Weekend Economists Going to the Dickens December 16-18, 2011

[Demeter]

7. Treat foreclosure as a crime scene

http://www.politico.com/news/stories/1211/70504.html

Bubbling under the surface of politics is the foreclosure crisis — where the power of big finance is brushing up against the rule of law. The party leaders seem to have decided it is essentially a giant — but unavoidable — tragedy. GOP presidential candidate Mitt Romney said foreclosures have to clear for the housing market to reset. The Obama administration, meanwhile, has spent only about $2 billion of the $75 billion authorized for the Home Affordable Modification Program.

But the foreclosure crisis is not only a few million personal tragedies. It is a few million crime scenes. Massachusetts Attorney General Martha Coakley recently filed the first broad civil suit against five major banks and the Mortgage Electronic Registration Systems for foreclosure fraud. Her suit alleges that mortgage servicers routinely backdated and falsified documents to expedite foreclosures. In many cases, they foreclosed on loans they did not even own...This is one of a series of suits that state officials are bringing against leading financial institutions. Nevada Attorney General Catherine Cortez Masto last month indicted two employees of the foreclosure specialist Lender Processing Services, which works with the big banks, on 606 felony and misdemeanor counts of fraud...Delaware Attorney General Beau Biden is also suing MERS — as I recently wrote in POLITICO — for unfair and deceptive practices. New York Attorney General Eric Schneiderman successfully intervened to stop a whitewash settlement of Countrywide’s ostensible fraud in packaging and selling mortgage-backed securities it knew to be poisoned.

These attorneys general have changed the legal environment around the mortgage and foreclosure mess — refocusing the core issue on justice. They are reframing the problem as a crime scene. What is behind these suits? Simple: Crime by mortgage servicers and their contractors. And this is more than just the crime of these foreclosures themselves — it’s the residual tail end of a housing bubble based on fraud. The reason these bank servicers must now routinely employ notaries using false documentation is because they never established a clear chain of the property title upfront.

The attitude during the go-go days of the housing bubble was “here today, gone tomorrow,” as Joe Nocera and Bethany McLean make clear in their book “All the Devils Are Here.” This was a refinement of the financial deal makers’ code, “IBG-YBG,” meaning “I’ll be gone, you’ll be gone,” described by Jonathan Knee in “The Accidental Investment Banker.” In this environment, why bother getting your paperwork in order when the goal is to put someone into a predatory loan, reap fees and disappear tomorrow? Now that these homes are in foreclosure, however, the lack of paperwork is a serious problem. And, since no one has yet been held accountable for the fraud perpetrated during the housing bubble, the business model of financial institutions is often still predatory...Fraud was illegal before the crisis; it’s illegal now. The Servicemember Civil Relief Act was signed in 2003. So it was already on the books. During the savings and loan crisis, the George H.W. Bush administration sent about 3,000 white-collar criminals to jail. This administration has yet to send one, and it is for lack of trying. Attorney General Eric Holder and his network of U.S. attorneys haven’t brought one criminal suit on illegal military foreclosures or foreclosure fraud. There have been enough books and investigations revealing rampant criminality in the housing bubble and now in foreclosure crisis. Yet Holder’s DOJ is still settling with banks to let them off the hook for illegal foreclosures on active duty troops.

Read more: http://www.politico.com/news/stories/1211/70504_Page2.html#ixzz1glAQbByo