Donnerstag, Januar 13, 2011

A Political Inversion...

The political inversion in the US is striking.

On the one hand you have the Democrats, the traditional party of the unions, of the little guy, fighting for the disadvantaged, caring about those less better off.

On the other hand you have the Republicans, country club members, bosses and exploiters of the poor, slumlords and commercial developers who would love nothing better than to turn out grannies and unmarried black lesbian single mothers onto the street in order to build another shopping mall.

Okay, so much for the fantasy image that the Democrats have been living for the last 50 years.

The inversion of these roles is, for me, amazing. The Democrats have been completely corrupted and now actively are in collusion with those who would rob most Americans blind in a second if they could (and that is what they are working on right now).

Read this to understand what is going on.

Simply put: there has been massive incompetence, fraud and outright theft by the mortgage servicers. Massachusetts (yes, liberal-until-our-dying-breath Massachusetts!) courts have found that the mortgage servicers have been foreclosing on properties that they have no title to (and hence no standing before a court of law). The corollary of this is that if the mortgage servicers don't have title, how can they have securitized the mortgages?

Let's back up a second so that this is better understood.

Someone buying a house gets a mortgage from a mortgage originator. The mortgage originator used to be the local bank, it no longer generally is. The mortgage and the note for the house (title) goes to the mortgage originator. The mortgage originator usually turns the mortgage around and securitizes it, selling off the cash flow of the mortgage to a financial instrument. The note is transferred to the legal entity of the financial instrument as security against failure of the cash flow (non-payment): in this case, with a home mortgage, the financial instrument would be a residential-backed mortgage security (RBMS). If a homeowner fails to pay their mortgage, the mortgage servicer - which, remember did not originate the loan and does not have direct title to the property, as this has been turned over, physically, to the legal entity of the financial instrument as security (it's the basic definition of what a security is!) - then tries to come to an agreement about repaying the monies owed; failing this, they foreclose on the home, selling it for what it can be sold for, and turning the monies over to the financial instrument. When the RBMS is formed, as a legal entity, there is a relatively small window of opportunity for transferring the title and effective legal ownership of the property without paying taxes (this is done deliberately to avoid having unresolved tax problems).

So,that's the theory.

What really happened?

When the mortgage was sold by the mortgage originator, titles and paperwork were transferred. When the mortgage servicing companies sold the mortgages to the RBMS, the paperwork wasn't done properly: the notes of ownership, in some cases, were scanned in and the originals discarded (in violation of 8 centuries of legal precedents); on other cases, no one knows what happened to them, as the originators, original servicers and everyone in-between were closed, were taken over, became another company, etc.

In other words, the legal chain of ownership, the core of the real estate business, was disrupted for any number of reasons, the most usual one being efficiency, rather than doing what the law required. The problem isn't so much that there is a problem when it comes to foreclosure: if the notes weren't properly transferred - and apparently the lawyers involved vouched for the correct transfer, even when they could not have known that this was the case - it also means that the RBMS are no longer securitized financial instruments, but rather ... no one really knows. They don't have recourse to the securities that they were supposed to have, meaning that they are actually one really knows.

In the name of efficiency and getting literally millions of deals done and sold off, the mortgage servicers failed in their duties, miserably so. They know this or, more exactly, the companies that unwittingly bought their assets without due diligence now know this. Legally, the whole mess must be unwound under control of the courts in order to clearly identify who owns what and who is actually allowed to foreclose; the RBMS side of the business is a catastrophe, as the investors there have been clearly defrauded, fooled into thinking they were buying securitized investments (i.e. with recourse to the assets if the cash flow failed) when, in fact, they were sold fraudulent financial instruments.

However, we are talking billions and billions of dollars here, as well as the future existence of the entire industry.

Rather than leaving this to the courts - where it is supposed to be dealt with - the mortgage servicing industry is putting on an all-stops effort to change the laws in order to make the fraud non-fraud.

Let me quote from that link above:

This proposal guts state control of their own real estate law when the Supreme Court has repeatedly found that "dirt law" is not a Federal matter. It strips homeowners of their right to their day in court to preserve their contractual rights, namely, that only the proven mortgagee, and not a gangster, or in this case, bankster, can take possession of their home.

This is central to the inversion of the political parties in the US: Democrats (which, remember, was the party of States' Rights leading up the Civil War) want to take over determining real estate law from all the states, eliminating due process (since a homeowner being foreclosed on can't have their day in court to point out that they have been current on their payments and that the bank has made a mistake, for instance), all in the name of fixing the greatest cluster-fuck in American history.

Sorry for the language, but this is really what is going on.

The Democrats appear increasingly to be committed to do outright harm to the little guy, the homeowner, really anyone buying a home with a mortgage, in order to protect those who, through their own abuse of the system, have a vested interest in not having the system fall apart because it would cost them money.

In other words, the Democrats are becoming the party of big business, pandering to corrupt businesses in order to preserve the profitability of those businesses.

Don't believe me?

Again, from the link above:

The discussion in the summary takes the view that the only "injured" homeowners that get any consideration are those "genuinely damaged by paperwork failures". Thus the only problems that are addressed are screw-ups in the mod/short sale process and wrongful foreclosures. We see nary a mention of origination fraud or servicing abuses and errors. Yet foreclosure defense attorneys have said in 50% to 70% of the cases they represent, the borrower got in serious arrears as a result of servicing errors and compounding fees; a single late or misapplied payment can quickly compound into a multi thousand dollar deficiency before the borrower even finds out something is amiss.

Read that again: 50%-70% of foreclosures are because the servicers erred and then charged homeowners for their errors, driving them into foreclosure. This is as close to outright theft as can be imagined.

To make matters worse, this destroys contracts without recourse. All in the name of protecting businesses that have been good supporters of the Democrats.

The political inversion is amazing. The Republicans are now fighting for state's rights, protecting the disadvantaged and the small guy, fighting to let them keep what they earn, while the Democrats are the party of big business, corrupted through and through.

Hat-tip to Yves at Naked Capitalism, of course: without her diligent work, much of this would have remained carefully hidden, out of the limelight.

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