I invite you to view a brand new 54-minute video (embedded below) titled “Mortgage Crisis in a Nutshell.” The presenter is John Campbell, a St. Louis attorney and educator. I work with John at the Simon Law Firm in St. Louis, Missouri. We gained much of our experience in this area of law by litigating numerous suits for mortgage fraud on behalf of homeowners, both individual suits and class actions. Also on behalf of homeowners, we’ve defended many unlawful detainer suits (attempts to evict homeowners). We’ve both become passionate about this work as a result of witnessing firsthand that many homeowners have been victimized by unscrupulous and unrepentant banks.
In this 53-minute video John presents the main aspects of the mortgage crisis that has devastated the U.S. housing market and the economy. Our goal is empower all who seek to better understand what went wrong with the American mortgage system. As you will see when you click on the above link, this video can be watched in chapters:
I. The Big Picture and its Many Parts (:55)
II. Banks Flood the Market with Subprime Mortgages (3:54)
III. Banks, Securitize their Mortgages (10:05)
IV. Banks Cry for a Bailout (13:57)
V. Wall Street Malfeasance (16:54)
VI. Foreclosures, Robo-Signing, Trustees and Conflicts of Interest (18:20)
VII. MERS (“Mortgage Electronic Registration System) (33:45)
VIII. The Mortgage System Used to Work (43:42)
IX. Credits and Further Readings (52:43)
We created this video because we were frustrated by the fact that it is difficult to find websites and other materials describing the modern mortgage system in terms that are accessible to both lawyers and non-lawyers. As a result, many of our friends and acquaintances (those outside of the mortgage law community) don’t understand the inter-relationships among subprime loans, ratings of mortgage-backed securities, MERS, the bailout and robo-signing.
The failure to understand these things is making it easy for the entities that caused this crisis to conduct business as usual. Because this system is so difficult to understand, too many people think the crisis was entirely caused by “irresponsible borrowers.” The result is that our national dialogue is obsessed with the alleged need for less regulation instead of discussing how to change the system to make sure this never again happens.
We’ve used simple terms and basic drawings in order to make an opaque system understandable. Though it is undoubtedly slanted toward our perspective as attorneys who represent homeowners, we’ve worked hard to keep it factual and fair-minded.
We ask only one thing in return for the link to this video. To the extent that you find it helpful to your understanding of the mortgage crisis, please consider forwarding this link to anyone else you know who would benefit from viewing it. Our aim is to spread this video widely through email, list serves, Facebook, Twitter, blogs, websites other social media.
We certainly invite comments, both at DI and at YouTube. If this video works for you (or if it doesn’t), please let us know. Thank you.
Swiss bank UBS recently announced that a “rogue trader” caused the bank to lose $2 billion.
At Common Dreams, Matt Taibbi argues that what this “rogue trader” was doing was par for the course on Wall Street, even since the intentional destruction of the Glass-Steagall Act. Therefore, allegations that “rogue traders” cause losses at Wall Street banks is yet another fraud on behalf of these “banks.”
Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on.
. . .
Nonetheless, thanks to the Gramm-Leach-Bliley Act passed in 1998 with the help of Bob Rubin, Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and a host of other short-sighted politicians, we now have a situation where trillions in federally-insured commercial bank deposits have been wedded at the end of a shotgun to exactly such career investment bankers from places like Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase), and so on.
These marriages have been a disaster. The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino. That’s why I can’t stand the term “rogue trader,” which is always tossed out there when some investment-banker asshole loses a billion dollars betting with someone else’s money.
They’re not “rogue” for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys “rogue traders” when they make a billion dollars gambling.
Reckless Wall Street “banks” are mostly not-banks. They only make about 15% of their money raising capital for businesses. Instead, they are gamblers who are using what’s left of their bank function as a human shield so that when their reckless bets go bad they can call out to Congress for yet another mega-wad of cash to save them from going under. You can almost hear them shouting, “Save the banks! Save the banks!” If the federal government hadn’t killed Glass-Steagall, Congress would be much better situated to respond to what would have been only a reckless gambler, “Sorry, but it’s time you suffered the natural consequences of your actions . . . no federal money for you.”
If only Glass-Steagall were still in place, those stodgy and boring bank accounts of people like you and me would be safely segregated from the uncontrolled avarice of huge gambling corporations that currently call themselves “banks.”
We now know that many of the “foreclosure experts” who were signing many thousands (perhaps millions) of affidavits that allowed banks to kick delinquent homeowners out of their homes were utterly unqualified to understand the sorts of technical information they were spewing while under oath. In short, the banks were allowing and requiring incompetent employees to lie under oath in order to allow foreclosures to go forward:
In an effort to rush through thousands of home foreclosures since 2007, financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in “foreclosure expert” jobs with no formal training, a Florida lawyer says. In depositions released Tuesday, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits and that they agreed with the defense lawyers’ accusations about document fraud.
Even under the assumption that many or most of these homeowners were actually delinquent, this is incredibly disturbing. Richard H. Neiman, New York’s top bank regulator and a member of the Congressional Oversight Panel, a federal bailout watchdog, has expressed concern:
“In recent days, it has become apparent that a number of mortgage loan servicers have submitted affidavits or other foreclosure documents that appear to have procedural defects,” the Conference of State Bank Supervisors said in a statement. “In addition, many affidavits may have been signed without a notary public being present.
NPR has provided a more detailed description about the kind of people who served as “robo-signers”:
ARNOLD: [T]his GMAC employee told him that even though he was supposed to be certifying the accuracy of the documents in a homeowner’s file…
Mr. COX: He said he that doesn’t look at them. He doesn’t bother to go search them out in the computer to look at them.
ARNOLD: And Cox said the sheer volume of foreclosures appeared to make doing a thorough job impossible. Stefan testified he’s signing between eight and 10,000 documents a month.
Mr. COX: That works out to be about one a minute. Some of those loan files contain a hundred or more documents.
ARNOLD: Housing advocates call employees like this robo-signers. They say they barely have a chance to glance at all the documents that they’re asked to sign.
These fraudulent foreclosure cases are hitting the courts all over. And they should, because many of these homeowners were lied to on the way in (about “yield spread premiums” and exploding ARM’s and hidden penalties), and now they (and the courts) are being lied to on the way out. In fact, based on my personal experience as a consumer lawyer, the lies on the way in, and the shodding servicing, led to the foreclosure.
Here’s a synopsis of a lawsuit filed Oct 1, 2010 by Center for Responsible Lending:
Five Maine residents filed a complaint today against GMAC Mortgage, LLC (GMAC) on behalf of themselves and a class of Maine homeowners, alleging that the company routinely and systematically files false certifications that it has a right to foreclose on Maine homeowners, and false affidavits when asking courts to enter foreclosure judgments.
The homeowners complain that GMAC files these false documents knowing that the courts in Maine will rely on them in deciding whether foreclosures can go forward and in allowing GMAC to sell their homes. Depositions of GMAC employees revealed that they do not verify the truth of information necessary to give GMAC the right to foreclose when they sign these court documents and that these improper practices have been in place since at least 2004.
This situation is horrendous. It justifies impolite synonyms for banks: house-jackers. Banksters. If you cringe at this language and consider it overbroad, ask yourself whether “innocent” bankers knew of this problem and whether they often discussed it at the country club with the evil bankers. And they didn’t step up and report it. Consider also that the banks so often preach the importance of the “letter of the law” when slapping huge fees and penalties on home-owners, even when the homeowners are only a day late with their payments. Now here are those same banks, absolutely unable to establish a chain of title necessary for a foreclosure, but they utterly don’t give a rat’s ass about the letter of the law, because this archaic rule (letter of the law) is now a burden to the banks.
From the perspective of the banks, the solution to the problem that they can’t figure out how to establish their case in the context of the convoluted system that they themselves created, is to systematically lie under oath. Over and over and over. And now that the banks have been caught by the national media, and because the media is paying attention, the politicians also need to pay attention to this problem, and everything has become awkward for the banks. Very Inconvenient. They might have to pay big money to send thousands of lobbyists to Congress to fix this problem. And then they will have to jack up their rates and penalties and other tricks and traps to pay for those lobbyists.
[More . . . ]
My phone company has utterly and repeatedly lied to me about my bill. It’s infuriating. I call them up and ask them to justify my bill. They “apologize” and insist that it will cost exactly $X every month in the future. Then the bills show up and they are $X plus an extra $15. What do you do, go to small claims court over $15? I’m saving up my bills and I actually might do that someday. In the meantime, I do wonder how many other people are having the same experience, and I assume that there are plenty of you out there. Unfortunately, these do not make good class actions because they usually involve oral misrepresentations over the phone. In order to prove that a large group of people were lied to, you’d need to call every customer into court to testify. Courts usually reject these as class actions. Therefore, anyone with this situation is likely in the same boat I’m in. Small damages also combine with clever arbitration clauses to amount to telephone company immunity.
I’m telling you this little story as a prelude to showing you this image. I do understand this person’s frustration. Bravo!
Investor Steve Eisman whose huge wager against the subprime mortgage market was described by Michael Lewis The Big Short has launched an assault on fast growing for-profit college industry. Here’s the link at Mother Jones. According to the Eisman, for-profit colleges “raked in almost one-quarter of the $89 billion in available Title IV loans and grants, despite having only 10 percent of the nation’s post-secondary students.”
Here is the main parallel between for-profit educators and the sub-prime lenders:
Eisman attributes the industry’s success to a Bush administration that stripped away regulations and increased the private sector’s access to public funds. “The government, the students, and the taxpayer bear all the risk and the for-profit industry reaps all the rewards,” Eisman said. “This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.”
Here’s another similarity between subprime lending and for-profit education
Both push low-income Americans into something they can’t afford—in the schools’ case, pricey programs that leave the students heavily in debt; what’s more, the degrees they get mean little in the real world: “With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters—and I mean that literally—the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable.”
In the Mother Jones article, Eisman pointed to the self-reported (and thus potentially under-reported) 50-plus percent dropout rate at for profit colleges as further evidence that they offer poor-quality education.
After reading the above article, I referred to Wikipedia’s article one of the biggest for-profit colleges: Phoenix University, subsidiary of the publicly traded Apollo Group, Inc. It offers “open enrollment,” meaning that it requires “proof of a high-school diploma, GED, or its equivalent.” Phoenix graduates only 16% of its students, compared to the national average of 55%. On the topic of de-regulation and quality of education, consider this:
The school was the top recipient of student financial aid funds for the 2008 fiscal year, receiving nearly $2.48 billion for students enrolled. In 2006, due largely to the efforts attributed to the Apollo group, the 50-percent rule (requiring colleges and universities to conduct at least half of its instruction in person in order to receive federal aid or collect federal student loans) was modified. It no longer classifies students receiving instruction through telecommunications methods as correspondence students.
The Wikipedia article offers a lot more information to feed the fires of my suspicion. I don’t claim to know any more about Phoenix University than what I have read in these two articles. What I do bring to the table is that I investigated diploma mills as part of my job while I worked as an Assistant Attorney General for the state of Missouri; I don’t like the smell of what I’m reading about these for-profit colleges.
Based on what Michael Eisman has stated, it would seem to be a good idea for the federal government to tighten its standards for the types of post-secondary schools eligible for federal loans, and to take a much closer look at the quality of education received by the typical Phoenix University student. Is it really worthy of a federal loan guarantee?
William Black was a guest on Bill Moyers Journal yesterday. The conversation was lively and informative, including detailed discussion regarding “liar’s loans” (In a liar’s loan, the mortgage company doesn’t require any verified information from the borrower about the borrower’s income, employment, job history or assets).
Black indicates that even after all that has come to light regarding the financial collapse, our politicians refuse to use the “F word,” fraud. Why? Because too many politicians (and businesses) simply don’t believe in fraud. That is the hallmark of free market fundamentalism. To make matters worse, Barack Obama refuses to utter the word “fraud” from his bully pulpit. Nor does Eric Holder or anyone from the Obama Administration:
WILLIAM K. BLACK They can’t even get themselves to use the word “fraud.”
There’s a huge part that is economic ideology. And neoclassical economists don’t believe that fraud can exist. I mean, they just flat out — the leading textbook in corporate law from law and economics perspective by Easterbrook and Fischel, says — I’ll get pretty close to exact quotation. “A rule against fraud is neither necessary nor particularly important.” Right?
Notice how extreme that statement is. We don’t need laws. We don’t need an FBI. We don’t need a justice department. We don’t even need rules like the SEC. The markets cleanse themselves automatically and prevent all frauds. This is a spectacularly naïve thing. There is enormous ideological content. And it fits with class. And it fits with political contributions.
Do you want to look at these seemingly respectable huge financial institutions, which are your leading political contributors as crooks?
But can’t we insist that suspect businesses be audited to determining whether they are committing fraud? Not based on a long sordid track record regarding prestigious accounting firms:
BILL MOYERS: Isn’t the accounting firm supposed to report this, once they learn from somebody like him that there’s fraud going on?
WILLIAM K. BLACK Yes, they’re supposed to be the most important gatekeeper. They’re supposed to be independent. They’re supposed to be ultra-professional. But they have an enormous problem, and it’s compensation. And that is, the way you rise to power within one of these big four accounting firms is by being a rainmaker, bringing in the big clients.
And so, every single one of these major frauds we call control frauds in the financial sphere has been– their weapon of choice has been accounting. And every single one, for many years, was able to get what we call clean opinions from one of the most prestigious audit firms in the world, while they were massively fraudulent and deeply insolvent.
BILL MOYERS: I read an essay last night where you describe what you call a criminogenic environment. What is a criminogenic environment?
“Whoever knows he is deep, strives for clarity; whoever would like to appear deep to the crowd, strives for obscurity. For the crowd considers anything deep if only it cannot see to the bottom: the crowd is so timid and afraid of going into the water.”
Friedrich Wilhelm Nietzsche, The Gay Science (1882).
“. . . using financial complexity allegedly to deceive and then using so-called independent experts to validate the deception (lawyers, accountants, credit rating agencies, “portfolio selection agents,” etc etc ) . . .”
Why are many human systems complex? If we’ve learned anything over the past few years, it’s that there are two reasons—there are two kinds of complexity.
Sometimes, complexity is required to get the job done. I think of this as “parsimonious complexity.” For instance, the Mars Rovers are extremely complex robots, but every part of these magnificent robots has a specific function that furthers a clearly and publicly defined mission.
There are also instances where complexity is purposely injected into a system. I think of these as instances of “gratuitous complexity.”
It’s important to keep in mind that all forms of complexity serve as entry barriers to activities, due to the limited attentional capabilities of humans. Very few of us have the stamina or intellect to thoroughly understand all of the artificial systems people create; many of us don’t have the stamina to thoroughly understand even simple systems. When an activity is more complex, it is more difficult to understand and more daunting to those wishing to participate. Activities that are more complex are thus accessible to fewer people. For instance, chess is more complex than checkers, in that the state space of possible moves is larger in chess than in checkers. Checkers is easy to learn and play. But many checkers players don’t graduate to chess due to the increased complexity. Some systems are so incredibly complex that only the chosen few are able to participate.
Dylan Ratigan put on a “Family Fued Show” to illustrate the three major failures of the pending financial services legislation. Seems like this bill is not for any meaningful reform. It’s only a dog and pony show.