If You’re Not Outraged, You’re Not Paying Attention (Again)

The regulators are letting the bad guys off the hook – again. From the Post:

Three federal agencies announced agreements with the nation’s largest mortgage servicers Wednesday that aim to stem shoddy foreclosure practices. But the plans do not immediately impose financial penalties on the companies or force them to reduce the mortgage debt for troubled borrowers.

The deals require the mortgage servicers to identify and compensate borrowers who suffered financial harm, but the details have not yet been decided. The companies must also provide a single point of contact for struggling borrowers, many of whom complain of getting the runaround when they try to get help. Servicers also would not be able to foreclose on borrowers after granting them a loan modification.

Look, it’s simple. When the regulators work for the regulated – or at least plan to do so in their next career cycle – public choice theory makes it unlikely that those of us on the outside are going to get much out of the arrangement.

And the facts seem to be bearing that out.

(and yes, I know about the states AG actions – but unless someone shows me different, keeping this pendant until those were settled would give another lever to move things with).

9 thoughts on “If You’re Not Outraged, You’re Not Paying Attention (Again)”

  1. Just out of curiosity, assuming for the sake of argument that some companies did engage in slipshod practices that lead to foreclosing on people who weren’t behind on a mortgage – how exactly then does it follow that other people who were in fact behind on their mortgages and about to be foreclosed on should get a windfall in the form of reducing the principal or interest on their mortgages?

    Seems to me that a large part of the problem here is that instead of just making whole the people who may in fact have been wronged or prosecuting the people who may have committed crimes for actually committing crimes, the regulators and (to a greater extent judging by the article) the States Attorney General are using this as a pretext to push through some old fashioned wealth redistribution – in this case from future borrowers who will pay higher interest rates as a result of the forced restructuring to current borrowers who bought more home than they could afford.

  2. bq. Servicers also would not be able to foreclose on borrowers after granting them a loan modification.

    I predict a lot fewer loan modifications in the future.

  3. The intro says “The regulators are letting the bad guys off the hook” but it’s obvious that the regulators ARE the bad guys.

  4. I do not want to go into a long explanation, especially since I have not seen the details of the ¨settlement¨, but the real issue here is not debt or mortgage reduction, it is the the sanctity of contracts and the power of Federal Agencies in regards to make deals on issues that should be decided by the courts.

    There are well known tried and true ways to settle mortgage disputes. No one is forced to lower rates or decrease principal unless they agree to that.

    On the other hand, the banks are not entitled to have do overs on presentation of documents, separate the promissory notes from the Mortgage document, nor get a pass on presenting fraudulent documents before the court.

    Whether or not they have or not should be proven before a court.

    My fear is that if this sort of deal goes through, especially on the side of expediency in favor of the banks, the elements of a contract, the foundation of all Contract Law will be compromised and, worse yet, the Banks, whose behavior of late has not only been atrocious but incredibly damaging to the world economy will be once again rewarded for slipshod behavior and be given immunity not only from punishment for said behavior but from the normal consequences of incompetence on which the free market system based.

    If you are looking at this in terms of lenders and borrowers you are not keeping your eye on the ball. All that stuff is a smoke screen.

    The issue is whether or not banks are ¨more equal¨ then we are under the law, as seems to be the pattern being established over the pat three years by both This administration and the last.

    To me, this is the greatest internal threat the Republic has faced in my lifetime.

  5. What toc says…by legislatively overriding contracts – and the obligation to act under law to enforce debts – we’re doing a really, really bad thing. I think it’s worse than supporting deadbeats.


  6. In reading through the article, I didn’t see anything about providing immunity. If I understand the legalities correctly, there’s no legislation involved at all. My understanding is that the banks, by virtue of breaking a whole host of laws, rendered themselves subject to both criminal and civil prosecution from many sources.

    It is only one source, the federal regulatory agencies, that is essentially settling out of court. The state agencies are negotiating to do the same thing.

    I haven’t read anything to suggest doing so would strip individual homeowners who’ve been defrauded from pressing a civil case for either tort or breach of contract.

    I do wonder how many folks have been thrown out of houses, as the article states, using fraudulent documents. Why aren’t lawyers having a field day defending homeowners and winning huge claims against banks that try this?

  7. MikeDC,

    I did not mention Legislation. I also did say that I had not read the agreement. What a reporter says about an agreement is his interpretation, so I do not take it very seriously, especially when the journalist has not even read the agreement.

    The point I was making is how serious the situation is. I doubt that any legislation that tried to “fix” this would stand up to a constitutional test.

    My main point was that the discussion, to this point, has fixated on the borrowers, who have signed promissory notes and have to pay their debts. But, if these notes have been separated from the mortgage document, they would have to be sued in court and not in a Foreclosure Proceeding, hence the lending institutions, in many cases, resorting to fraud upon the courts.

    This is the retail level of the problem. On the wholesale level, which may put the banks in worse shape than even the 2008 mess, there are major questions as to what they actually sold in the Mortgage backed securities if,in fact, the notes were separated from the Mortgage document,to say nothing of the Chain of title problems that have arisen out of MERS.

    There are also claim against banks by Financial Institutions, among them the NY Fed that the Banks sold them these synthetic instruments that they represented to have a certain percentage of sub prime mortgages bundled in the instrument, say 10% and actually had as much as 60%.

    Furthermore, considering the reckless behavior of the banks, what has been put at risk and the misrepresentation that the situation has garnered in the press, ie., that it has primarily to do with deadbeat borrowers and clerical errors, I am not at all sure that these federal agencies should be making any deals at all before evidence is presented at trial.

    All it does is increase the stench that surrounds the Federal Governments dealings with the large financial institution over the course of this administration and the last. Which, in my opinion, has been a “We know better than you” stance towards its citizenry coupled with a tendency for the government to bend over and hold its ankles whenever requested to do so by the banks.

  8. *Just out of curiosity, assuming for the sake of argument that some companies did engage in slipshod practices that lead to foreclosing on people who weren’t behind on a mortgage – how exactly then does it follow that other people who were in fact behind on their mortgages and about to be foreclosed on should get a windfall in the form of reducing the principal or interest on their mortgages?*

    I worked in Real Estate in Manhattan for over 20 years. My best answer would be this:

    They do not get a windfall if the Mortgage Documents are in order. In these cases they were not. In the courts, from my experience, there is no slipshod. You either have the documents in order or not. Period. Slipshod is not an excuse and judges are not very understanding of the very idea of “Slipshod”

    You do not get any do overs. The more you look into the MERS mess the more it becomes clear that the Amateurs (at least in terms of Real Estate)on Wall Street were in one of their Masters of the Universe Pan Fars (Vulcan Sexual Frenzy) when they cooked up MERS. This MERS part alone is the most F’d-up situation I have ever come across and it will take nothing less than an Alexander to untie the knot.

    RE-working the Mortgages probably comes from the fact that the Lending institutions are on standing on quicksand and it may take years for them to even get these claims to Court. It took me seven years to get a calender date in NY City last time I had to sue someone. Without clean documents and a direct link between the Mortgage document and the Note, the banks will be waiting in the same line I was for maybe even a longer time.

    Thorley, if you are really interested you should look at the decisions being handed down in the courts. Last time I looked it wasn’t very pretty for the banks and looked to get progressively worse,

    Stop thinking about the problem in terms of deadbeat borrowers and slipshod paperwork. Hard as it seems to believe, it is not the point. It is that Wall Street, in its ignorance and arrogance has severely damaged the chain of title and Mortgage market in ways that will, potentially, be more devastating to the economy than anything we have see so far.

    I have come to the conclusion that anyone that wants to allow these incompetents to self-regulate while bailing them out of all the consequences of their naive and idiotic actions will and should get everything they deserve.

    And, trust me, this one is not going to be pretty.

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