Foreclosure-Gate Scandal Widens

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


After the Obama administration has failed to take action in the foreclosure crisis, up to forty state's attorney generals are now planning to launch a joint investigation into a massive number of robo-perjuries committed by big U.S. banks. So far, partially government owned GMAC, J.P. Morgan Chase, Bank of America, and Litton Loan Servicing, a division of Goldman Sachs, have been implicated in 150 pre-trial depositions in a Florida court case. In these depositions, bank employees admitted to having provided sworn court testimony about documents they didn't read and wouldn't have understood even if they had read them.

The Florida case involves 3,000 homeowners facing foreclosure. The "foreclosure experts" who signed notarized court documents that were key elements of perhaps hundreds of thousands of foreclosures had formerly been hair stylists, factory workers, and Walmart floor workers. They were provided with no formal training. It seems that many of these "foreclosure experts" knew little about mortgages. Some of them couldn't even define the most basic terms related to their job. One exasperated robo-signer stated, "I don't know the ins and outs of the loan, I just sign documents". The signing being discussed involved notarized documents subject to the perjury statutes and something that most courts in the United States would blindly accept because it was provided by a major financial company. Apparently, some institutions don't feel they need to follow the law and the courts let them get away with it.

There is more than enough reasons to think that the same corrupt practices are taking place in consumer credit card cases throughout the United States.

Up to now, the Obama administration has opposed a national halt to foreclosures even though the epicenter of the scandal seems to be partially government owned GMAC. Federal officials claim that a moratorium would hurt the housing market and using incredibly twisted logic have stated that it would distract lenders from 'helping' borrowers that face foreclosure. The program they are alluding to, HAMP (Home Affordable Mortgage Program), is generally acknowledged to have been a significant failure. It is beyond amazing that something which could turn out to be the biggest organized fraud in the history of the United States doesn't seem to bother Obama and his people. Apparently, the federal government is one of those institutions that doesn't think that it needs to pay attention to the law either.

Other than the obvious political implications, the recent revelations could mean a lot of lawsuits are launched at every level of the home loan process. The holders of bonds consisting of securitized home loans could potentially be at risk with the value of these loans plummeting once again as happened during the Credit Crisis. It will probably be much harder to do another bailout this time around however.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

New Foreclosure Crisis Has Much Broader Implications

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


According to international economist Hernando De Soto, one of the key differences between an undeveloped economy and a developed one is clarity of ownership of real estate. The recently emerging foreclosure crisis in the United States indicates a movement toward the the third world model.

There is still a large overhang of U.S. properties with severe mortgage delinquencies and this problem is likely to continue for several more years. As early as three years ago however, problems with implementing the foreclosure process became evident. During the housing bubble, banks became sloppy and didn't properly transfer ownership papers when loans were securitized into bonds. The current owners of those bonds frequently can't produce the appropriate documents in foreclosures cases in the 23 states that require court action for a foreclosure. This led to the 'show me the note' movement after a federal judge ruled in 2007 that Deutsche Bank lacked standing in 14 foreclosure cases because it could not produce the relevant documents. A number of similar judicial rulings followed.

The banks have gotten around this problem by producing notarized affidavits from 'expert' witnesses who claim they have thoroughly reviewed a packet of documents related to an individual foreclosure and that they are valid and complete. One such 'expert' was Jeffrey Stephan, who has admitted under oath to having signed off on the documents for 10,000 foreclosure cases per month for the last five years. Mr. Stephan not only did this for GMAC (its parent Ally Financial is 56% owned by the U.S. government), but also for J.P. Morgan Chase and numerous other banks. This process is now being called robo-signing. It should be referred to as robo-perjury. While I am not a lawyer, it would seem to me that a number of other possible crimes might also be involved here as well, such as racketeering and criminal conspiracy Whatever criminal activity took place, a majority government owned enterprise participated in it. 

Readers should ask themselves if there is any reason to think that the big banks are acting any differently in their other consumer credit cases, such as defaults on credit cards.

The revelations from GMAC loan officer Stephan have caused a foreclosure moratorium to be put into effect by a number of lenders. The lenders were apparently shocked to find out that one person couldn't actually read and thoroughly review 10,000 legally dense document packets per month. Apparently none of the 'brilliant' members of the U.S. judiciary caught on either. Yes, it would certainly have taken a legal genius of Clarence Darrow's caliber to figure out that something that was impossible just couldn't happen. GMAC was the first to stop foreclosures in the 23 judicial states (those that require court cases for foreclosure). J.P. Morgan Chase followed. On October 8th, Bank of America suspended foreclosure activity in all 50 states.

Interestingly, the current administration is opposed to a foreclosure freeze. According to the Center for Responsive Politics, employees of J.P. Morgan Chase, Citigroup and Goldman Sachs were three of the largest sources of funds for Obama's 2008 presidential bid. Only a cynic would think that this would have something to do with his administration's pro-bank view in the foreclosure crisis. Some might even claim that it looks like everything is being done to further the interests of a economic and political elite, just as happens in a corrupt third world country. If this were true, the banks won't be punished for flagrantly disregarding the rule of law, since it is only the little people that need to worry about such niceties.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.