Just under three years ago, doper Poleriusasked: “Are a bunch of monkeys running our financial system?” I now feel that the question can safely be answered in the negative, because in the last few days, information has come to light about the banks doing things that no self-respecting monkey would be stupid enough to do. The facts are as follows. When a bank gives anyone a mortgage, there are official notes, which document the fact that the bank owns the mortgage. In addition, if the bank chooses to sell the mortgage to someone else, there is an official assignment documenting the sale of the mortgage. This assignment should be attached to the mortgage notes and kept in a safe place. If the homeowner fails to make payment and the bank needs to foreclose on the property, they are required by law to produce the original notes and any relevant assignments before they can do so.
Now it seems that many banks such as Bank of America have lost the documents. Somewhere in the process of making the loans to unqualified buyers, securitizing those loans, dividing those securities into “tranches”, and selling them off to unsuspecting investors under false premises, a large number of the documents simply disappeared.
So what does it mean? Nobody knows at this exact moment. There have already been some cases where a foreclosure didn’t happen because the documents were missing. The real question is how many documents are missing. If it’s a relatively small number, the whole thing might blow over. On the other hand, if the number is large, the banks could be in danger because by selling securities involving mortgages that weren’t managed properly, they broke the law and may now be vulnerable to massive lawsuits.
Questions:
What species of animal is running our financial system?
How big do you think the taxpayer-funded bank bailout will be this time?
This isn’t entirely new, but it’s one of the few saving graces / repercussions of the banksters’ greed. In their determination to screw as many homeowners as possible, they decide to ignore standard procedure. Now, it seems at least some of the homeowners may be able to keep their homes.
I wonder if the birthers/teabaggers will be out protesting this bailout. Because Eric Cantor recently insisted that homeowners need to take responsibility and stop victimizing the real estate companies and banks :rolleyes:.
Right, because the homeowners bear no responsibility for lying on their loan applications, not understanding the terms of the loan or leveraging themselves beyond their means.
Chalking the financial crisis up to “banker greed” is simplistic and cartoonishly stupid. Bankers were no more or less greedy than they were in the 80s, 1929, or 1893. They have always been a bunch of id driven jackanapes. They aren’t trying to “screw over homeowners”. They are simply trying to sell! Sell! SELL!! so they can earn fat commissions. If you want to distill the current financial crisis down into a single cause, it is the time honored tradition for people to jump on the bandwagon with every speculative bubble. In this case, that bubble was real estate. People thought that real estate prices could only go up. You had idiots who can’t even swing a hammer buying up properties to flip. Here’s a clue. If there are a dozen shows on HGTV, TBS, Bravo and other cable channels about people getting rich on a particular segment of the economy, that is most likely a speculative bubble.
But no one wants to be the one to say “no, you can’t do that because it’s not sustainable or even rational” so they removed a lot of the regulation that would normally prevent banks leveraging themselves at a 20:1 ratio.
I’m a big fan of free markets, but if you are going to privitize the rewards, you have to privitize the risk as well. While I believe the bailouts were necessary to prevent the collapse of the financial system, I also fear they created a moral hazzard where these same banks will feel that they will be bailed out in the future for taking stupid risks.
You’re rolling your eyes about something some undefined group hasn’t yet done about something that hasn’t yet happened, and that there is no indication will happen? Interesting debate strategy…
The banks actively chased after people who had no interest in buying an expensive house. They, like everyone on this board got promised a chance to move out of a horrible area and give their kids a chance for a better life. They were not smart in financial transactions, but they were offered great deal deals. I suppose you dingbats think they should have been aware of all the ramifications. I had a finance company send me an Email,about 5 times a day.
So everyone should have known better? Sad but rue, but wealthy educated people are being foreclosed. Million dollar plus homes are being closed on. The finance companies lied over and over to get a name on the dotted line.
Yup. The only reason we should think about helping the foreclosed is if it would lead to a much worse financial crisis if we don’t. If you can’t be bothered to learn basic financial literacy, you don’t deserve a home.
I feel the same way about the banks. But not only were they stupid enough to get us into this crisis, they were smart enough to realize that we’d bail them out if things went pearshaped. So they get more evil points whereas the homeowners get more stupid points (although they do accrue some points for greed for grabbing all the square footage they couldn’t afford.)
Really? Can we see the quote so we can judge for ourselves that he actually said that? I’m especially interested in the part about “victimizing the real estate companies and banks”.
This reminds me of the Married With Children episode where Steve gives Al Bundy a loan so he can win a contest for giving out the most loans at his bank. Of course Al defaults on the loan, and Marcie says
Considering the evidence of massive fraud and/or incompetence on the part of the banks (as is being discussed in this thread), I think it is nothing more than class warfare on behalf of the rich to simply stand by and let the banks stomp all over people after we collectively bailed them out. What, are you only worthy of compassion if you are wealthy, corrupt and incompetent?
Is the problem after all of the swapping, trading, swapping, securitizing, and under-table handjobs that nobody, in fact, knows who owns a given mortgage?
We actually went through all this before in the 1920s and by the 1930s we’d discovered that if you let a bunch of unregulated predatory lenders lend to the American people then the American people would be taken advantage of. And we enacted laws and set up regulatory bodies in the 1930s to prevent the kind of massive unregulated predatory lending from ever happening again. Here’s what happened a few years ago as explained by the former New York Attorney General :
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, making loans with deceptive “teaser” rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York’s, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position…
Very recently, we’ve had several threads about a guy who didn’t pay $75 per year for fire protection, and therefore lost his house when it burned down while to local fire department stood by and watched. That $75 was insurance, and he lost his house because he didn’t pay his insurance.
Similarly, for the banks, keeping good records is a kind of insurance, which you’ll only need to draw on if the lender defaults on the mortgage. So they didn’t pay their insurance – because they thought their profits would be higher without those extra costs of good record-keeping – and now they are paying the price.
That’s not to mention the fraud that has been apparently committed by some banks, in making false statements to the courts that the records have been checked properly. That’s another matter, and the banks and officers concerned should be fined for that.
But if they’ve lost the paperwork, and can’t document the mortgage, I don’t see why they shouldn’t lose the loan, so that the borrower owns the house debt-free.
I think in the past few yearsw we are learning more and more about “who is at fault” and when it comes to people buying second homes or investment properties they couldn’t afford, they were either getting in over their heads or they were intentionally gaming the system. BUT when it came to people buying primary residences they couldn’t sustainably afford over the long term, the homeowners were frequently convinced to buy bigger homes than they could afford with lager mortgages than they could handle. I don’t think these folks should get to keep their homes but lets not let the banks off the hook for lending to these folks. I heard an interview with a bank lobbyist in CSPAN this morning and he was talking about the economic disaster that would occur if we had even a short moratorium on foreclosures, he followed up by talking about the econmoic disaster that would occur if we only kept the Bush tax cuts for folks making less than 250K.
But a lot more accurate than chalking it up to “lying homeowners”
And in every case, at least part of the problem was our gullibility in believing the bankers would self regulate somehow throught the magic of the free market.
And why do you think that happened? Why or how do you think the capital reserve requirements were lowered? What specifically led to the lowering of the capital reserve requirements?
So we did something that couldn’t be helped if we wanted to save ourselves and it has moral hazard implications? Well there is a solution to that. Put about 1000 bankers, rating agency executives, high profile mortgage peddlers (e.g. Angelo Mozilo), etc. in jail for the rest of their lives (or some period in excess of 10 years) and the moral hazard goes away. Its gotta be enough folks so taht everyone PERSONALLY knows someone who ends up in jail.
I’ve advised enough bankers to know that the only thing that dissuades them mroe than losing money is the REAL prospect of going to jail but because of the diffuse nature of responsibility in a corporate responsibility, they can create resonable doubt for anything criminal even if they can’t get away with it civilly.
One is asking you to send them money, the other is offering to lend you money. I’ve probably refinanced my home more often than I should have based on mortgage companies explaining how I could save money with the lower rates. I’ve probably flushed a sportscar down the drain in the form of transaction costs.
THIS!!! This is what I keep trying to explain when people ask why I blame bush for the housing crisis. There were no federal regulations or laws that were repealed but when people saw the problem, Bush (following typical Republican ideology) ignored problems because it might interfere with economic activity.
Not that I think it excuses it, but when George W was elected in 2001, the country was in what we thought at the time to be a pretty bad recession from the dot com bubble bursting and 9/11. It would be politically pretty unpopular to say to people “I know you’re looking for work, but we need to slow the economy down a bit because this growth isn’t sustainable.” Same thing with the dot com bubble.
The Fed also bears a lot of responsibility for keeping interest rates so low and allowing all this access to easy money.
I wouldn’t have a problem with the lack of regulation except that the banks want it both ways. If they don’t want to be regulated when they make the loans, they shouldn’t expect to be bailed out when they make bad loans.