The economic news relayed via our blog this week has not been much for confidence building, and we close the week with reports of a bleak twist in the ongoing foreclosure crisis. The news of the past couple of weeks has been that reporters and most of the fifty states’ attorneys general have been pursuing the ‘robo-signing’ services‘ that have churned out foreclosure proceedings on people who might even have been in good standing. Now third-party investors are demanding that the banks they support clarify who owns which properties and who owes what amounts to whom. Turns out that the banks can not readily provide that information, as the paperwork and loans on the properties were sliced-and-diced in a process called ‘securitization.’ Some pundits see in this latest twist the undermining of some of the first principles of capitalism: private property and the legal right to register, retain, and/or resell it.
NPR reported on Monday that investigators are starting to uncover the extent of the robo-signing of foreclosure documents by people unqualified to judge the veracity or legality of what they were signing.
The depositions paint a surreal picture of foreclosure experts who didn’t understand even the most elementary aspects of the mortgage or foreclosure process — even though they were entrusted as the records custodians of homeowners’ loans. In one deposition taken in Houston, a foreclosure supervisor with Litton Loan couldn’t define basic terms like promissory note, mortgagee, lien, receiver, jurisdiction, circuit court, plaintiff’s assignor or defendant. She testified that she didn’t know why a spouse might claim interest in a property, what the required conditions were for a bank to foreclose or who the holder of the mortgage note was. “I don’t know the ins and outs of the loan, I just sign documents,” she said at one point.
What has also become increasingly clear is that once the documents of the foreclosure proceedings are also reviewed (not just who had the authority to rubber-stamp them), lenders can not even demonstrate their ownership of the properties they wish to foreclose. And investors behind the banks want to hand back properties to banks that the investors feel were held under false pretenses. In the short term, such moves would dampen investor confidence in the profits that many banks have been claiming of late. Those profits will have to be handed over to the investors to buy back the mortgage bonds sold to those investors in the heady days of the housing bubble.
At the center of this latest storm is the MERS: Mortgage Electronic Registration Systems, Inc. (based in Reston, VA). It began as a service meant to bypass the tedium of reporting any changes in deeds or mortgage holdings on paper to county and state authorities (a legal system that was developed in thirteenth-century England and brought over to the US). Supporters of the new system stress the efficiency of electronic filing, a process millions of us enjoy with our taxes, for example. According to detractors, the private service (established by a consortium of banks and investment houses) was meant to speed up the ability to cut up, repackage, and securitize debts without bothering to shuffle reams of papers for each package assembled and sold (and resold). It also bypassed the oversight (marginal though it might have been) of county and state officers and procedures. Where it has left us is with a mass of properties in foreclosure, but no one is quite sure who holds the titles to them. In fact, the MERS computing system is most often listed as the holder of title!
The issue of MERS is especially striking at this point in the crisis in that it seems to be pitting investors and hedge-fund groups against the banks (and perhaps, in the spirit of “the enemy of my enemy is my friend,” turning a sympathetic eye toward homeowners), rather than both of them against those who are struggling to keep up with mortgage payments. If that is the case, what those financiers will want from the banks and out of the federal government in the next Congressional session will be worth watching (Insert reminder of Supreme Court’s decision to allow unreported and unlimited corporate and union moneys into political campaigns here).
For a particularly cogent and lively discussion of the MERS and how its establishment abetted the housing bubble, may we recommend this excerpt from KCRW’s show ‘Left, Right, and Center’ from 15 October? Download and listen to the 13+ minute excerpt here, or go to the show’s website (which we recommend anyway!). What the three pundits on the political left, right, and center agree upon is that MERS marks a seismic shift away from 800-odd years of traditions of title- and property-rights as registered by local government authorities. Untangling what that shift has engendered will not necessarily save any homeowners, but it will certainly keep investors and consumers in a recessionary mood for some time to come. And to further one’s sense of pessimism: the man who helped establish MERS, Thomas Donilon, lawyer and lobbyist for FannieMae, has just been appointed our National Security Adviser. Here’s hoping he does not try to sell inflated optimism about our national security interests in 2011 as he sold inflated optimism about FannieMae’s solvency back in 2007.
T.G.I.F.
