In the many foreclosure actions I have defended for distressed homeowners over these past years since the advent of the sub-prime mortgage industry meltdown, much focus and deference has been placed on the principles of contract and upon the fact the note and mortgage reflect contracts and the payment of funds to the borrower for the purchase of real property. Despite any arguments I make evidencing fraud, fraudulent inducement, misrepresentation, violations of RESPA, HUD and other Federal and State Regulations, debilitating and gouging closing fees charged by originating lenders and their Wall Street wharehouse lenders, the plaintiff banks and many judges, always retort and end with “well… your client got the money didn’t he/she?”
Yes, in many cases my client was able to purchase a home he couldn’t afford, with what little capital he had at the time, to enter into a loan agreement and product designed by the banks to fail. Years before the meltdown and recession it caused, the Wall Street king pins, had created their latest financial product, the mortgage backed security, where they were able to convert the traditional mortgage into unregulated bonds/stocks, which could be sold across the world to the naive investors looking to cash in on the newest bubble Wall Street was peddling. The big banks didn’t have a problems selling these securities because they promised to provide big investors with preferences and insurance on their investment by AIG, an insurance company we discovered was too big to fail. An insurance company which would have pulled down the big boys on Wall Street, if the government didn’t step in to help AIG.
Meanwhile Goldman and other really smart players, knowing what was coming, had pulled out of the marketplace long before the expected mess hit the fan on the street and across the global markets. Not only did they head for the hills, but apparently, they continued to let their clients buy, buy, buy, while they and their best customers, bet in the market that the product would fail. They made a killing on the crash. When the government was handing out TARP funds, these very smart and swift firms didn’t even want to take the TARP funds, because they didnt need it and because it came with some strings attached; however the government in its wisdom compelled them to take it. How would it look if these firms which basically caused the meltdown of our economy flagrantly danced around with their record profits, while all those who drank the cool aid were falling down and occupying Wall Street.
This was product based in fraud, designed by its creators to fail, sold and bankrupting pension funds, municipal retirement funds, municipalities and Countries. Securitized pools of loans, sold like stocks, placed into the stream of commerce, by their generals, captains and field marshals, by foot soldiers. Who is in jail now? Not the king pins, not the generals. But instead, the foot soldiers that did their bidding. The borrowers who drank the cool aid. The mortgage brokers who were on the street selling the stuff. The realty appraisers, who were fired if they didn’t bring the “right” value in on their appraisals. Should we have these people on the street prosecuted for their crimes? Yes. Should the king pins have been able to retire with millions of dollars in retirement packages and the like, while thousands lost jobs and all their retirement savings. Guess how many Wall Street Mortgage King Pins and their generals have been prosecuted. “0”
So yes, the answer is yes, my client did sign a contract, a note, a mortgage. He did get the money which made him think he was buying a home or refinancing to make repairs to his roof, or to pay for collage for his family. But what did he get? A mortgage with an artificially low interest rate designed to hook him in, which would double when the adjustable rate period kicked in two years later. Then a foreclosure action, a judgment of foreclosure, eviction papers served on his teenage daughter. Homelessness, ruined credit, and the impossibility of other home owning options, and bankruptcy.
What did the bank get. More money than we can say. How? Well the big banks sold the loans before they defaulted. For the banks that still held the loans after the crash, those banks dumped the non performing assets to “investors” who bought the notes for 10 cents on the dollar. Then the big banks declared the losses, and were able to take these non performing assets off their books, so they could be profitable again. The government handed out money to them, I guess as a punishment for their involvement in the scheme. Only a few years after the crash, the big banks were posting record profits and higher then expected returns.
You will never guess who bough the paper for ten cents on the dollar? Did you ever wonder what happened to many of the Ivy League executives and principals from California that created sub prime lenders like New Century, Fremont Investment and Loan, etc., and other sub prime firms which raked in more money than you can even count. They didn’t just go away you know. They formed new companies they called “servicers.” They could take these horrible non performing assets off the Big Banks’ hands for 10% of the paper’s face value. Which really was a doing the big banks a favor, because believe them, they knew how defective and messy those loans were. In a former life, they worked for the very firms that originated the toxic loans for the big banks.
I kid you not, this information is available all over the net, you just have to know where to look.
Next these “servicers” (which really own the paper and are now in position of the bank) try as best they can to wrestle the property away from the distressed homeowner, rehab it and sell it for an incredible profit. Or if they can get the homeowner to split for a $3,000.00 moving fee (what they call “cash for keys”) then they foreclose and make the big money.
My clients in foreclosure used to say to me, “if they dont give me a modification…the bank is going to lose; the property is not worth as much as the loan, and underwater.” the bank is going to lose?” I kept thinking about this statement. Corporations are not in the business of losing. If they lose, they go under. But after a long time, what was really happening became apparent. Lets say the note has a principle of $500,000.00 owed on it at the time of foreclosure. This incoming investor paid $50,000.00 for it. At foreclosure sale or short-sale the property fetches $300,000.00. Guess who just made over a 200% profit on their investment, buying non performing asset, which in a prior life, they originated in sub prime?
Yes my client got the money. But its not that simple. Principles of contract have always been king in our beautify and and yet sometimes horrific capitalist society. It part of what makes this country great. But if contract is king, i maintain the greatness of this Country stems from the fact that Equity and the Law are supposed to be its Queen. A foreclosure action is an action based in Equity. This means that any party coming to the Court for relief must have “clean hands”.
Our society must not allow homage to contract to trump the law and soil the integrity of our Courts. Courts which unknowingly deferred to banks and overlooked or ignored the fraud being perpetrated by the banks in the Courts against homeowners in the foreclosure actions being advanced all over the Country. Our Courts must have a say when legislators refuse to take action to protect the fundamental principles of equity due process and fairness, which are codified in our laws? The banks and their investors have pulled the wool over all of our eyes, but It is not going to happen forever. In recent years judges, legislators and lawyers have caught on to the scheme and called it out. Not in time for most of those who lost their homes already. But in time to stop the remaining batch of actions which are a blight on our Court system and society.
The checks and balances in our democracy and the method of confronting inequity in society are painstaking and take so much time. Our regulators and government officials are constantly playing catch up with those innovators who find loop holes and scheme to earn profits with complete disregard to the welfare of our Nation and its people. In the mortgage foreclosure world, things have only moderately improved with respect to the protections enacted to prevent the abuses that led to the meltdown the misfortune of so many. The laws created to protect distressed homeowners have no teeth and have been flouted by banks, who just keep paying fines and settlements to avoid criminal prosecution. Pay a few billion dollars, it is just a couple of days pay.
Wall Street funds the reelection campaigns of the legislators in Washington and New York. The legislators write the laws which are suppose to protect the borrowers who were taken advantage of. They write laws to satiate the masses. Laws with no teeth, which the banks can dance around, as long as they pretend to be dealing in good faith to offer home retention options to the distressed borrower.
A cram down statute proposed by some progressive minded legislators was rejected by government. Such a statute would have permitted trustees in bankruptcy to restructure and reduce the debt on a home to comport with the current value of the property for interest rates which were more reasonably related to current market forces. But such idea was squashed. Instead the benefit of the restructuring or reducing the mortgage debt was given to the market. Why should it be given to the working and middle class? Instead give it to the folks that originated the loans, who buy the paper for a song, and then putthe property in to their inventory, and just wait a few years to gain control of the home, resulting in a absurd profit on their investment.
i guess when they make a killing on a foreclosed home in the latest scheme, the wealth will trickle down to the rest of us.