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hnpccI came across the article One Nation Under Fraud via Obsidian Wings and it left me completely gobsmacked. And laughing, mostly in a slightly hysterical, I-cannot-believe-this-actually-happened kind of way. To the point that I read out the article - the entire 7 pages of it - to Dean. Who was also sitting there laughing in the same way. It's a scary article about the US mortgage crisis. Some highlights:
Tomorrow, a bank—not your bank, but any bank—could evict you from your home. Even if you didn’t know the bank was foreclosing. Even if your mortgage is paid off. Even if you never had a mortgage to begin with. Even if the bank doesn’t hold a single piece of paper that you signed. And major banks not only know this fact, but have spent millions of dollars to defend it in court.
OK, I thought. How's that work then. And then they went on to give examples.
Earlier this year, Goldman worked with Jane Doe, an elderly woman whose real name couldn’t be disclosed for legal reasons. She had just spent several weeks outside of her home state of Florida visiting relatives, and she was current on her mortgage payments, which she had been paying for the past 15 years. She even called up her bank during her trip to ask about the best way to send in her latest payment. The bank told her that it wasn’t allowed to discuss the mortgage with her because her husband was the property owner, not her. But the bank couldn’t discuss the mortgage with her husband, either. Why? Because he was dead. And he had been for five years. Confirming this fact would have taken mere minutes.
Instead, when Jane returned home, the locks to her house had been changed and all of the property inside the house was gone. She still hasn’t recovered that property, and the bank hasn’t even told her where it is. According to Goldman, the wrongful repossession was first admitted, and then, inexplicably, the bank actually changed its mind and tried to make the outrageous claim that the homeowners’ association was actually the entity which had ultimately decided to change the locks and empty the house.
And for some more entertainment:
Both Goldman and Harper used the exact same cliché to describe what the American financial system, the one taxpayers “needed” to pay untold billions to save, has become. Two hands without a brain, not even aware of the reasons they had to be bailed out. This was best highlighted by an event that generated plenty of late-night chuckles last fall, when Wells Fargo sued … Wells Fargo.
Wells Fargo wanted to foreclose on a condo unit which had multiple mortgages attached to it. Wells Fargo also owned one of those second mortgages. So Wells Fargo spent money to hire a law firm and file suit against the irresponsible lenders at Wells Fargo. Then, Wells Fargo spent money to hire a different law firm in an understandable effort to defend Wells Fargo from the vicious legal attack coming from Wells Fargo. The second law firm even prepared a legal statement for Wells Fargo which called into question the dubious claims being made by Wells Fargo. Sadly, Wells Fargo won the case, crushing the hopes of Wells Fargo.
And some more:
Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so.
That’s how Bank of America could foreclose on homeowners who paid for their property in cash up front—repeatedly. Earlier in the year, Bank of America “foreclosed” on Charlie and Maria Cardoso, removing all of their property and changing the locks even as a realtor employed by the bank itself told it that there was no mortgage on which the Cardosos could skip payments. Eventually, the papers used by Bank of America were shown to have the wrong address. Someone, somewhere guessed.
And more:
The public record of Florida’s Nassau County shows that American Home Mortgage Acceptance, Inc. filed forms which claimed that a mortgage had been sold to, astonishingly, “BOGUS ASMTS.” The same company filed papers with Fulton County, in Georgia, which claimed that a mortgage had been sold to “BOGUS ASSIGNEE,” a company apparently based out of the address “XXXXXXXXXX.” Wells Fargo filed papers with that same county which supposedly showed that a mortgage had been bought by “BOGUS.” (No word on whether or not Wells proceeded to take itself to court for this infraction.) Some documents contain names with signatures that don’t even match.
And it gets worse:
The first thing that’s insidious about the banking reaction to all of this is the timing. A Bank of America executive told a Massachusetts court in February that the practice of not examining mortgages intended for foreclosure is common. She added that she signed thousands of statements “confirming” examination of documents used to foreclose every month, and that she “typically doesn’t read them.” When did Bank of America begin to halt some of its foreclosures? Less than two weeks ago. That’s not a sign that Bank of America didn’t know what it was doing. It’s a sign that Bank of America thought it could get away with what it was doing.
Still, that’s not what’s most insidious about the reaction. What’s most insidious is where the foreclosure freezes are taking place. Many banks have only ordered foreclosures to cease in 23 states. Why 23? Because there are 23 states that require courts to review foreclosures. And every single one of those states is on the list.
Seriously, it gets worse from there. These quotes are from the first four pages of a 7 page article. If even 0.01% of what they're alleging is true the US financial system is in seriously deep crisis.
It then goes through systematic shredding of mortgage documents, dodgy companies who "reconstituted" those documents for $35 (and knowing what legal fees are like, WTF?!?!? $35???), the cost if the banks are forced to buy back "defective" mortgages and finally - derivatives. Which is where I really got the whole "OMG the US financial system is screwed" from.
Credit-default swaps are financial instruments called derivatives, which are assets with values determined by other assets. When a mortgage isn’t really a mortgage, a derivative based on that mortgage is suddenly called into question. Banks own trillions in derivatives. They also own derivatives of derivatives. Amazingly, they even own derivatives of derivatives of derivatives. The total dollar value of all derivatives in the American financial system is listed by the Office of the Comptroller of the Currency at an absolutely incomprehensible $233 trillion. And much of that will simply vanish into thin air, crashing major banks into the ground.
Holy Mother Of God. $233 trillion. I'm kind of glad I have no money in US banks or US property at this stage. As I said, if even 0.01% of what they're alleging is correct there is a serious, serious problem.
And I'm also now just slightly paranoid about who actually holds my mortgage and whether similar rubbish is going on here.
Tomorrow, a bank—not your bank, but any bank—could evict you from your home. Even if you didn’t know the bank was foreclosing. Even if your mortgage is paid off. Even if you never had a mortgage to begin with. Even if the bank doesn’t hold a single piece of paper that you signed. And major banks not only know this fact, but have spent millions of dollars to defend it in court.
OK, I thought. How's that work then. And then they went on to give examples.
Earlier this year, Goldman worked with Jane Doe, an elderly woman whose real name couldn’t be disclosed for legal reasons. She had just spent several weeks outside of her home state of Florida visiting relatives, and she was current on her mortgage payments, which she had been paying for the past 15 years. She even called up her bank during her trip to ask about the best way to send in her latest payment. The bank told her that it wasn’t allowed to discuss the mortgage with her because her husband was the property owner, not her. But the bank couldn’t discuss the mortgage with her husband, either. Why? Because he was dead. And he had been for five years. Confirming this fact would have taken mere minutes.
Instead, when Jane returned home, the locks to her house had been changed and all of the property inside the house was gone. She still hasn’t recovered that property, and the bank hasn’t even told her where it is. According to Goldman, the wrongful repossession was first admitted, and then, inexplicably, the bank actually changed its mind and tried to make the outrageous claim that the homeowners’ association was actually the entity which had ultimately decided to change the locks and empty the house.
And for some more entertainment:
Both Goldman and Harper used the exact same cliché to describe what the American financial system, the one taxpayers “needed” to pay untold billions to save, has become. Two hands without a brain, not even aware of the reasons they had to be bailed out. This was best highlighted by an event that generated plenty of late-night chuckles last fall, when Wells Fargo sued … Wells Fargo.
Wells Fargo wanted to foreclose on a condo unit which had multiple mortgages attached to it. Wells Fargo also owned one of those second mortgages. So Wells Fargo spent money to hire a law firm and file suit against the irresponsible lenders at Wells Fargo. Then, Wells Fargo spent money to hire a different law firm in an understandable effort to defend Wells Fargo from the vicious legal attack coming from Wells Fargo. The second law firm even prepared a legal statement for Wells Fargo which called into question the dubious claims being made by Wells Fargo. Sadly, Wells Fargo won the case, crushing the hopes of Wells Fargo.
And some more:
Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so.
That’s how Bank of America could foreclose on homeowners who paid for their property in cash up front—repeatedly. Earlier in the year, Bank of America “foreclosed” on Charlie and Maria Cardoso, removing all of their property and changing the locks even as a realtor employed by the bank itself told it that there was no mortgage on which the Cardosos could skip payments. Eventually, the papers used by Bank of America were shown to have the wrong address. Someone, somewhere guessed.
And more:
The public record of Florida’s Nassau County shows that American Home Mortgage Acceptance, Inc. filed forms which claimed that a mortgage had been sold to, astonishingly, “BOGUS ASMTS.” The same company filed papers with Fulton County, in Georgia, which claimed that a mortgage had been sold to “BOGUS ASSIGNEE,” a company apparently based out of the address “XXXXXXXXXX.” Wells Fargo filed papers with that same county which supposedly showed that a mortgage had been bought by “BOGUS.” (No word on whether or not Wells proceeded to take itself to court for this infraction.) Some documents contain names with signatures that don’t even match.
And it gets worse:
The first thing that’s insidious about the banking reaction to all of this is the timing. A Bank of America executive told a Massachusetts court in February that the practice of not examining mortgages intended for foreclosure is common. She added that she signed thousands of statements “confirming” examination of documents used to foreclose every month, and that she “typically doesn’t read them.” When did Bank of America begin to halt some of its foreclosures? Less than two weeks ago. That’s not a sign that Bank of America didn’t know what it was doing. It’s a sign that Bank of America thought it could get away with what it was doing.
Still, that’s not what’s most insidious about the reaction. What’s most insidious is where the foreclosure freezes are taking place. Many banks have only ordered foreclosures to cease in 23 states. Why 23? Because there are 23 states that require courts to review foreclosures. And every single one of those states is on the list.
Seriously, it gets worse from there. These quotes are from the first four pages of a 7 page article. If even 0.01% of what they're alleging is true the US financial system is in seriously deep crisis.
It then goes through systematic shredding of mortgage documents, dodgy companies who "reconstituted" those documents for $35 (and knowing what legal fees are like, WTF?!?!? $35???), the cost if the banks are forced to buy back "defective" mortgages and finally - derivatives. Which is where I really got the whole "OMG the US financial system is screwed" from.
Credit-default swaps are financial instruments called derivatives, which are assets with values determined by other assets. When a mortgage isn’t really a mortgage, a derivative based on that mortgage is suddenly called into question. Banks own trillions in derivatives. They also own derivatives of derivatives. Amazingly, they even own derivatives of derivatives of derivatives. The total dollar value of all derivatives in the American financial system is listed by the Office of the Comptroller of the Currency at an absolutely incomprehensible $233 trillion. And much of that will simply vanish into thin air, crashing major banks into the ground.
Holy Mother Of God. $233 trillion. I'm kind of glad I have no money in US banks or US property at this stage. As I said, if even 0.01% of what they're alleging is correct there is a serious, serious problem.
And I'm also now just slightly paranoid about who actually holds my mortgage and whether similar rubbish is going on here.
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no subject
Date: 2010-10-19 12:34 am (UTC)Seriously scary stuff
no subject
Date: 2010-10-19 01:10 am (UTC)I'm actually now curious as to how Canada is going with all this, and what their banking regulatory system is like.
Either way it looks a lot like the US will be a cheap place to visit for a while, unless it erupts into civil conflict at which point it'll be cheap but not particularly viable as a tourist destination!
no subject
Date: 2010-10-19 01:22 am (UTC)no subject
Date: 2010-10-19 02:07 am (UTC)Canadian banks are not compelled by laws such as our Community Reinvestment Act to lend to less creditworthy borrowers. Nor does Canada have agencies like Fannie Mae and Freddie Mac promoting "affordable housing" through guarantees or purchases of high-risk and securitized loans. With fewer incentives to sell off their mortgage loans, Canadian banks held a larger share of them on their balance sheets. Bank-held mortgages tend to perform more soundly than securitized ones.
In the U.S., Federal Housing Administration programs allowed mortgages with only a 3% down payment, while the Federal Home Loan Bank provided multiple subsidies to finance borrowing. In Canada, if a down payment is less than 20% of the value of a home, the mortgage holder must purchase mortgage insurance. Mortgage interest is not tax deductible.
The differences do not end there. A homeowner in the U.S. can simply walk away from his loan if the balance on his mortgage exceeds the value of his house. The lender has no recourse except to take the house in satisfaction of the debt. Canadian mortgage holders are held strictly responsible for their home loans and banks can launch claims against their other assets.
And yet Canada's homeownership rate equals that in the U.S. (Both fluctuate, in the mid to high 60% range.)
Interesting. The walking away from the mortgage thing has always interested me - presumably part of the idea is to avoid (expensive) bankruptcy proceedings and encourage lenders to be more risk-averse. Then again, if you're assuming the value of housing will never go down who cares if they walk away? You've still got the house!
Tighter leverage limits in Canada may have dimmed the incentives for its banks to pursue securitization as brashly as their American counterparts. But regulations cannot take all the credit. Even with leverage ratios held on average at 18 to 1 (versus 26 to 1 for U.S. commercial banks and up to 40 to 1 for U.S. investment banks), Canadian banks would not be as healthy as they are had they not disposed of their more problematic securitized assets four to five years ago. Nothing in Canada's regulations banned risk-taking. Good, prudent management prevented excess.
Yeah, I'm thinking the leverage limits helped there. Harder to get sucked into the "money! free money!" frenzy when someone's looking over your shoulder asking questions about how free the money actually is. (and for some reason I'm picturing Barbara-From-Bank-World[1] doing this. "Where do you think this money's coming from, Superman? Fairyland?"
...Canada established the Office of the Superintendent of Financial Institutions (OSFI) to provide common, consistent and more centralized regulation for federally regulated banks, insurance companies and pension funds. To this day OSFI is almost obsessively concerned with risk management, leaving social and economic objectives, such as access to affordable housing and diversity, to institutions better-suited to attain those goals.
The lending to high(er) risk groups could work, but it has to be backed by affordable loans and federal institutions. The sub-prime crisis is partly because people seriously did not understand the nature of the loan they were taking out - that they were only paying off the interest and not the actual loan itself for a set period, and then the repayments jumped dramatically. At least with interest rate rises here you've got a fair idea when they're coming - and even then we were looking at people who were getting pushed to the wall, and who thought they had taken out loans they could afford.
[1]At morning tea this morning it turned out that I was the only person who knew what bank those ads were actually promoting. Everyone else just loves Barbara. Heh.
no subject
Date: 2010-10-19 03:55 am (UTC)no subject
Date: 2010-10-19 02:26 am (UTC)