing Policy in the Financial Crisis”, at: http://www.scribd.com/doc/106248756/The-Role-of-the-Government-Sponsored-Enterprises-and-Federal-Housing-Policy-in-the-Financial-CrisisOn YouTube key-words-search, and watch, a January 1998 PBS NewsHour interview with then President Bill Clinton, titled "Bill Clinton: Laying the Foundation for The House of Cards"
November 1, 2011 Michael Bloomberg - The Good Democrat
Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters."I hear your complaints," Bloomberg said. "Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that."But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."Bloomberg went on to say it's "cathartic" and "entertaining" to blame people, but the important thing now is to fix the problem.--------------------------------------------------A Few Questions: Was it only 'Congress' that created and allowed pressures motivating banks to abandon due diligence banking? Or, did pressure from, and policies supported by, the executive branch play an even greater role, than Congress’s role, in the creation of the housing and mortgage bubble - which led to the financial crisis? Who in Congress supported the policies that created the problem? Which players in the executive branch and its bureaucracy enforced and expanded the Community Reinvestment Act and the Affordable Housing Act?
An excerpt from an article which appeared in The Wall Street Journal Opinion Section – December 8, 2011
Subsidizing Wall Street to Buy Chinese Solar Panels*
By T.J. RODGERS
At the end of the recently released film "Margin Call," the chairman of the fictional investment bank that triggered the mortgage-backed securities meltdown sits in his executive dining room, looking down on the Hudson River sunset while enjoying a steak and an expensive bottle of Bordeaux. Why not? He has just saved billions for his shareholders by dumping the firm's entire "toxic loan" portfolio in one hectic trading day. Just before giving a bonus to the brilliant analyst who foresaw the meltdown only hours in advance, the chairman predicts, "There's going to be a lot of money made coming out of this mess."
Wall Street understands how to make money, up-market or down. "Margin Call" may fuel Occupy movement ire, but in creating mortgage-backed securities, Wall Street did nothing other than facilitate home-financing access to the next tier of less-qualified home buyers, as demanded by every president since Bill Clinton. After that, the bankers did exactly what their shareholders wanted: bundle those risky loans into securities, sell them to lock in the profits, and dump the risk right back onto the federal government—where it belonged.
My purpose is not to debate the morality of mortgage-backed securities but to update the Law of Unintended Consequences with the corollary Law of Misguided Subsidies: Whenever Washington disrupts a market by dumping subsidies into it, Wall Street will find a way to pocket a majority of the money while the intended subsidy beneficiaries are harmed by the resulting market turmoil.
The recent crash in mortgage-backed securities was a near-repeat of the savings-and-loan crash of the 1980s, in which Washington insured the S&L industry but failed to set limits on high-risk loans. When the bubble burst, Washington paid Wall Street the insurance money while homeowners lost huge sums in real-estate hell. Wall Street understands how to manage risk; the federal government and consumers do not.
The complete article may be seen at:
See an article announcing the Massachusetts Attorney General’s lawsuit against firms in the mortgage industry.
The Mortgage Electronic Registration System (MERS) which is mentioned in the lead article is based upon a concept and operating model which was proposed to The Mortgage Bankers Association by the GSE’s, Fannie Mae and Freddie Mac, at a Mortgage Bankers Association meeting in the mid-1990’s. The Mortgage Bankers seemed to like the concept, so Fannie and Freddie financed the creation of MERS with a contribution of 2 million dollars each (from Fannie and Freddie). After MERS was created, Fannie and Freddie invited other major mortgage banking entities to join the MERS via an annual subscription arrangement.
The structure and the processes in the MERS system seem to have had some “destined to fail” characteristics which would make an interesting case study of ‘management control and audit procedures’. And, the system also raises some questions about the legality of the system’s processes in the context of common law of land title conveyance. See, “Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory” by Professor Christopher L. Peterson at > http://search.earthlink.net/search?q=Two+Faces%3A+Demystifying+the+Mortgage&area=earthlink-ws&channel=sbt_sgin&abtcgid=219&abtli=1
In late 2010 in a hearing before a Congressional Banking Committee the acting U.S. Controller of The Currency, John Walsh, stated that results from a multi-agency investigation of MERS would be released in early January of 2011. (The investigation was led by The Office of the Controller of The Currency. I never could find the results of that investigation).
A bit off-point, but still interesting, current California Governor, Jerry Brown, was the Attorney General of the State of California from 2007-2011. For much of that same period Jerry Brown’s sister, Kathleen Brown, was a member of the Board-of-Directors of Countrywide Financial [Henry Cisneros former Director of the Department of Housing and Urban Development (HUD), during President Bill Clinton’s first term in office, was also on the board at Countrywide during that time]. Kathleen Brown resigned from that board of directors shortly after information about the depth of Countrywide’s financial problems became public and only weeks before Bank of America acquired Countrywide. A few months later, when Jerry Brown was elected governor of California, Kathleen Brown almost immediately moved her Goldman Sachs municipal finance consulting office from Los Angeles, CA to Chicago, IL ‘to avoid any appearance of conflicts of interest’ with her brother’s gubernatorial administration. (See, “The Tragedy of Countrywide and Angelo Mozilo” at > http://news.muckety.com/2008/06/26/the-tragedy-of-countrywide-financial-and-angelo-mozilo/3712 and see Kathleen Brown's Wikipedia at > http://en.wikipedia.org/wiki/Kathleen_Brown
The other day I was reading an article which mentioned an organization called FM Watch.1 Out of curiosity, I did a key-words-search on: FM Watch. I discovered FM Watch was founded by private mortgage industry interests in the late 1990’s. Apparently, FM Watch was created with defined purpose of focusing attention on anti-competitive and risky mortgage lending practices employed by the Government Sponsored Enterprises, Fannie Mae and Freddie Mac.2 And, it seems FM Watch even anticipated that, if unchecked, the behavior of these Government Sponsored Enterprises would evolve even further into more risky and stronger anti-competitive behavior.3
While I was reading about FM Watch I saw a reference and a hyperlink to a video presentation called “A Crisis of Credit Visualized” it was claimed to be a very good video presentation describing the circumstances involved in the real estate bubble and the mortgage crises. Out of curiosity I went to the link and watched the video presentation. I thought you might also find the presentation interesting.4
I thought “A Crisis of Credit Visualized” was a good presentation of the basic processes in mortgage lending, mortgage securitization and mortgage financing. However, with the exception of the comment about the role of Greenspan era U.S. Federal Reserve interest rate policy, it lacks any discussion about the role of federal housing policy and the Government Sponsored Enterprises (Fannie Mae and Freddie Mac) in the creation and the extension of the housing bubble.
Furthermore, the presentation fails to specifically explain how government subsidized cheap money financing and government subsidized mortgage insurance increased demand and pushed home prices to levels that exceeded borrowers’ ability to repay what they borrowed (to finance their home purchases).
And, the presentation fails to emphasize that, after the bubble peaked, as riskier borrowers defaulted on their mortgages and those homes went on the market, the excess supply of houses and downward cascading home prices caused home values to drop to the point that well qualified borrowers, who could afford their mortgages, began to question the economic wisdom of continuing to pay down their mortgage. These qualified buyers’ decisions not to continue to pay their mortgage contributed further to the excess supply of homes which contributed to the further deterioration of home prices.5
In the viewer comments on “A Crisis of Credit Visualized” I found a comment mentioning the lack of information about how federal housing policy and the behavior of the Government Sponsored Enterprises contributed to the crises of credit. The commenter provided a link to another video titled, Burning Down the House: What Caused Our Economic Crisis?6 I believe that, by watching both “A Crisis of Credit Visualized” and “Burning Down The House: What Caused Our Economic Crisis” one can gain a very clear understanding of the major forces which caused the U.S. economic crisis.
1. Freddie’s Friend Newt By Holman w. Jenkins Jr. Wall Street Journal Opinion/Editorial page November 19, 2011.
2. Is FM Watch a Crusader With an Agenda? By Louis Sichelman – RealtyTimes, pub. 7/5/1999
3. New Alliance Confronts FM Watch, Champions Existing Housing Finance System By Broderick Perkins RealtyTimes, pub.10/5/2000
4. The Crisis of Credit Visualized A video presentation by Jonathon Jarvis published on Vimeo - 3 years ago
5. Many mortgage borrowers think of the home as an investment they will use in later years to fund children’s education, or their own retirement. If these home borrowers begin to believe the investment will end-up being a loss, or can’t be refinanced, their attitude toward continuing to make their mortgage payment changes - significantly. See, Underwater Home: What You Should Do if You Owe More Than Your Home Is Worth? By Professor Brent T. White - pub. 10/15/2010 and/or key-words-search “Strategic Default”.
6. Burning Down The House: What Caused Our Economic Crisis YouTube by TheMouthPeace pub. Sept. 30, 2008