In the "Bad News/Good News" Department, light has been steadily shining into the dark corners of Mortgage Servicing over the last week or so. Not too many folks are left - at least here in the Blogosphere - who aren't aware of the term "Robo-signing". The down-side? See my post, "The Title Insurance Stops Here". The upside? The stout-hearted 40 state attorneys general who are expected to announce legal action on a slew of our Too Big To Fail banks.
I scanned briefly an article about Neil Barofsky, official "watchdog" for TARP, who wants a detailed accounting of GMAC's mortgage arm - now known as Ally - and its procedures. We'll see; on one hand it's not in Treasury's best interest to possibly reveal fraudulent practices that may result in write-downs (they'd like to get their/our money back asap); on the other hand, if Treasury may be open to legal action (they/we own 40% of GMAC/Ally), it might be handy to know.
Before I go further, I want to thank my early educators on this debacle; if I make a mistake in this post, the fault is entirely mine. Smart folks out in front on this issue: Zerohedge.com, 4Closurefraud.org, and (believe it or not!) Diana Olick at CNBC. All sources available online.
The big, gaping black hole in all this, the one that may, in time, blow the whole fraudulent mess that was the housing bubble apart, is MERS. That's Mortgage Electronic Registry System. You can find them on the web at Mersinc.org. I did. For a fee, I can become a representative officer of MERS. General titles issued were "Assistant Secretary" or "Vice President" (that's probably a bit more expensive than the Assistant Secretary package).
When you become a representative officer, you don't go on the payroll, and according to some killer testimony (please see Reggie Middleton's great article on Boombustblog.com), many officers didn't know where the offices of MERS were, had never attended a board meeting, weren't sure who worked for MERS, and further, never collected a dime from them. Why should they? THEY WERE STILL WORKING IN THE MORTGAGE SERVICING FIRMS AND BANKS FOR WHOM THEY HAD ALWAYS WORKED. They just had this cool seal... and maybe a t-shirt.
And, who formed MERS? Who are the major shareholders? A short list: Bank of America, Wells Fargo, Fannie Mae, Freddie Mac... getting the picture?
So... why? Really, after all is said and done, whether or not we do face the financial collapse some are predicting, why did we start this thing?
Recording fees.
County Recording Fees... for emphasis: COUNTY FUCKING RECORDING FEES.
I used a fee calculator on the website for Clark County, Nevada, certainly one of the biggest booms in the bubble. If I want to record a mortgage that runs to, say, 25 pages (a bs guess on my part; I remember signing mortgages that ran MUCH longer), the fee for this would run to $38.00. Not a big deal if you only do it once, right? Throw it in with the other line items on the big sheet at closing, and recording fees are the least of the expenses. Here's where it gets interesting:
If I (say, JP Morgan, or Bank of America, etc.) want to securitize this loan, I'm going to assign it to a Pooling Service. That pooling service is going to slice and dice this note, via Mortgage Backed Securities, and it goes into a Trust. I might have sliced/diced maybe 25 times for this step. Then, I (the Trust) am going to sell pieces of this to investors. Let's say I find 20 investors for my Trust business. Multiply this by the 25 other slices, and I've racked up a MESS of recording fees. In fact, if everyone who was involved in this deal had to be recorded ( as, legally, they SHOULD), the two entities would be out $19,000.00 on ONE mortgage. Yikes! We'll never make a bajillion dollars a year doing that!
And then, the water gets murkier: when title is assigned, it conveys "all right, title, and interest" to the assignee. How to get around this? As the bundles went out all 'round the world, the Assignation of Title paper work read "Assigned to _________". THIS causes serious problems in the world of foreclosure, as you might guess (!). Just to cloud your brain, think of the possibilities of "splitting the baby": There are two parts to your mortgage: the Promissory Note, and the Deed of Trust.
The legalese (last one, I promise): If you hold the Promissory Note, and don't have the Deed of Trust, you have no right to foreclose. All of a sudden, your mortgage isn't a mortgage, it's just another unsecured debt. If you hold the Deed of Trust, and not the Promissory Note, you don't get any payments. Hmmm. Please see recent articles by the good folks I mentioned above for the fine print, and a more detailed explanation.
If you have a mortgage, now would be an EXCELLENT time to find out if the people to whom you make out your checks every month have any right whatsoever to the money they say you owe them.
Okay, that's all pretty bad news; for the TBTF's, for the courts, for MERS, all sorts of folks. Heads are gonna roll, attorneys are gonna get rich, and a lot of folks are gonna be gettin' "free" mortgages that maybe they shouldn't. Most of the "ouch" is in the wallets of the overpaid butt-head area, so really, the bad news for us renters, and the economy in general, is that while this slogs through the courts ( I admit, I'd love to see Lloyd Blankfein do a perp walk, but that's just me), the depression we're in will not get any better. But, I promised you a "glimmer":
This fraudulent fiasco may finally flush an awful lot of toxic debt out of our financial system. Economic collapse? It's a remote possibility; our TBTF's are gonna scream when they miss their record bonuses (yes, this year was going to surpass last year's record in executive bonuses; we'll see about that!), and Uncle Ben's going to have to wind up the printing presses; it's going to be a big old bailout Part II. Having said that, this presents us with a unique opportunity in the legal system.
This may be the ONLY way to force the dismantling of the TBTF's. Along with them, the GSE's (Fannie and Freddie), and put banks back in the Human Banking Business. Remember it? Banks provided capital to businesses and people who could then use it to do things like... create jobs? What a concept! Keep in mind that this gets exciting because right now, this year, the financial sector of the US is currently on the receiving side of 40% of the GDP. That's a lot of loans to small businesses and cities... and counties... and states...
With luck, as the TBTF's get fractured back into less dangerous components, maybe, just maybe, we can de-couple Wall Street from Washington, DC. I know, I'm an optimist; but without all that pent up capital, maybe we could have some issue-based policy and maybe... gulp!... an honest election cycle in 2012?
Take heart, oh fellow gutted middle class warrior... the rebellion may come without a single shot fired... and really, how cool would THAT be?
Brutal Truth
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