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Left, right and left out

On so many issues related to the state of our economic recovery, current notions of liberal and conservative don’t seem to apply.

For example, should we allow a real free market to work in our financial system?

Should we crack down hard on those Wall Street bankers who broke the law?

Should companies that want to foreclose on property have to follow the law?

If you’re in favor of real financial free market, tough law enforcement and following the law, are you conservative or liberal, left or right?

What you are is in the majority, and the most important political designation in the U.S. in 2012 – left out.

Your views are reflected only rarely in the political debate at all and never in the presidential debate. Sure, President Obama has repeatedly promised to get tough on Wall Street, most recently in the state of the union in January, but based on the results, those promises have little credibility. President Obama preaches for an activist role for government with the occasional populist flourish, but that impulse wilts if Republicans or campaign funders show the least resistance.

His opponent, Mitt Romney, considers any crackdown on Wall Street an affront to the beloved job creators to whom we should all be bowing down – even if they don’t actually use their wealth to create any decent jobs.

What we get instead of a real debate on how to get an economy that works for ordinary folks is a faux argument over the role of venture capitalist tycoons, between the candidate who used to be one and our president, who has relied on them a key source of campaign funding as much as Romney has.

What we get is the fiscal cliff drama about whether or not to shut down the government.

What we get is each side offering scary versions of what the other will do.

What we get are Mitt Romney’s assurances that if we just get the regulators out of the way, the wealthy job creators will get to work, regardless of whether anybody can afford to buy their products.

What we get is the president’s half-measures and handwringing. But it’s all political theater that doesn’t replace real jobs, real plans to revive housing and keep people in their homes and real accountability for bankers. It doesn’t replace a real debate about the role of big money in overshadowing those issues in our elections. Right now, both sides have left those out of their campaigns.

Politics is a team activity and our natural tendency is to root for our guy, downplay his flaws, and point out how much worse the other guy would be. But this election should not just be rooting for our team and beating the other guy. It should not be about rooting for our guy we’re so hyped up about how scary the other guy is.

It should be about who is willing to confront the big money, not bend to it.

It should be about who can really get people back to work, keep us in our homes, guide an economic recovery that’s not just for the wealthiest.

We should demand that we’re more than just a rooting section for our team, that our bread and butter concerns are not left out.

For foreclosure relief, occupy the Legislature

Two years ago, California legislators bowed to bankers when they failed to pass legislation that would require mediation between a bank and borrower before banks could foreclose on the borrower’s home.

But a recent report by the U.S. Justice Department should cause the Legislature to take another crack at making a critical choice: Do they want to provide tools to reduce foreclosures, or do they want to keep kowtowing to bankers?

California remains among the hardest hit by foreclosures: third worst in the country.

While foreclosure rates are going down nationally, that’s more a reflection of the continuing mess in the foreclosure process itself rather than any fundamental restoration of health in the housing market.

So the problem hasn’t gone away by itself.

Federal efforts to help homeowners have been ineffective because they’re voluntary for the banks, with inadequate government oversight. For the feds, foreclosure reduction efforts have consisted mainly of offering banks modest incentives for loan modifications, incentives that are less than the profit the bank, in its role as loan servicer, makes from foreclosing on homes.

As demonstrated by the California legislators’ previous refusal to embrace mediation, government officials at all levels have so far lacked the political will to force banks to take the action needed to stem foreclosures. Two years ago, Assemblyman Pedro Nava spearheaded the foreclosure mediation effort, AB 1639, which passed the Assembly but died in the Senate under fierce banking opposition. Consultant on the bill was Los Angeles mediator Laurel Kaufer, chair of the State Bar's ADR committee.

Around the country, there have been a host of mediation programs around the country, with mixed results. ¶

Programs in Connecticut and Philadelphia successfully settled about three of every four cases, avoiding foreclosures. In Nevada, officials reported that about 42 percent of the cases in mediation settled without foreclosure. Nevada also reported another significant finding – the banks dropped many of the foreclosure attempts during the mediation process because there paperwork wasn’t in order.

But in late December, the Florida Supreme Court closed down its foreclosure mediation program after state officials determined it wasn’t working because so few cases eligible for mediation ended in settlement.

Then, just a couple of weeks later, the U.S. Justice Department issued a promising report calling for wider federal use of mediation in foreclosure and more research into how well it works.

The details of foreclosure mediation programs vary widely. The most successful programs, the Justice Department explained, are those that begin early in the foreclosure process, require mandatory participation, include some form of financial counseling for homeowners, are well publicized and require a high degree of transparency by the banks – meaning that banks have to disclose how their foreclosure process works, including the secretive, often confusing criteria by which they grant loan modifications.

Will the feds blow this opportunity to attack the foreclosure crisis, as they bungled their earlier efforts? Or will finally get a clue and start taking effective action?

In California, we shouldn’t wait to find out.

This Justice Department report should give a boost to a renewed effort to require mediation in California foreclosures, and offers some guidance to California in how to create a successful mediation program.

But it will only happen if people mobilize against the banking lobby, which is sure to oppose any attempt to weaken bankers’ complete control over the foreclosure process.

We keep hearing how the Occupy movement has changed the debate, how issues that couldn’t gain traction six months ago can now get a fuller hearing. We should seize the opportunity to give legislators the opportunity to get the bankers off our backs.

Foreclosures / Martin Column - 01/18/2012

High Court's Low Opinion of Foreclosure Practices

Apparently the Massachusetts Supreme Court neglected to read the bipartisan memo reminding politicians and judges to refrain from doing anything that might upset the banks.

Most judges have shown extraordinary deference to bankers, even amid growing evidence that those bankers haven’t been following the law in pursuing foreclosures.

That may be beginning to change, in the wake of a Massachusetts ruling against banks in a closely watched foreclosure case.

Right now the decision only has force in Massachusetts. But as other cases challenging foreclosures make their way through the courts across the country, other judges are likely to be guided by it. In addition, the ruling will also provide guidance for lawyers posing legal challenges to other mortgages scrambled in the securitization process.

The Obama administration has consistently downplayed evidence of rampant fraud and sloppiness in the way banks split up, packaged and sold off mortgages to investors in the heat of the housing bubble.

Almost all subprime mortgages as well as millions of conventional mortgages originated before the meltdown were securitized and sold to investors. Securitized mortgages account for more than half of the $14.2 trillion in the total outstanding U.S. mortgage debt.

Bankers have tried to dismiss these problems with what’s known as the securitization process as a matter of mixed-up paperwork that can be straightened out.

But the highest level court to examine the issue thus far took the issue much more seriously. Last week the Massachusetts Supreme Court invalidated what had become a common practice – banks seeking to foreclose on properties without properly holding ownership of the promissory note and mortgage as part of the securitization. The court focused heavily on the use of the power of sale contained in mortgages; the same power exists in the vast majority of California deeds of trust.

Ruling in a closely watched case, the high court rejected arguments by U.S. Bancorp and Wells Fargo & Co. that they didn’t have to prove their authority to foreclose. The banks had argued that evidence that they intended to transfer ownership was enough to establish their standing to foreclose.

The ruling makes dense but fascinating reading, with some passages coming through loud and clear even if you’re not steeped in real estate law.

The justices stressed they weren’t creating any new interpretation of law. “The legal principles and requirements we set forth are well established in our case law and our statutes,” wrote Justice Ralph D. Gants. “All that has changed is the (banks) apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.”

Banks have argued that their “pooling and servicing agreements” allowed them to transfer mortgages to securitized trusts “in blank” without specifying whom the new owner would be.

But the justices ruled in U.S. Bank v. Ibanez that the “foreclosing party must hold the mortgage at the time of the notice and sale in order accurately to identify itself as the present holder and in order to have the authority to foreclose under the power of sale...”

In a concurring opinion, Justice Robert Cordy wrote: “There is no dispute that the mortgagors (borrowers) had defaulted on their obligations.”

But that’s not the legal standard. “Before commencing such an action...the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order,” Cordy stated.

The ruling could lead to an increase in complicated and expensive litigation, if those whose homes have already been foreclosed on sue to challenge the financial institutions’ authority to conduct the foreclosures. Investors may also sue, contending that the banks didn’t properly document the ownership trail on the mortgages contained in a particular investment pool.

Can banks go back in and straighten out their securitization mess? So far the banks are downplaying the significance of the ruling. But untangling the paperwork may not be so easy. Many of the entities that created the securitized pools have gone bankrupt or dissolved into other businesses. At the very least, it could pose a costly and complicated process for the bankers, one that would entail taking a hard look at the details of the deals that led to the country’s financial collapse.

Foreclosures / Martin Column - 01/11/2011

BIPARTISANSHIP FOR BIG BANKS

With 2 weeks to go to the midterm elections, President Obama and the Republicans have found an issue they can agree on: if they just do nothing, the foreclosure scandal will go away.

They’re betting that the use of robo-signers to process foreclosure documents without actually reading them will just amount to a pile of sloppy paperwork.

They’re betting that blaming borrowers will trump public outrage over banks holding themselves above the rule of law that states they have to prove that they own a mortgage note before they can foreclose.

You can understand the Republicans’ position; they argue that the government has no responsibility and is only capable of making any problem worse.

President Obama’s approach can’t be much of a surprise either, after leaving his financial policy in the hands of Wall Street apologists, fighting the most robust financial reform, providing a failed foreclosure relief program and not raising a finger to help when banks opposed his own proposal and not using his bully pulpit to push it. The president, despite his occasional bursts of rhetoric, has never assumed the role of tough regulator and reformer he promised on the campaign trail, preferring to act as the big bank’s collaborator-in-chief.

The president’s name may not be on the ballot November 2. But many of the Democrats who are facing the voters advocate a more robust response: a foreclosure moratorium while the very real legal issues are sorted out.

The Obama administration has taken to sending signals to the voters, hoping that might allay their worries. The feds announced the formation of that entity designed to show concern while guaranteeing that no action will be taken for the foreseeable future: a task force.

A number of banks had started their own voluntary moratoriums on some foreclosures. But two of those banks, Ally and Bank of America, have already canceled them. Meanwhile all 50 state attorney generals have announced their own investigations into the mess.

Despite the efforts of bank apologists to minimize it, the foreclosure debacle continues to shape up as a series of nasty legal battles, with a dramatic, unsettling impact on the housing market.

Opponents of a foreclosure moratorium portray it as a way of giving homes to people who haven’t been making their mortgage payments. But that’s a phony argument. A moratorium will not end up causing anybody who hasn’t been paying their mortgage to own a house they didn’t pay for.

As far as borrowers living in their houses for free, let’s be clear: that’s happening now, and it’s not the fault of any moratorium. It’s happening as a result of the banks’ own chaotic approach to foreclosure, often not wanting to take possession of property that has lost its value or not hiring enough staff to manage the properties properly.

This is the terrible irony about the banks’ fear-mongering. While they’re always predicting awful consequences to any action that limits their own power, the banks create the consequences all by themselves, or with the help of their willing collaborators.

Bank of America (BoA) / Foreclosures / Martin Column / President Barack Obama - 10/20/2010

Don't Foreclose on the Rule of Law

As the foreclosure process implodes in the U.S., the big banks and their defenders are scrambling to defend the mess they’ve created, dismissing serious legal issues as mere technicalities.

I covered courts as a reporter for years and I learned something about legal technicalities.

What I learned was that whenever some lawyer started dismissing some legal rule as a technicality, they were about to try to heave some of their adversary’s fundamental rights out the window.

In the foreclosure mess, those adversaries would be the banks’ former business partners, their borrowers, the people they loaned money to.

Now the big banks are trying to dismiss the rules that govern the foreclosure process as legal technicalities.

Take for example the Florida case in which a judge ruled earlier this year that a document that was supposed to show that U.S. Bank owned the mortgage in December 2007 wasn’t created until the following year. The document filed by the bank, the judge wrote in March, “did not exist at the time of the filing of this action…was subsequently created and…fraudulently backdated, in a purposeful, intentional effort to mislead.” She dismissed the bank’s case.

The bank’s lawyer blamed carelessness. He explained: “Judges get in a whirl about technicalities because the courts are overwhelmed....The merits of the cases are the same: people aren't paying their mortgages.”

One of the other things I learned was that judges tended to use very precise wording in their rulings. If the judge in the Florida case was feeling overwhelmed, she didn’t mention it. What she did say what that somebody had fraudulently created a document.

That’s not a technicality. And it doesn’t matter if you’ve been making your mortgage payment or not. Banks are not allowed to foreclose on a home using fraudulent documents. Period.

One of the aspects of the rule of law is that it applies the same to everybody: a bank isn’t allowed to submit fraudulent documents to a court any more than a pauper is. That’s not a technicality. That’s the rule of law.

In the most recent brouhaha, a number of big banks, Ally, PNC Financial, J.P. Morgan Chase and Co and Bank of America, have acknowledged that their officials didn’t actually read key foreclosure documents before submitting them in court. Some documents appeared to have been forged; others appeared to contain false information.

A number of state attorney generals across the country have threatened legal action against the banks. Faced with a firestorm, some banks have voluntarily halted foreclosures in 23 states: the ones where judges oversee foreclosures. Only Bank of America has halted foreclosures in all 50 states.

One of the first banks to acknowledge that its own paperwork hadn’t been properly reviewed was Ally Bank, formerly known as GMAC. The latest controversy wasn’t the first time GMAC’s legal work on foreclosures came under scrutiny.

In 2006, Bloomberg News reported, another Florida judge sanctioned the company, finding that it submitted false affidavits to the court in a foreclosure case. The judge ordered GMAC to submit an explanation, certify that its policies had changed and pay the opposing party’s legal costs of more than $8,000.

As a result, GMAC’s legal department issued a statement that told employees “not to sign verifications on court pleading documents unless you have independently reviewed and checked the facts.”

The new policy, the Journal reported, was distributed in June 2006; it also stated in italics and boldface that GMAC employees should sign documents only in the presence of a notary. GMAC told the court that the policies were “being corrected.”

Three and a half years later, a GMAC employee said in a deposition that his team of 13 people signed about 10,000 documents a month without reading them.

Deborah Rhode, a Stanford Law professor, told Bloomberg, “It’s not ‘technical’ when people attest under oath to knowledge they don’t have, and it doesn’t matter that in fact there isn’t actual error or discrepancy,” Rhode said. “Any court would take this very seriously.”

Bank of America (BoA) / Foreclosures / Martin Column - 10/10/2010

"Conspiracy of Ignorance" Demands Attention

In California, the nation’s largest real estate market, the robo-signing scandal has produced many calls to halt foreclosures, but little real change so far.

For several years, lawyers who represent borrowers in foreclosure have been complaining about massive and gnarly problems in the foreclosure process.

Because of the way Wall Street sliced and diced mortgages into derivatives and sold them off, the ownership of the mortgage had often not been properly documented, these lawyers said.

Such documentation is a basic legal requirement of foreclosures.

But they couldn’t get many judges to go along with them, especially in California, where, by state law, judges don’t typically oversee foreclosures. They only get involved if a borrower files suit to block a foreclosure, and even then, the courts are reluctant to do anything that would benefit borrowers who haven’t been paying their mortgages.

But disclosures over the past week in the robo-signing scandal may change that, after bank officials disclosed that they signed thousands of foreclosure documents without reading them first. Among the problems were documents that appeared to be forged or inaccurate assessments of how much borrowers owed on their mortgages.

In states with court-supervised foreclosures, the big banks voluntarily called a halt to foreclosures. But not in non-judicial foreclosure states like California.

The banks’ position so far is that the robo-signing doesn’t represent any substantial problems in the documentation, just that they were overwhelmed and understaffed and couldn’t keep up with the paperwork.

Walter Hackett disagrees. He’s a former bank executive who now represents borrowers in foreclosure at Inland Empire Legal Services. Hackett also runs an online bulletin board for lawyers fighting foreclosure. “Sloppy paperwork is too nice a way to describe it,” Hackett told me. “It’s a conspiracy of ignorance.”

He recalled dealing with Wells Fargo on behalf of one client. They were promising his client a loan modification; however, by the time Hackett untangled the paperwork, it turned out the mortgage was actually owned by another bank. “Before a bank can foreclose on a property, they have to prove that they own the note,” Hackett said.

Meanwhile, Attorney General Jerry Brown has issued cease and desist orders against some of the big banks that have acknowledged problems in their paperwork. But Brown’s concern is not actually the robo-signing, a spokesman said, but whether the banks are complying with a California state law that requires the banks to attempt to work out a loan modification before they foreclose on a borrower.

Brown spokesman Jim Finefrock said, “We’re talking to them [the banks]. We’re hoping for a resolution of the matter.”

He acknowledged that Brown was focused on compliance with the California law, not the larger issues of whether documents had been improperly filed in foreclosure cases.

The implications of the foreclosure fiasco are potentially huge, what Reuters business blogger Felix Salmon describes as “the mother of all legal messes.” If the problems with the paperwork prove substantial, they could undermine previous foreclosures and home sales, leading to a waves of litigation involving borrowers, homeowners banks and investors. The bad news for the economy is that the robo-signing scandal will only prolong the foreclosure crisis, keeping those facing foreclosure, and the entire housing market, from attaining some kind of stability.

While politicians and organizations have been calling for investigations and moratoriums on foreclosures, those are only a start. We need real leadership to forge long-term solutions, instead of the weak half-measures we’ve gotten so far. Maybe the robo-signing mess will offer the opportunity for the administration, the banks and the investors to try again to solve the foreclosure debacle and to get it right this time.

Foreclosures / Martin Column - 10/08/2010