Friday, March 30, 2012
MER as Fraud
\Ah yes, that little detail about clear title. It is going to now take an out act of congress to reset the system and secure title.
This spells out just now amazingly bad the situation has become. On its own, it will takes years to restore certainty with title and title insurance m ay become impossible to get. Yet the tools are there to protect the individual buyer through insurance,though I suspect that it will also take time to perfect.
If there is a lesson to be learned from all this, it is that local lending needs to remain local and it should even be outright mandated. Let the local banks have their local market and make local money carry a large part of the paper. In that environment, all stakeholders have skin in the game and will work to sort out title issues cleanly as they are the buyers at the end of the paper chain.
It was the ability to sever responsibility that made this type of fraud so enticing. The money flowed from overseas investors having limited recourse to enforce rights to managers who were happy to abscond when the game got dicey. The fact remains that fraud works best if you can seduce the source of funds go deliver same funds outside his own legal jurisdiction. Brokers do this all the time, but through well established protective measures. New products created to bamboozle even the regulators are quite another matter. Then if the product turns out to be successfully sold, everyone copies the format and stuffs together new product to ride the coattails of the success.
If someone particularly understood the risks and manged them properly, he is quickly forgotten in the stampede to loot the buyers. This certainly happened when the real estate boom generated huge new apparent wealth.
THE $7 TRILLION DOLLAR QUESTION THAT HAUNTS BANKS:
When Will the Obama Administration Recognize that MERS Destroyed the Chain of Title Making All Foreclosures Suspect?
Author: L. Randall Wray · March 16th, 2012
I’ve been writing about the MERS monster since 2010. Here is one of my early pieces:
I suppose it is now safe to reveal that a staffer of Representative Marcy Kaptur put me on the trail of this fraud—in dollar terms it has to be the single biggest fraud in human history. In sheer utter disregard for law it is certainly the most audacious fraud in Western history. To tell the truth, I had never heard of MERS until she called. If you recall the Michael Moore movie, Rep Kaptur stood on the steps and told homeowners facing foreclosure to stay in their homes. She was right: the banksters have no legal claim on the homes they are foreclosing. Foreclosure is theft. Any bank that used MERS has no legal claim on property—there are 65 million such mortgages to which no bank has a legal claim to foreclose.
And, to be sure, even those mortgages that were not run through MERS are suspect if they are handled by any of the five biggest servicers. These servicers keep such shoddy records that they cannot be trusted to accurately credit payments. They’ve been adding on fees and penalties that were unwarranted since they cannot keep track of records.
Folks, there are $7 trillion of securitized mortgages. It was (mostly) the securitization process that demanded fraud. Securitization could never have been profitable—it was a flawed way to go about financing homeownership. It was simply too expensive to compete with Jimmy Stewart thrifts. It required fraud to show profits. (As Bill Black always says: fraud is a sure thing. It is always the most profitable way to run a business—until you get caught.)
In addition to the MERS monster, we also know the securities did not meet the “reps and warranties” claimed. The banks that did the securizations will continue to get sued to take back bad mortgages. They are trying to shovel as many of these back to Fannie and Freddie as they can so that Uncle Sam will take the losses—as discussed in my previous blog they are now doing it through sale of servicing rights.
And of course Uncle Ben has helpfully put a lot of them on the Fed’s balance sheet. This is all part of the cover-up to avoid the obvious: all these big banks are massively insolvent as soon as the courts wake up to the fact that the whole damned real estate finance onion is layer upon layer of fraud.
But let us stick to the MERS fraud.
There should be an immediate and complete halt to all foreclosures in the US, and all foreclosures that have been completed over the past decade should be nullified. Yes that will get messy. But continuing with foreclosures will make the mess immeasurably worse. This foreclosure crisis is not going to stop.
No one should buy any bank owned real estate because it is probable that eventually the US will return to the rule of law. The property will be returned to the rightful owners—those who were illegally kicked out of their houses.
Now that might be a pipe dream, but if the US is not going to be a nation ruled by law then it will not survive.
The biggest banks—including the GSEs—created MERS and proceeded to destroy our nation’s real estate property law. That is not an overstatement. Robo-signing is just one small and inevitable consequence of the fraud. The truth is that foreclosure cannot go through without fraud because the banks do not have the documents to show clear title.
Banks don’t have them because they do not exist.
There are no records because that was MERS’s business model: destroy all records of ownership while speeding the securitization process.
And since the mortgages themselves were often frauds (designing “affordability products” that homeowners could not afford), many would end in delinquency. So MERS was designed to speed the foreclosure process—it would be so much easier to foreclose if you didn’t bother with documents, records, and property law. Just kick the owners out, take the home, sell it, and reboot the whole scam again.
Another whistle-blower has come forward, this one from CBO. Lan Pham was fired because she refused to get with the program: the government is supposed to help the banksters cover-up their frauds, NOT expose them! She refused. So she was fired. Now she tells her story. http://www.zerohedge.com/news/terminated-cbo-whistleblower-shares-her-full-story-zero-hedge-exposes-deep-conflicts-impartial-
I won’t repeat her entire story—you can read it at Zerohedge. Here are a few quotes from Lan Pham, the CBO whistle-blower:
I was repeatedly pressured by the CBO Assistant Director, Deborah Lucas… to not write nor discuss issues in the banking sector and mortgage markets that might suggest weakness in these sectors and their consequences on the economy and households…
…Issues at the heart of the foreclosure problems pertain to securitization….and the Mortgage Electronic Registration System (MERS), which purports to have legal standing on electronic records of ownership on about 65 million…mortgages… MERS…facilitated Wall Street’s ability to expedite the pooling of subprime mortgages into MBSs by bypassing standard ownership transfer procedures as the housing bubble escalated…
The implications have profound financial and economic consequences that would be of compelling interest to Congress and the public, but the CBO sought to silence a discussion of such risks, that in reality have been materializing. These risks put into question the ability of investors or bondholders to make claims on the collateral (the homes) that underlies trillions of dollars in MBSs, the bulk of which are now guaranteed by …Fannie Mae and Freddie Mac. This affects $10 trillion in residential mortgage debt outstanding, of which $7 trillion in mortgage-backed securities (MBSs)…
The CBO dismissing such issues prevents an analysis of the risks, so that the public may be forced again to shoulder the consequences for which they have not been a given a voice or a choice.
Essentially, the chain of title on securitized mortgages appears broken, whether or not there is a foreclosure. This would pertain to most homebuyers in the past 10 years as most mortgages were securitized by Fannie Mae and Freddie Mac providing the guarantees, and the largest banks (“The $7 Trillion MBS Problem – Foreclosure Problems and Buybacks”). Recall that these same entities founded MERS, which expedited securitization and purported to have foreclosure authority from its electronic records of ownership on about 65 million mortgages. “Robo-signing” emerged as fraudulent or defective documents were used or created to establish the legal authority to foreclose as MERS faced legal challenges; as of July 22, 2011, foreclosures could no longer be initiated in MERS’ name. At last year’s pace, some figures suggest it could take lenders in New York 62 years to clear their foreclosure inventory, 49 years in New Jersey and a decade in Florida, Massachusetts, and Illinois.
It is unclear how the recent State attorney generals’ agreement to a proposed yet unpublished terms of the $25 billion robo-signing settlement would repair the chain of title issues that continue to mutate. In January 2011, the Massachusetts Supreme Judicial Court reversed the foreclosure actions of two banks for lacking proof of clear title, followed by a decision in October 2011 that a buyer who purchased a house that was improperly foreclosed upon does not make the buyer the new owner of the house; the sale does not transfer the property.
A striking little mention fact of the Massachusetts foreclosure case was that the lenders could not show that the two mortgages were part of the securitization pool. Let’s consider a thought exercise. Others have the raised the question: if the entity that has been taking the homeowners’ mortgage payments is not the real owner, what happens when the true owner(s) of the mortgage shows up? Are homeowners on the hook again for those ‘missed’ mortgage payments? It was not uncommon for mortgages to be sold multiple times, and it is my understanding that loans were intentionally not given unique identifiers as it moved from origination or purchase through to securitization.
This is what I’ve been arguing since 2010. This will not go away—no matter how much the Administration, the Congress, and the banks try to cover it up.