Capital Markets

Foreclosuregate: Who Will Save Us From Our Salvation?


This house is going up: Women, minorities hardest hit.

A great unpublished Los Angeles Times Blowback article once took the paper to task along the following lines:

"I'm sick of your paper whining about everything! Waahh, unemployment is high, we have to do something for job seekers! Waahh, unemployment is low, we have to help employers find skilled laborers! Waahh, real estate is too expensive, the poor buyers! Waahh, real estate is too cheap, the poor owners!"

And so on. I'm going from memory but I am sure about the waahhs, the topics, and the series of disjunctions, all of which were deemed too amateurish for posting by my esteemed fellow Tribune paycheck collectors. But I still think it was a wonderful critique of the do-something-do-ANYTHING-no-don't-do-that school of journalism.

Case in point: In 2008, 2009 and through this summer, only locust-eating fanatics like me were saying the foreclosure crisis was not a crisis at all. Many states, applauded by their local media outlets, instituted foreclosure moratoriums. Distinguished members of congress spent hundreds of billions of dollars to mitigate the foreclosure epidemic. A large and growing chunk of ARRA Stimulus debt was issued toward an effort to keep people in their homes.

Then last month, the foreclosure epidemic went into remission. The spasms were arrested not by any new regulations or toxic assets purchases or taxpayer money for loan modifications. Instead the temporary cure for the foreclosure epidemic took a form known only to the few and happy band of sisters who had been following the "show me the note" craze since 2009. 'Twas paperwork killed the foreclosure beast.

This house is going down: Minorities, women hardest hit.

In late September Ally Financial (the witness-protection-program alias of GMAC) suspended evictions because of the shadiness of thousands of documents signed by an employee in the company's GMAC mortgage unit. GMAC has now expanded its foreclosure moratorium to all 50 states, not just the 23 where court approval is required for a foreclosure. (Questionable affidavits are an issue in many of these cases.) Chase Home Mortgage began a review of its own foreclosure portfolio, and froze operations in the 23 court-approval states, following a similar auto-signature scandal by one of its employees. PNC Financial followed suit. Wells Fargo is doing a similar review, and last week Bank of America suspended foreclosures in all 50 states. Mortgage Electronic Registration Systems  (the Bebe Rebozo of "show me the note" conspiracy theories) continues to get defensive about its role as a clearinghouse for electronic changes of mortgages and MBS.

I'm sorry, I know this material is enough to give you heartburn of the ass. How, for example, did GMAC, a company designed to provide financing for Government Motors car purchases, end up being the country's fourth-largest mortgage lender? Why wasn't Bank of America allowed to fail two years ago, and have its mortgage portfolio taken over by discount buyers with much higher incentives to find the correct paperwork and renegotiate bad mortgages? These stories are too grim for a family publication. The important thing is that Foreclosuregate, though it may not roll off the tongue, is in full swing in these here United States.

Should be good news, right? If anything will help bad borrowers get back on their feet, it's an indefinite reprieve during which they won't have to pay any money for their housing.

But think of the poor buyers! Or the poor sellers – we're not sure which. From David Streitfeld and Andrew Martin:

With home sales this past summer at the lowest level in more than a decade, real estate is ill-prepared to suffer another blow.

But as a scandal unfolds over mortgage lenders' shoddy preparation of foreclosure documents, the fallout is beginning to hammer the housing market, especially in states like Florida where distressed properties are abundant.

"This crisis takes a situation that's already bad and kind of cements it into place," said Joshua Shapiro, chief United States economist for MFR, an economic consulting firm.

Three major mortgage lenders — Bank of America, GMAC Mortgage and JPMorgan Chase—have said they are suspending foreclosures…

They are also waving off Fannie Mae from selling any of the foreclosed homes whose loans they sold to Fannie.

If only we could all wave off Fannie Mae.

It's worth noting that this time the doomsayers are right, broken-clock-style: The foreclosure paperwork problem is bad news. But that's because anything that delays the process of getting bad borrowers out of their homes and cheaper houses back on the market lengthens the time until real estate hits bottom. Unfortunately, every newspaper, every politician, and every saltwater economist has been telling us for about three years that we need to slow the foreclosure avalanche. Now that that's actually happening, of course, it's a new emergency. When will the government do something about it?

NEXT: The White House Isn't Sure What's In the Health Care Bill

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  1. The rescue operations for the trapped miners is about to start… fyi

    1. Boring. The networks have been on about this shit for a long assed time.

      1. I never payed attention to it till today… but yeah they know how to beat a dead horse till its dead! and then shoot it for good measure!

  2. This post reminds me how boring real estate is (not at all the fault of Tim Cavanaugh’s writing, I assure you). Does this say more about me or about how hopelessly complicated big government can make things?

  3. GMAC is a wholly unethical company. They blatantly and routinely refuse to comply with the Homeowners’ Protection Act, which requires lenders to cancel PMI after the buyer pays the principal down to 78%. I (and many others) have experienced this personally. I finally got so angry about it, I took most of savings and paid the mortgage off, figuring I’d rob them of thousands in interest for the hundreds they robbed me of in unwarranted PMI charges. (I love revenge.)

    I strongly encourage everyone to not get a mortgage with GMAC/Ally Financial. Trust me, you will be sorry! Anyway, it’s no surprise to me that they fraudently initiated foreclosures. I’d put nothing past that company. They are truly despicable.

    Fannie May is a quasi gov’t agency that was given free reign to, ultimately, orchestrate the largest heist of taxpayers’ money ever. Of course, liberal policy is ultimately to blame, as with most of America’s current problems.

    Hope everyone votes for REAL hope and change in November! It’s time to return the power to the people, as our Constitution intends. Please, everyone do your part! It’s not going to happen any other way.

    Lastly, a word to executive management at GMAC/Ally Financial: Fuck you thieving cocksuckers! I hope your families die in a raging fire and you live, only to suffer miserably from cancer. Or if something worse can happen to you, I hope for whatever that would be.

    1. Dana, is your last name Lorch (Loesch) or something similar?

    2. I think you mean unliberal policy, in other words statist policy.

    3. I strongly encourage everyone to not get a mortgage with GMAC/Ally Financial.

      Most people in the old days (pre-2005) didn’t. They got them from another outfit and then GMAC bought ’em. Borrower can’t do much about that.

      1. True, my loan was sold to GMAC. That should be illegal. No entity should have the right to enter into a contract on my behalf without my consent. It’s outrageous that they can do that.

  4. Well, there is a “wet ink” legal requirement on trust/mortgage resolution that the banks have illegally circumvented in order to streamline document flow.

    Its Cover Your Ass time – thus the moratorium.

    1. Its Cover Your Ass time – thus the moratorium.

      Mmkay, so the banks are slowing down and making sure their Is and Ts are dotted and crossed. Doesn’t sound like a problem to me. Sounds like what any rational business would do to try to avoid losses due to fines, lawsuits or just plane shoddy work resulting in leaking dollars.

    2. The real growth area in litigation is going to be concerning property that has already been sold at foreclosure, especially in nonjudicial foreclosure states like California.

  5. Apropos of this, I could never get a coherent response and, as I recall, got one miffed dismissal from Seattle Times reporters who were handwringing over the shrinking enrollment in Seattle Schools. Seattle, a town of affluent yuppies too busy being productive buying fixer-uppers they couldn’t afford so aren’t having offspring, class sizes are shrinking.

    Naturally, the rah-rah-smaller-class-sizes local press started chruning out their woe-is-us articles over the fact that class sizes were, yes, shrinking.

    What my takeaway was:

    Class sizes which shrink naturally: bad.
    Class sizes that shrink based on government mandate and increased teacher count: Good

    1. Well, only one of those means Democrats get to loot the rest of society for another teaching job. Should be expected, unless you think people give a shit about kids’ education.

  6. For god’s sake, stop using the fucking -gate suffix!

    1. Never!

    2. Agreed, they should use the water- prefix on all scandals for the next 40 years.

      I was mocking (technically, I was probably ranting, not mocking) the use of -gate when I was in High School in the mid 80s.

  7. I think if banks are going to refuse to foreclose that people should lobby for easier adverse possession laws. I might make the abandoned house next door into a giant office for me then.

    1. KY’s adverse possession laws are way to hard. I wanted to be able to claim a lot by mowing it for a few years. 🙁

      1. too hard, even.

  8. The USA agriculture sector is doing well because of exports to Asia. This benefits me, because I started growing crops in my bedroom a year ago. At a certain point, it makes sense to just let the building go to seed.

    1. Detroit will be a boom town if we just get out of its way.

  9. Foreclosures will make housing more affordable.

  10. There are two problems with this foreclusterfuck.

    (1) It casts doubt on the validity of title. Wait until the title insurance outfits decide that they really can’t issue a clean policy on a foreclosed property – that’ll lock up the foreclosure sales good and hard.

    (2) This is the big one: this casts doubt (at the very least) on the validity of trillions of dollars worth of mortgage-backed paper. I don’t see any way to avoid a massive financial train wreck over this one. That paper is held by institutions (pensions hold lots of it) who are going to want to know if they were defrauded and are going to want to be made whole for any unenforceable mortgages in their pools. On the hook: those too big to fail banks that originated/transferred the loans, and/or put the pools together.

    Massive. Train. Wreck.

  11. Many people do not realize that the avalanche of foreclosures hurts these companies big time…..the basic necessities in this country are housing…whether it be leased or bought….food and several other things….people have got to realize that this is a way to strike at the corporations non violently…. hit em where it hurts…their pocket books…now I am waiting to see who starts the avalanche of pulling their retirements/stocks/ money out of ‘crooked’ banks…it is very risky to execute…but it appears to be a way to get a corporations attention….this is how to deal with corporate when they get out of line…..the bottom line is they cannot exist without money from the public

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