If a lender has not been paid in months or years and believes that they can convert a property to a performing investment, then they are going to have a very high interest in foreclosing. However, in many cases, if they had to use real, legitimate, original documents to carry out that process, it simply would never happen. Why? Because the originals simply do not exist[1]. Reuters calls this “one of the overlooked legacies of the housing boom,” and explains in a new report that “in the rush to make new home loans and sell them off as fast as possible…the original lenders…destroyed original documents or never turned them over as required.” As a result, promissory notes and mortgages frequently never made it to the end-buyer – or even just the next guy in line. This means that “many pension funds, insurance companies and hedge funds that invested in [investor] trusts never got formal title to the mortgages they had paid for.” And that means that when it comes time to foreclose, they may have no choice but to use doctored or replicated documents in order to do so. Analysts speculate that the reason that there has not been an audit or an investigation of this issue may be simply that “if the extent of the problem became known, the housing market might worsen.” For example, the country’s largest sub-prime lender (it collapsed in 2007) almost never endorsed promissory notes or assigned mortgages to the trusts that bought its mortgages, meaning that trusts may be out millions of dollars and a millions of homes could end up with clouds on their titles.
Do you think that foreclosures ought to always be carried out with original documents, regardless of the impact on investors who bought in good faith?
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[1] http://www.reuters.com/article/2011/07/18/foreclosures-banks-missing-idUSL3E7ID3T820110718
If you borrowed the money, you know you borrowed the money. Read the MERS language in your deed of trust. All this controversy over robo-signing, and “original” documents is a smoke screen. Excessive lawyering that serves noone in the long run. What we need to do to fix the housing market is to ACCELERATE the foreclosure process and clear the market.
Absolutely! The originals MUST be included. I have seen more than one case where the borrower has already been sued by two different lenders AT THE SAME TIME where they each purported to have the original. Certainly, one of them was wrong, at least one. I have seen a case from years ago where the borrower had paid off the entire loan (early) and the bank came a few years later and sued for foreclosure. The documents are important.
Further, if there is doubt, should it go to the lender? The lender, my friends, is the one who was key to setting up the rise in house prices. Sloppy lending and easy money was the result of selling lots of securitized loans. When these loans were sold, I believe that a good percentage were inflated as to safety. A loan that should have been a ‘B’ rating was handed off as an A or A-. This resulted in additional cash back to the seller and more money to repeat the process. This drove up prices more than the natural, honest market would have driven them. Speaking of honest, where is the credit reporting agency blame in this? The sloppy credit reporting was also a huge factor and should take the blame in many strategic defaults that we have not even seen yet. As a former lender (honest) I would love to get into how the credit reporting system was flawed and erroneously rated borrowers. The main point is that the reports equated high score with good character. This could be no further from the truth.
We had to use the credit score system and it was very wrong. I could see people across the desk with high 700′s who I would not trust to be in business with me. Then I could see people with 500 scores who would take a second or third job to make sure their obligations were met. The system put a false reliance on score and it was a part of the problem. ( I certainly do not think that score should be used for any other reason either. No insurance or job should be predicated on score. I can go on forever with this.)
Bottom line is that I think the securitization system, easy lending and reliance on scores together helped drive prices to unsustainable levels. This made people think that they had to get into a house while they could still afford it, so even more people bought. When the jobs disappeared, the lending slowed and the prices plummeted. I dont think the borrower was at fault for that. Provide the originals or we will be in a bigger mess than we are in now. To the extent that the lending and securitization safety was exaggerated, there was intent to defraud. When you have fraud, it tips the scales of the free market and something has to give to balance it out once again.
PROVIDE THE ORIGINALS ! That is the right thing to do. It may hurt, but then we heal.
THE FREE MARKETS PREVAIL ALWAYS ! If you see where you think that they don’t work, look closer. You will find the hand of government tipping the scale or some dishonesty along the way. Usually it is the hand of government. As we see in these last few years, the hand of government has caused many more problems than we had to deal with.
example…. government insisted that lenders offer modifications… Many of the ‘lenders’ had no authority to offer modificaitons, yet they still took money for the ‘effort’ and still foreclosed. The modifications should have been done the same way the FHA Streamline refi was done….. no credit check, no appraisal and no income verification….. IF people had known that it was a possbility, they may have been able to keep payments current longer so that they’d qualify. THAT ALONE would have saved at least 10% of the homes (and kept 10% or more off the distressed market – and kept the lenders out of scrutiny for not having the paperwork or having flawed documents).
thanks for the platform…
I agree 100% with Deb. If we were to follow the wishes of Ken Smith, we would be condoning fraud. Signed notes are binding contracts. To let the banks avoid the laws due to their greed would only be rewarding them. At this point, the government does not seem very interested in solving the problem. The inability of the banks to foreclose is a fitting punishment for their criminal acts. No bankster has been indicted nor has there been the mere mention of criminal indictments. Robo-signing is forgery. If I were to forge bank documents I would most likely be punished, maybe not with jail time, but probably a hefty fine.
Not only did the banks cheat their investors, but they also set up a fraudulent enterprise in the name of MERS. This criminal enterprise enabled the banks to save millions of dollars in paperwork, and also cheated local (county) governments out of the fees the lenders were supposed to pay them everytime the note changed hands.
Having correct paperwork is the law. If I do not have title to my car, I cannot sell it. If I go into court to evict a tenant and there is one small error on my documents, the judge will not hear the case. These two examples are petty compared to what the banks did. The banks helped to create this financial crisis and it is not that they didn’t have the staff or money to do things correctly. I personally would like to see heads roll and laws changed.
While agreeing with Deb and Albert, Ken makes a great point. As I see it, there two things at play here and they are both wrong. No original documents and people who don’t/can’t pay their mortgage. I agree the robo signing documents should not be allowed and is against the law. But, should the original documentation, or lack thereof, excuse the homeowner who didn’t pay. I think not. It just seems to me, that when lawyers and gov’t get involved it will be too costly, takes forever, and nothing gets done. The banks are so worried about their own asses and bottom line, they won’t do the right thing, ever again, for the customer (checked your credit card statement for fees and interest lately?). If they were going to do the right thing, it would have been done by now. IMHO the right thing would be for the banks to say ” Today, the money we get costs almost nothing, so we are reducing all mortgages to 3% until paid in full”. Had something like this been done when the sub-prime went down, the foreclosure rate would be reduced and banks still make money. The financial crisis was their fault and we as consumers and taxpayers are paying for it tenfold and will continue to do so until we reign in this out of control gov’t and bankers gone wild!
Who do we turn to to fix this? Not sure, but I don’t want the gov’t to over regulate.
My original opinion used to be, if you don’t pay the mortage then foreclosure is to be expected.
However, robo-signing led to too many cases of double foreclosures and innocent people being affected. If the paper work is not valid then the foreclosure should not happen. I know this lets some people off the hook. However, the investors also need to take responsibly for their actions.
I do not understand why the banks sont go ahead and offer a solution that everyone wouls love.which is to re fi at current low interest rates and re appraise the home and not have to have a 700 credit score.This would be the exchange for a real signature ond real mortgage ownership.I believe that most people would go for that.Noone wants to live under the strain of not knowing what to do.Get rid of bogus mods and get real.If you did not have a job you could not pay.re-do and move on!solves both problems .
steven ruza this country needs debt relief not a debt ceiling