Corporate Mortgage Scams Threaten to Crash an Already Shaky Housing Market
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The Great Recession may have ended in June 2009, according to the National Bureau of Economic Research, but U.S. Treasury Secretary Timothy Geithner isn't buying it. Neither are recently revealed foreclosure and eviction scams at GMAC Mortgage, JP Morgan Chase, Bank of America, Wells Fargo and other too-big-to-fail financial firms swimming in both American taxpayer cash and the Federal Reserve Bank's divine intervention.
“I'm not an economist, and I'm not an academic," Geithner ducked when asked last week during a Financial Services Committee hearing to agree with NBER's suspicious assessment. "I would just say the following: This is still a very tough economy."
That's a colossal understatement; our creaking housing market is being capsized by a foreclosure pandemic riddled by corruption. Last week, predictable news emerged that Jeffrey Stephan, a GMAC Mortgage team leader for affidavit execution, signed off on nearly 10,000 foreclosures each month without even bothering to read them, although he is legally tasked with doing so. That's a rate of one a minute, if he works an eight-hour day, according to the Washington Post. Afraid it would look like it was blithely executing foreclosures on a callous conveyor belt -- which is precisely the case -- GMAC quickly put the brakes on any further evictions in 23 states until it could find a way to massage the problem.
"Do not proceed with evictions, cash for keys transactions, or lockouts,” GMAC's official memo explained. “All files should be placed on hold, regardless of occupant type. Do not proceed with REO sale closings.”
Real estate owned ( REO) sales are sales of lender-owned properties that banks failed to unload at foreclosure auctions, and are busily trying to dump by any means necessary. That includes selling them to whatever deal-hunting home buyers still exist in this anemic economy.
But prospective home buyers could be inheriting damaged goods. Because of their dense securitization, each mortgage is divided between so many parties that banks are foreclosing and selling homes that may not even belong to them.
"Wells [Fargo] is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency onto the buyer," Yves Smith explained on Naked Capitalism. [But] if a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own."
Worse, titles to REO properties are being compromised and confused by these crafty banks and their lawyers. In one particularly ridiculous case, Bank of America foreclosed on a Countrywide-brokered Florida home and transferred its title to Fannie Mae, even though it had already been paid off in cash for it and no mortgage existed.
This securitized madness is exactly how owners were saddled with predatory adjustable-rate mortgages to begin with. The plan was never to keep them in their hastily constructed properties, built during a post-9/11 housing boom that more or less functioned as a casino for hedge funds and other deregulated power players. The plan was to saddle homeowners with artificially inflated loans that would exist long after their assets' true value was reached, in the best case. Or, in the worst case, long after they were kicked out of their homes, or could have their homes illegally repossessed thanks to obscure legalese and naked grift.
It is no accident that, according to CoreLogic ( PDF), as of Q2 2010, nearly a quarter of all residential properties with mortgages are underwater. (Or experiencing negative equity, as bean counters looking for less scary terminology are wont to say.) Nor is it surprising that housing prices have not yet bottomed, even though they've fallen by nearly 30 percent since 2006.