Getting what they paid for

Home to roost

Long article in the NYT today on the troubles leading up to this foreclosure mess. It pretty much comes down to this: the real money was selling loans and packaging them for resale. Servicing those loans was an afterthought, with total profit per loan over its lifetime, maybe $500. So naturally, they hired “Burger King Kids” (a slur on Burger King, so far as I can tell), invested no money on talent or computers, and were swamped when the foreclosures began. Each foreclosure, by the way, costs $2,500 and up, and so wipes out at least four other productive loans. Bummer.

They banks admit they have no idea who owns what, and I’ve experienced this myself in the past year. I have literally millions of dollars in offers out there on behalf of clients who want to buy troubled homes, but, as one bank’s lawyer admitted to me, “we don’t know enough about the loan to sell it with any confidence that we have the right parties”. Picture my little office, multiply it by tens of thousands, and you’ll begin to grasp the problem.

I’ll admit to being on the lower half of the bell curve, but so far, I haven’t read a single suggestion by any genius that offers a solution to all this. One will surface, eventually, because this can’t go on, but in the meantime, we’re in trouble and going nowhere.

3 Comments

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3 responses to “Getting what they paid for

  1. Patrick

    There are two issues here – 1) Banks passing on bad mortgage pools to investors and 2) inaccurate documentation to legally confirm loan ownership on a property.

    On #1, that’s something that has to take it’s course through the legal process which I’m sure is going to be very bad for banks and will involve a lot of public flogging.

    On #2, couldn’t the federal government pass a law to loosen the restrictions on the mortgage process – i.e. remove wet ink requirement? Clearly these owners know they took out a mortgage and owe someone…I understand in some cases it’s murky as to who has title to the loan, but in others it’s a case where for example they have a copy of the signature but not the original….to me that’s a technicality that should be overlooked. I personally believe item #2 is going to be resolved….item #1 is going to take some time. Any guidance from your legal background?

  2. CatoRenasci

    You’re basically proposing the repeal of the Statute of Frauds. It’s called the Statute of FRAUDS for a reason – withing the requirement of a ‘wet ink’ signature on the writing evidencing the debt, the possibilities for FRAUD are unacceptably large.

    If the owner of the debt transfers a mortgage and note without proper recordation, or separates the note and the mortgage, the mortgage cannot be enforced.

    The holder of the note (the original lender or any holder in due course) can always enforce the note itself (even if they don’t have a mortgage for security) IF the holder actually has the original note. Absent the original note, they can’t enforce the note.

    No one claims there was no debt created, rather that the debt is unenforceable in the absence of the note.

    I suppose if the original lender could prove he advanced the funds, even in the absence of a note which could be enforce, the lender might have a good claim for unjust enrichment on the part of the borrower who refuses to acknowledge the debt, but that is a very different lawsuit, one subject to all sorts of defenses that a suit on the note is not subject to.

    And the reason for foreclosure on a mortgage is that it gets at the collateral much faster than even a suit on a note, followed by a judgment, failure of the judgment to be satisfied, and then an action to attach a judicial lien on the assets of the judgment debtor. Could the lender prevent a sale with a lis pendens? Maybe, maybe not….

  3. Donato Loscalzo

    Well said Cato. This is the bottom line that far too many people tend to forget: no one can dispute that money was advanced, but because of the excessive greed by the banks and bankers in their mad rush to issue more and more MBS in order to generate more and more fees for themselves, they have reduced the investors to Unsecured creditors, where they legally claim their money but not foreclose on collateral. Game over. Instead of paying out $144 billion out in bonuses this year (highest amount ever……) and now asking to be bailed out by the taxpayer……………..