Matt Taibbi on Deluded Tea Partiers, Ayn Rand and How the U.S. Is Like the Soviet Union
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MA: More recently, you have been following the courts, which in some cases, you think, are favoring mortgage companies over the homeowners. Describe what you saw in the courtrooms.
MT: I went to Jacksonville, Florida, and I was watching foreclosure proceedings. They had created these special courts that they’re nicknaming the “rocket docket.” Their mandate is to clear 25 cases an hour, so judges are spending just a few minutes on every case. The problem here is that this is very complicated. When these mortgages were issued, they weren’t normal mortgages like you might have had 20 or 30 years ago when one bank gave one person a loan, and then they held the loan until maturity. In the last 10 to 15 years, they were giving loans to people and then throwing them in big piles of loans and chopping them up into little bits, making securities out of them and then selling them off to foreigners or pensions or others. [Many of] these transactions were essentially fraudulent. They were presenting sub-prime mortgages as AAA-rated. Once they dumped these loans off on other people, they stopped doing the paperwork, [saying], “Why bother doing this the right way, or why bother being legal about it now?”
One hundred percent of the foreclosure cases that I saw had bad paperwork, and the foreclosing entity did not have the mortgage note. They could not prove that they actually owned this loan. If there is actually a lawyer present to point this out, usually the homeowner can beat the rap. I met people who were in their houses three and four years after their last payment. But 98 percent of the cases are unopposed, and the courts usually just rubberstamp these foreclosures, even when they’re not legal.
MA: You are also following some of the class-action lawsuits. I’m wondering why there aren’t more, if the fraud is as deep as you suggest it is. What do you know about the suits that are being filed and why there aren’t more?
MT: Well, they’re coming. One of the problems is that when they were selling these securities, they were typically selling them to groups of investors who were not organized. One person owned one 1/1000th or one ten thousandth of a pool of mortgages. It’s only now that those investors are getting together, organizing and realizing that the big banks took them for a ride. The banks are now getting sued from two sides: They’re getting sued by the investors, and they’re getting sued by the homeowners who are being foreclosed upon. There’s one suit in New Jersey against the Bank of America. It’s a class-action suit that basically charges them with using predatory loan practices or getting people into houses that they couldn’t afford or into risky loans when they could have had safe ones and then defrauding investors. There’s another suit in Kentucky that is a [racketeering] RICO suit. They’re using racketeering laws to try to get at this. So it is coming; there’s going to be a wave of lawsuits where people are going to try to recover their money from the banks.
MA: Ten years ago, it wouldn’t have been like this. Trace the changes over that period of time. Then tell us what you see that might be coming next.
MT: There were a couple of things. The big one is that they invented these derivative instruments, the process of taking big piles of loans and chopping them up into what’s called securitization. That’s actually been around since the ‘70s, but they didn’t have this way of taking those diced up loans and dividing them up into what they call tranches. They applied a very obscure math to these pools where they would basically say, “99 percent of the time, 28 percent of these loans will never fail, so therefore we can sell that 28 percent part as AAA.” They invented that tool in the late ‘90s. That’s when it all took off because now [they] could take a bunch of junk and sell it as AAA, which means that the credit risk is almost zero. They were never able to do that before the year 2000 or 1998, and that’s when this explosion happened.