Our new robo-signing overlords...

September 25, 2010 6:55 AM

From his cubicle inside a sprawling beige stucco building, Stephan works as the leader of the document execution team for GMAC Mortgage. He has signed off on as many as 10,000 foreclosures in a month, according to court documents. That's barely a minute per case...

With a record 95,000 homes foreclosed on in August the quality of mortgage and foreclosure documentation is increasingly being questioned (previously). GMAC (now re-branded as Ally Financial) is the latest lender to have their foreclosure process in the spotlight.

Jeffery Stephan, the "Robo-Signer" was tasked by GMAC with reviewing foreclosure documents for factual accuracy, a job for which he received 3 days of training.

GMAC/Ally has suspended evictions in 23 states and has issued a "more robust policy" on processing foreclosures.

Members of the House Financial Services Committee are investigating whether Fannie Mae has engaged in similar behavior.

Chase and BoA may also have issues.

posted by ghharr (96 comments total)

Goddamn those greedy homeowners! If it wasn't for them and their "American Dream" the good folks at GMAC wouldn't have to submit fraudulent documents!
posted by Avenger at 7:06 AM on September 25, 2010 [11 favorites]

It seems like the real-estate financing field is the fast track to getting yourself embarrassed. What a bunch of jokers.
posted by fuq at 7:07 AM on September 25, 2010 [1 favorite]

i wonder how quickly the court will assert that people unfairly kicked out have no legal recourse
posted by lslelel at 7:13 AM on September 25, 2010 [5 favorites]

On the other hand, the last 20 years in real estate has been jokers all the way down.

As good a place as any to plug the Irvine Housing Blog, which I think I discovered through MeFi. The commentary there is unbelievably trenchant.

HIGHLY recommended is their 3 part series (written by IrvineRenter) on the mechanics of the housing bubble, which begins here.

One of the best blogs I've discovered this year. They do regular postmortems on foreclosed properties in Orange County, tracing the histories of fantasy, greed, and theft that lie behind so many of these properties.
posted by fourcheesemac at 7:17 AM on September 25, 2010 [8 favorites]

I'm beginning to suspect that there might be some shady practices going on in the finance world. I hope this doesn't lead to an economic collapse of some kind.
posted by etc. at 7:18 AM on September 25, 2010 [27 favorites]

He's the Stakhanov of home foreclosures. Swell.
posted by Joe Beese at 7:20 AM on September 25, 2010

As someone who's in the midst of a modification application with Chase, I'd just like to say that this makes me feel so much better about my prospects.

And by "makes me feel so much better" I mean "I'd like to personally push the button that launches all the people engaging in this behavior into the sun."
posted by yiftach at 7:21 AM on September 25, 2010 [7 favorites]

Identifying Stephen's house and car, and linking him to individual local foreclosures under contentious litigation can't possibly have unintended consequences.
posted by cromagnon at 7:30 AM on September 25, 2010 [4 favorites]

Why do we still have the archaic requirement of having an individual scribble a unique glyph onto a piece of paper? Clearly the real work and processing of a mortgage document is being done by a system, largely by computer. Why require a quill pen?
posted by Nelson at 7:31 AM on September 25, 2010 [1 favorite]

Every time I hear a story like this I find myself wondering if (or when) somebody is going to go after these guys with the RICO law.
posted by LastOfHisKind at 7:31 AM on September 25, 2010 [1 favorite]

A Crack In Wall Street's Foreclosure Pipeline. In Ft Lauderdale you can get foreclosed even if you don't have a mortgage.
posted by adamvasco at 7:34 AM on September 25, 2010 [2 favorites]

Market Data Firms spots the Tracks of Bizarre Robot Traders.
posted by The Whelk at 7:37 AM on September 25, 2010

Identifying Stephen's house and car, and linking him to individual local foreclosures under contentious litigation can't possibly have unintended consequences.

I thought that was a bit much as well.
posted by ghharr at 7:41 AM on September 25, 2010

I would urge anyone interested in this topic to go to this post at the widely respected housing blog Calculated Risk and read the links within, from 2007.

Tl;dr: It sure does look like they screwed up a lot of paperwork, but that doesn't mean they don't in fact own the note and doesn't change the fact that if the homeowner stops paying, whoever does own the note has the right to foreclose. Might buy you some time if you're currently somewhere in the foreclosure process with GMAC or any bank they serviced for.

Why do we still have the archaic requirement of having an individual scribble a unique glyph onto a piece of paper? Clearly the real work and processing of a mortgage document is being done by a system, largely by computer. Why require a quill pen?

Short answer: Because a computer can forge but cannot be put in jail. Your mortgage and your deed are actual things, which the owner must prove it actually has in its possession in the event of dispute. This is called chain of title, and the legal procedures around it have been developed over hundred of years because land is a thing that stays put and always has some value and quite often lots of people want it. Having clear procedures to prove you own what you say you own is a basic necessity. If chain of title gets fucked up --- and right now securtization and sloppiness have fucked up a lot of them --- you can get situations such as this.
posted by Diablevert at 7:57 AM on September 25, 2010 [9 favorites]

They didn't give out his address or his license number or anything. I think the point was to show that the guy doing this isn't some monocled land baron, but a person with a lifestyle not unlike many of the people he's approving the forclosure of. I think that message is as much for him as it is for anyone else. If he has felt no shame for doing what he's doing, this article has done a good job of trying to change that.
posted by hermitosis at 8:01 AM on September 25, 2010

I'm beginning to suspect that there might be some shady practices going on in the finance world. I hope this doesn't lead to an economic collapse of some kind.

Me too. If these financial shenanigans were to start affecting average Americans, Bankers might take to the streets demanding more public debt and bigger bonuses. Traffic would be nuts.
posted by larry_darrell at 8:10 AM on September 25, 2010 [2 favorites]

As troubling as Mr Stephan's actions are, realize that this person is not the reason we're in the housing mess. We're there because people borrowed more than they could afford to borrow. In some cases, perhaps, they were persuaded that they could assume that risk; but in the end, it was a decision that many folks consciously and willingly made to supersize to a house whose cost was outside of their means.

Those folks who played the game by the rules and bought the house they could afford should not have had to assume the risk for the people who didn't.

It's a different story where fraud by the lender was involved, however. We should be spending time trying to figure out which of these foreclosure cases were the result of fraudulent action by the banks, and going after those who perpetrated this fraud.

I have little sympathy for those whose McMansions are in foreclosure and are able to renegotiate the terms of their payments - effectively reneging on their commitment - while I (who have seen a modest, though real, drop in home value in the house I bought - a smaller one than I would have liked, but one I was able to afford) have no such option available to me only because I've made my payments on time and as agreed.
posted by aberrant at 8:14 AM on September 25, 2010 [2 favorites]

They didn't give out his address or his license number or anything. I think the point was to show that the guy doing this isn't some monocled land baron, but a person with a lifestyle not unlike many of the people he's approving the forclosure of.

I agree and have no problem with that.

I think that message is as much for him as it is for anyone else. If he has felt no shame for doing what he's doing, this article has done a good job of trying to change that.

I completely fail to understand why he should feel ashamed, and I think anyone trying to name and shame Thompson is displaying a dangerous and appalling ignorance of the circumstances which they purport to be outraged over.

The problem here is not Thompson. The problem here is that the Thompson's desk and a few places like it were places where the zippy little efficiencies of the global market collided with the real world and its real houses made of wood with attics and basements and people in them. The banks tried to handwave away the problems presented by that collision, and now the legal system and its pesky little rules about evidence proof and certainty have come up and bit them in the ass.

Thomson did something wrong --- he didn't bother to check all the time that what he was signing was true, and he didn't swear in the presence of a witness. But the fact that Thompson didn't check doesn't mean he was wrong, or lying. It means he was sloppy. But I'll wager that he didn't even know how sloppy he was being, because when he walked in on day one and got told what the job was "Sloppy Verging on Negligence," was SOP. And that's the fault of people a lot higher up the food chain than him.

And even after all that --- Sloppy is bad, sloppy is wrong, and sloppy and arrogant might well be enough to get a judge to throw out a few cases in order to teach the banks an expensive lesson. But somebody still owns these notes. And if the homeowner stopped paying, that somebody still has the right to foreclose. This might be a couple extra months to some people. But fundamentally it changes nothing.
posted by Diablevert at 8:21 AM on September 25, 2010 [5 favorites]

Your mortgage and your deed are actual things

Yeah, I guess so, actual physical pieces of paper. That Stephan is signing because the archaic record keeping requires physical tokens. Stock certificates used to be that way but we've moved pretty much entirely to electronic holdings. It's been a huge benefit for everyone. Why haven't mortgage records done the same?
posted by Nelson at 8:21 AM on September 25, 2010 [1 favorite]

Waitasec. The article mentions that he has this job - the banks have to employ (people like) him - because of homeowners' lawyers' claims that "lenders have no legal standing if the filings weren't reviewed and verified, and... argue that the cases should be thrown out."

Seems to me that if you disapprove of his actions, you should also condemn the system that allows people to skate free - renege on their obligations - because the foreclosure review process wasn't robust enough (even though there's no dispute, in many such cases, that the homeowners actually owed the money and failed to meet their obligations under a valid contract).
posted by aberrant at 8:37 AM on September 25, 2010

Nelson, real estate ownership is much more complicated than stock ownership -- the basic fact that the whiz kids who set up this whole securitization mess missed. You can't have a lien on stock, you generally can't have a mortgage on it, it's not subject to property taxes, and it's not subject to zoning and improvements. So with a piece of real estate there can be a whole bunch of people and government entities all of which have an interest in it and none of whom trust one another, which is why having a secure means of documenting those relationships that everyone trusts is key. And the bottom line is that nobody has figured out a digital equivalent to the signature on a physical piece of paper that is as trustworthy; signatures can be forged and signed fradulently, but doing so leaves evidence that one can return to later. All the digital techniques that have been proposed can be forged seamlessly with the right kind of access and it's very hard to prove anything is wrong; in fact, if you put too much trust in such systems, you end up with people like the unfortunate Mr. Grodensky basically being screwed because "it's in the computer that way."
posted by localroger at 8:37 AM on September 25, 2010

Why haven't mortgage records done the same?

EMP man, EMP.
posted by MikeMc at 8:43 AM on September 25, 2010

Yeah, I can't get all worked up about this. Thomson was faced with a ridiculous, Sisyphusean task, and handled it the way he was expected to. Yes, the banks should get a nice anal reaming over this - but it's management's fault for putting Thomson in this position, not reviewing his work, and not asking how in Pete's name he could process 10,000 foreclosures in a month.
posted by Xoebe at 8:44 AM on September 25, 2010 [2 favorites]

Why do we still have the archaic requirement of having an individual scribble a unique glyph onto a piece of paper? Clearly the real work and processing of a mortgage document is being done by a system, largely by computer. Why require a quill pen?

I actually agree with you and disagree with Diablevert on this point. If you want evidence that these things are incredibly automated, you need no further proof than the ability of the banks to have low wage staff sign 10,000 summary judgement affidavits a month. They built the process to deal with and minimize the necessary expense of having someone physically sign a document. In an organization's evolution, this is the equivalent to a pancreas.

Why haven't mortgage records done the same?

Probably because the vast majority of stock transactions are between large institutions, where the benefits of cost reduction are obvious. If you're doing mortgages in person, the cost of a piece of paper is nothing in relation to the cost of staffing an office, etc. Of course as noted above, mortgages are held electronically for all intents and purposes.
posted by geoff. at 8:46 AM on September 25, 2010 [1 favorite]

His poor hands!!
posted by benzenedream at 8:57 AM on September 25, 2010

I didn't really intend for the FPP to be about Mr. Stephan himself but it seems like most of the recent articles about this focus on his role and deposition. I'm sorry if my post made it look like he in particular was a bad egg, it seems to me now like it sort of does. I don't actually think he's done anything particularly wrong, he did the job he was given and trained to do and doesn't seem to have made a ton of money on it or anything.
posted by ghharr at 9:05 AM on September 25, 2010

Yeah, I guess so, actual physical pieces of paper. That Stephan is signing because the archaic record keeping requires physical tokens. Stock certificates used to be that way but we've moved pretty much entirely to electronic holdings. It's been a huge benefit for everyone. Why haven't mortgage records done the same?

They tried. The fact that they tried, and did a shitty, half-assed job of it, is at the core of the housing problem and is partly behind stories like this. Again --- it would be helpful to read Tanta's posts from 2007 that I linked to above; that blessed lady forgot more on this subject than I'll ever know.

First, a sidenote but an important one: Stephen was not signing the deeds or the mortgages. He was signing an affidavit. A document which you submit to a court on any subject, in which you swear that the events you are describing are ones which you personally witnessed, on pain of perjury. Affidavits can be about anything, and they're required about practically everything, as far as legal proceedings go.

In this case, as part of filing a foreclosure case with the court (e.g., the bank saying, "we would like to take this guy's house, please,") the lender is required to submit an affidavit swearing a) that they own the mortgage which gives them they right to foreclose if they haven't been paid; b) they haven't been paid; and, c) having followed all the legal proceedures required of them (giving the homeowner a certain amount of notice, informing them about modification programs open to them, etc.) they would like the house now, please. Stephans was the guy signing all the affidavits, swearing that he, personally, knew all this. He didn't. But the fact that Stephans wasn't going into every case file and checking that all the proper letters had been sent at the proper times doesn't mean they weren't sent --- it just means he lied in the affidavit. Lying in affidavits makes judges mad. Sorry for the sidebar.

Anyway --- like I said, procedures for maintaining chain of title have been developed over centuries --- millennia, really. There's such a thing as a 999-year lease, after all. The overlying principle of all maintaining chain of title is that when land is transferred from A to B both of them have to sign a record of this in the presence of witnesses and a note of this transfer should be made in some sort of central record repository. The record is literal and physical --- sigs, stamps, seals. In the United States that happens at state level, and each individual state has their own laws about how it has to be done.

Back in the 1980s, when it first occurred to somebody that both mortgages and bonds were IOUs and if you gathered enough of them together you could basically turn a bunch of mortgages into a type of bond, they ran into this problem. How to freely and near-instantaneously trade the bonds if every mortgage is centrally recorded in a given state and every time it transfers owners a record of that has to be physically made on the deed? Answer: split up "keeping track of the property" from "owning" the property. Appoint a "servicer" who gets paid to hold on to the actual pieces of paper for the owner, make sure the loans are being paid off and the taxes are paid, and sends the owner the money.

In particular, there was created around this time MERS, or the bond-hole. MERS is intended to create a central repository that records each new entering mortgage and assigns it a unique number. There's a stamp on the actual mortgage saying it has been transferred "in blank" meaning without naming the actual owner, but with MERS listed as keeping track of the servicing rights and responsibilities. It's the fulcrum which turns a physical record into an electronic one.

This all worked okay for 20 years or so, until the crisis. Bondholders trades the securities (and packages them, etc.) the servicers serviced the loans, and MERS kept track of who had what.

But even though the banker and traders were happy with what they had wrought, nobody had ever really bothered to consult the local jurisdictions whose laws govern the underlying properties. Yet there are, after all, actual houses at the bottom of all this, actual houses and owners subject to the particular laws of the place where they are. Those laws didn't change when some genius came up with the idea for MERS. And if you want to take someone's house you have to obey those laws.

When foreclosures were rare as hen's teeth --- which they are, in a rising market --- then nobody much bothered about all this. You can deal with things case by case. And when there started to be a lot of foreclosures, the disconnect between the transition from physical to electronic records started to show. Banks sometimes can't find the actual documents state law requires them to present to prove they own the houses they're trying to take, or can't prove they had owned them at the time the foreclosure action was initiated. Two servicers are pursuing the same homeowner, because the servicing rights got transferred after the foreclosure was initiated. 30,000-person cities in the Midwest are suing Deutsche Bank for not mowing the lawn, as the local regulation require of all property owners to do if the grass gets above a foot, etc.

Some of these wrinkles are getting wrung out, now. Perhaps better systems will be designed. A lot of the fault was sloppiness, not fraud --- And I have glossed over a hell of a lot in this already too-long comment, and probably made some mistakes. So I'll stop.
posted by Diablevert at 9:17 AM on September 25, 2010 [31 favorites]

you know, Republicans would have my respect if, instead of screaming TARP BAILOUT TARP BAILOUT, they actually went after these motherfuckers of the banking industry. but they wont and that's what so painful to watch. a lot of those TEA PARTY people are losing their homes right now. supposedly the rate of foreclosures is higher in Republican-controlled states like Florida, Tennessee, Arizona. and yet these people will blame OBAMA for their misery instead of the fucktard obstructionist congress-critters who won't throw in jail and needless to say regulate the people who actually are causing their constituents pain and misery.

the whole thing is disgusting. like Yves Smith over at nakedcapitalism says, it's outright looting and Wall Street, the banks, the Feds and Capitol Hill are all accomplices.
posted by liza at 9:25 AM on September 25, 2010 [2 favorites]

One minor twist in this story is that, since the bailout, the US government is the majority shareholder of GMAC/Ally Financial. Your tax dollars at work.
posted by Missiles K. Monster at 9:45 AM on September 25, 2010

Computers are very good at pattern matching and math. They suck at dealing with things that don't fit their original data structures and algorithms. Humans are much more fuzzy about things, which gives us tremendous flexibility but can make for error (plus there's the everpresent specter of fraud). To prevent that we've created a system where computers make all the decisions and then we put humans in the system as a fail safe and tell them to check the math and pattern matching despite the fact that they have no hope in hell of keeping up. Now sprinkle in some data entry error and stamp it ISO9001 and serve.

I work in the wonderful word of GMP where we're only injecting things into people. There are lots of pros to the GMPs, but every so often I find myself assuming the face in palm position because someone on high is less concerned about scientific integrity than they are with thorough documentation or rigid adherence to set procedure. Thursday I got an e-mail about a project we had transferred to someone else. In a method I developed I describe the first lot of a custom reagent I prepared, but what I shipped them the second lot because the first lot is long since gone. They wanted this discrepancy explained.

They also wanted this discrepancy explained in August. And June. And March. The new thing I learned from this e-mail is they have some computerized system that apparently finds at tracks all these things for them. They depend on this thing so much it's like they've sacrificed their ability to pass a Turing test in the name of having all the I's dotted and T's crossed.

Nobody trusts people to make decisions any more. So instead we're all bowing before these hastily cobbled together Excel spreadsheet overlords we've made for ourselves.
posted by Kid Charlemagne at 9:47 AM on September 25, 2010 [4 favorites]

Stephen was not signing the deeds or the mortgages. He was signing an affidavit. A document which you submit to a court on any subject, in which you swear that the events you are describing are ones which you personally witnessed, on pain of perjury... Stephans was the guy signing all the affidavits, swearing that he, personally, knew all this. He didn't. But the fact that Stephans wasn't going into every case file and checking that all the proper letters had been sent at the proper times doesn't mean they weren't sent --- it just means he lied in the affidavit.

Yes, I really don't understand the excusing of Stephan's behavior here. It appears that he repeatedly committed criminal acts to remove people from their homes. It doesn't matter that he had little training. He knowingly perjured himself over and over again, and he should be personally held accountable for this.
posted by grouse at 9:51 AM on September 25, 2010 [3 favorites]

Yes, I really don't understand the excusing of Stephan's behavior here. It appears that he repeatedly committed criminal acts to remove people from their homes. It doesn't matter that he had little training. He knowingly perjured himself over and over again, and he should be personally held accountable for this.

The homeowners signed a mortgage stating that they owed a certain amount of money every month, and if they didn't pay it the bank could take their house away. They didn't pay. The bank tried to take their house away. That is the central fact. No one is alleging the foreclosures were being initiated on people who were paying. Stephans was the I-dotter and T-crosser in all this. That he did not dot as he should have dotted will not change the end result for the people who are being foreclosed on: They will still lose their homes. Because they didn't pay their mortgage. It will just take longer because the paperwork got screwed up.

I don't know Stephans; I don't know what, if any, legal training he had, how his role was explained to him, what he understood the significance of the documents he was signing to be. In his testimony he says he as given three days of informal on the job training. It appears clear from testimony and evidence that he was expected to work through hundreds or thousands of these cases per day. Third-grade math will tell anyone that that doesn't leave time for any kind of review.

My instinct is that this is a sin born of the arrogance of routine: People, and institutions, often forget why it's important that that i gets its dot and that t gets its cross, that these little details can be necessary to protect them against big risks. Especially if the risks are rare. I think that's really what happened here. Can I prove that? No.

But I do feel it's important to point this out --- this is not a case of people being foreclosed on wrongly. It's a case of the foreclosures not being carried out properly. Foreclosure is a serious business; it should always be done properly, and if the banks lose a few cases for these technical screw ups it will be far less than they deserve. But to say "it appears he repeatedly committed criminal acts to remove people from their homes" is I think, a misattribution of intent. The homeowners got foreclosed on because of what they did, not what Stephans did.*

*Please take as read the my concession that if he was processing 1,000 of these a day it's probable that at least one was issued in error. That's why he was supposed to check in the first place. I'm just terribly afraid people are coming away from this story with the impression "Thousands of people had their homes taken away because the banks can't be bothered to read their own files!" and that is wrong, wrong, wrong, wrong. Irritatingly, depressingly wrong.
posted by Diablevert at 10:28 AM on September 25, 2010 [4 favorites]

As troubling as Mr Stephan's actions are, realize that this person is not the reason we're in the housing mess. We're there because people borrowed more than they could afford to borrow. In some cases, perhaps, they were persuaded that they could assume that risk; but in the end, it was a decision that many folks consciously and willingly made to supersize to a house whose cost was outside of their means.


True, aberrant. It was Stephan's bosses that got us into this mess, and this is an example of their honest and aboveboard business methods.

Nelson, so far as glyphs go, the idea is that some actual person is swearing on pain of imprisonment for the crime of perjury, that a real live human has reviewed the records and that the computer is correct. I doubt it will work that way in practice, of course. Stephan here has, so far as I can understand it, been committing an outright felony over and over and over. Do any of us suppose he'll actually face a penalty as harsh as as 21-year-old who admits giving a six-pack to his 20-year-old brother?
posted by tyllwin at 10:32 AM on September 25, 2010 [5 favorites]

I sometimes think this whole "financial crisis" was just a giant smash-and-grab job.
posted by vibrotronica at 10:32 AM on September 25, 2010

vibrotronica, you can stop thinking and start knowing, because you're exactly right.
posted by zoogleplex at 11:32 AM on September 25, 2010 [1 favorite]

But to say "it appears he repeatedly committed criminal acts to remove people from their homes" is I think, a misattribution of intent. The homeowners got foreclosed on because of what they did, not what Stephans did.*

I'm not arguing with that. But I think we agree that enterprises that engage in perjury to achieve their aims in the courts should be sanctioned, regardless of whether they would have been able to achieve their aims without perjury.

I also feel that the individuals engaging in perjury should be punished, period. Regardless of their legal training. I don't think you need a lot of legal training to know that it's wrong to swear that you did something to a court when you simply haven't done it. I don't think the law excuses perjurers from lack of legal training. And I don't excuse Stephan either.
posted by grouse at 11:51 AM on September 25, 2010 [2 favorites]

Something else that GMAC/Ally has been up to.
posted by Halloween Jack at 12:20 PM on September 25, 2010

"The homeowners signed a mortgage stating that they owed a certain amount of money every month, and if they didn't pay it the bank could take their house away. They didn't pay. The bank tried to take their house away."

No, you're making an assumption that the bank in question actually owns the house. If they don't , why should they get the benefit of selling the house in foreclosure.

There's an obnoxious dynamic at work here that I can't stand,where the bias is against normal people and in favor of the oligarchy. I'm sick of it. You hear a lot of people talking about "well the problem is that people borrowed more than they can afford so now they're loosing their house, as it should be." Well what about the banks? Couldn't you just as easily say "well the banks lent money to people that couldn't afford it, then screwed up the paperwork so no one knows if they really own it, so now the bank is losing its shirt. Too bad." Why is it always "too bad" in the favor of the powerful, "too bad" in favor of the people who actually had the analysts and tools to know when borrowers couldn't afford the loan? I'll tell you why. It's because for a generation our society has lionized the predatory financial class and turned them into our neo-feudal overlords. We put them on magazine covers, watched TV shows about them firing people, while all the while they were making sure that they got a larger and larger percentage of the real, productive economy. Well screw that. In Europe, after the fall of Rome warlords erected castles along riverine trade routes. They charged people to use the river-- if you didn't pay then they would break your stuff. Sorry Mr. Farmer you're going to have to pay Mr. Boatman extra money to haul your wheat, so that he can pay Mr. Warlord a toll. Warlords were smart and they hired people to sing songs about how awesome they were, and we called those people bards. They also paid off the moral arbiters of the society to tell everyone that they deserved their fate. Well maybe "paid off" is too strong a word, the warlords just ''donated" money to build giant cathedrals. That period of time sucked, it wasn't just feudalism, it was, to quote the great philosopher Bill Waterson, a futile system.

Today, rather than geographically bound feudalism we have virtual feudalism where various powerful people and their sycophants have carved out sections of the economy for themselves. Want to go to school? That takes a loan, here you go, we're going to take all the surplus income you earn because of your degree. Want to buy a house? Well all the value that your house accumulates as your neighborhood gets better, we're going to take that in the form of interest on the 30 year loan you take out. Make a mistake? We take your house. We make a mistake? We take your house. As Yves Smith says, heads we win, tails you lose. Rather than hiring bards to tell our stories, we get ourselves shows on MTV, VH1 and HGTV to show all of the serfs, I mean, debt slaves, how awesome we are. Also, we pay off the opinion makers, I mean economists and pundits to tell everyone how they deserve their fate. Well we don't really pay them off we just establish foundations and scholarships and endowed chairs, where we pay naive high-functioning autistics to tell everyone how God, I mean, the invisible hand, mandates that we continue to rule. And when the entire system explodes into a million pieces, well, it's not our fault. No, it's those evil debt slaves, err, McMansion dwellers, who came into our banks with AK47s blazing and forced our bank managers, at gun point, to give them loans. Also, it is the fault of scary brown people who the evil Democrats forced us to give loans to. Yes, it's those evil Democrats, we really hate them, even though they also deregulated our entire industry, and their leadership also worships at our temple since There Is No Alternative. Yes, we really couldn't do anything to stop those evil debtors from borrowing our money, it's not like we had fleets of lawyers and underwriters screaming at us telling us that we were lending money to people who couldn't afford to pay it back, oh no, that never ever happened.

And, when one of our own borrows money to build a giant shopping center, and it all goes wrong because rather than working on the plans he was on reality TV firing people, that's okay, he can declare bankruptcy. It's a business decision , you see. And since, the shopping center has lost half it's value, we'll pass a law that lets the bankruptcy judge modify the mortgage on the shopping center, so that our buddy will only owe what the place is worth now. Then, when he has a hard time even making the payments on the modified mortgage, he will walk away from it but that's okay, because it's just a business decision.

But, when one of the debt slaves loses half the value on her home, and loses her job, we can't let the bankruptcy judge modify the loan down to the current value of the home she lives in. That would be immoral. It would be immoral because if everyone did that when the economy tanked, some of us would lose our neo-feudal domains, and that can't be allowed to happen, because God, I mean, the invisible hand, has mandated that we rule our domains. And also, when our debt slave can no longer make her payments and bankruptcy can't protect her , she better not walk away, because it's immoral. When she bought the house it was an investment in her future and strictly business. But if the price falls, she has to stay in it because it's her moral obligation. Also, if she goes bankrupt, we can't let her discharge her student loans because that would be immoral and be giving a free ride to hippies. We encouraged her to think of herself as a business, and to "invest in her future" by getting an education. But, when things go wrong with her business decision, it's not a business decision for her to discharge her debt in bankruptcy, no,its immoral for her to be able to get a free ride. She's a hippie, and therefore, we have to punch her. It's mandated by the invisible hand. We on the other hand, are entitled to free rides, for example, we'll get the government to pay for giant infrastructure products to bring us water for our fields, and also, for the Intertubes.

It's her moral obligation to be our slave forever, and for us to extract as much out of her as we possibly can. But hey, at least she can buy herself a cheap 6 pack of beer at Wal Mart and zone out in front of her netbook. But we better not catch her growing pot at her house because, hey , if she does that , how are we gonna get paid?
posted by wuwei at 12:22 PM on September 25, 2010 [41 favorites]

"Thousands of people had their homes taken away because the banks can't be bothered to read their own files!"

Actually, not so wrong.

Once the borrower defaults on their mortgage, there's no law that says foreclosure is mandatory. Lenders have many choices, including renegotiating interest rates, principle owed, granting an extension, working with the seller on a short sale, among dozens of other options.

The choice to foreclose was the banks' choice, and it's their fault alone if they fail at it because they set up a system where mortgages were treated as high-finance instruments first, and title to real property second, or not at all.
posted by Missiles K. Monster at 12:23 PM on September 25, 2010 [6 favorites]

The fact is that in each of these thousands of cases there are two wrongs; there is the wrong of the homeowner not paying his bill, and there is the wrong of the mortgage holder not doing the paperwork and hiring Stephen to commit perjury to economically make it look like they have. Neither of these things are right, but the fact is foreclosure procedings come up before a court, and the court thinks very dimly of the latter wrong in particular.

Now make no mistake, the chain of title is very important in property transfers and it's not a given that someone somewhere will get paid for these mortgages. You can lose your claim to a property for doing the paperwork wrong; that's looooong established, and these companies have been doing the paperwork wrong hundreds of thousands of times over.

But the homeowners who are "saved" by their banks' incompetence aren't completely off the hook here; they may get to stay in "their" homes for awhile, maybe indefinitely, but they may never be able to sell, or to sell at anything like the market rate, because they won't have clear title either. In fact restoring clear title to each and every one of these properties is going to be a messy, expensive, time-consuming process that nobody is likely to want to pay for. And unless there is a specific legislative remedy (which would have to be state-by-state) it's unlikely that such a title would end up in the hands of the occupants or their heirs.

Oh, and yesterday my wife happened upon an interesting document of ours. Ten years ago tomorrow we paid off our own house in full, with an overpayment of USD$0.11, and the mortage company duly notified us that this princely sum would be added to the escrow account and refunded. Like some others posting before me I have a modest house I could afford, but I can also sell it whenever I want for whatever the market can bear. The people getting "relief" because of this accounting fuckup can't do that and it could be a big problem for any of them who ever feel the need to move.
posted by localroger at 12:35 PM on September 25, 2010 [1 favorite]

Localroger: actually, the people living in the house may eventually take clear title, depending on the state laws. In California, if a person stays on a piece of land for 5 years, pays property taxes, while enclosing and improving the land, they can take title. This is called adverse possession, otherwise known as "squatters rights."
posted by wuwei at 12:41 PM on September 25, 2010

"Yes, I really don't understand the excusing of Stephan's behavior here. It appears that he repeatedly committed criminal acts to remove people from their homes. It doesn't matter that he had little training. He knowingly perjured himself over and over again, and he should be personally held accountable for this."

Presumably, Stephan's superiors are lawyers/accountants, and knowingly set up a system that created false affidavits.

Responsibility flows uphill, or should, in this case.

"The homeowners signed a mortgage stating that they owed a certain amount of money every month, and if they didn't pay it the bank could take their house away. They didn't pay."

http://en.wikipedia.org/wiki/Predatory_lending

The bank tried to take their house away. That is the central fact. No one is alleging the foreclosures were being initiated on people who were paying. Stephans was the I-dotter and T-crosser in all this. That he did not dot as he should have dotted will not change the end result for the people who are being foreclosed on: They will still lose their homes. Because they didn't pay their mortgage. It will just take longer because the paperwork got screwed up.

Considering the banks are corporate persons ... first up against the wall when the revolution comes?
posted by sebastienbailard at 12:50 PM on September 25, 2010 [1 favorite]

hi wuwei - Couldn't you just as easily say "well the banks lent money to people that couldn't afford it, then screwed up the paperwork so no one knows if they really own it, so now the bank is losing its shirt. Too bad."

For the same reason we don't consider "she was asking for it" a valid excuse for sexual harassment.

While the banks do have a moral and legal obligation to protect their clients, the stronger obligation is for parties who entered into a contract to fulfill their obligations under that contract.
posted by eeeeeez at 1:14 PM on September 25, 2010 [1 favorite]

Wuwei:

What eeeeeez said. It goes to intent. If the intent of entering into a binding agreement was to defraud the other party, or make them incur, through deception, risks that they weren't prepared to incur, then that party has unclean hands and deserves to be sanctioned. That the aggrieved party is sometimes (most of the time? up for debate) not a "big bad corporation" should in no way mitigate the sanctions.

The banks knowingly took risks. They should be made to pay for their bad gambles. They should have recourse to take possession of the asset they underwrote, per the terms of the mortgage contract, in order to minimize their losses (that is, after all, why we have lien provisions and foreclosures). The folks who entered into the contract from the other side should be made to bear their risk as well. The height of unfairness is that folks who NEVER HAD A SAY in these decisions are now underwriting BOTH sides' bad risks.

Whether it's bailing out the banks, or allowing someone in foreclosure to get a break on their agreement, it's wrong - and penalizes those of us (myself included) who elected to understand the agreements we made, and to honor our commitments.

These jerks who knowingly lied on their mortgage applications to buy a bigger house than I have - and are now unable to pay for it, but instead are being allowed to maintain ownership at the expense of those of us who didn't lie, cheat, or steal to purchase our property (and who, like most, are out some equity as a result of the market decline) - are part of the reason this country is sliding into moral as well as literal bankruptcy.
posted by aberrant at 1:38 PM on September 25, 2010

Couldn't you just as easily say "well the banks lent money to people that couldn't afford it, then screwed up the paperwork so no one knows if they really own it, so now the bank is losing its shirt. Too bad." Why is it always "too bad" in the favor of the powerful, "too bad" in favor of the people who actually had the analysts and tools to know when borrowers couldn't afford the loan?

Because most people don't really know anything about what running a bank entails, but they do know what it's like -- if they've ever bought a house -- to work out their mortgage payments and figure out how much house they can afford. And it's pretty clear, in a fair number of cases anyway, that people either didn't do that, or did and then decided to play the game anyway.

Plus, I think a lot of people feel like, if they didn't take a liar loan and move into a McMansion and get to live there, than nobody ought to have been able to, and thus the people who did and are getting foreclosed on are simply getting their just desserts (perhaps not just for the lying, but more for their over-ambition).

The idea that "hey, you could have gotten a McMansion too, if only you'd played the game and gotten your own ridiculous mortgage, too bad you didn't!" seems to bother many people -- and I mean, really infuriate the fuck out of them -- a lot more than the idea of some Wall Streeters making out like bandits. After all, that's what people on Wall Street do. It doesn't represent any change, any threat to the status quo.

The machinations of Wall Street are far away and abstract, but the obnoxious friend-of-a-friend who house-flipped himself into a giant house is a much more personal affront. In the US, given any conflict between the personal and the structural, always bet on the personal.

The Republicans get this; the Democrats don't seem to.
posted by Kadin2048 at 2:08 PM on September 25, 2010 [7 favorites]

Kadin: I think you mostly nailed it, but at least in my case, it's more for the lying than the overambition that bugs the heck out of me - and why, even though I didn't speak up in the previous thread, I have turned away from the Democrats' fiscal message and won't be voting for them in November (though I've spent my entire life thus far as a single-party voter). You're right about the R's getting it where the D's don't.

FWIW, I don't agree with the banks' getting a pass on their bad gambles either. Ambition and risk taking is ok in my book, as long as you're prepared to deal - yourself - with the risk not turning out the way you planned.
posted by aberrant at 2:32 PM on September 25, 2010

grouse:

Do you feel the same about those homeowners who knowingly signed "liars' loans"? In effect, they were also committing perjury.
posted by aberrant at 2:37 PM on September 25, 2010

Because most people don't really know anything about what running a bank entails, but they do know what it's like -- if they've ever bought a house -- to work out their mortgage payments and figure out how much house they can afford. And it's pretty clear, in a fair number of cases anyway, that people either didn't do that, or did and then decided to play the game anyway.

I am so sick of this allegation. I am among the people you are accusing of not figuring out how much house I could afford. I certainly didn't need a "liar loan" when I bought my far-from-giant house 6 years ago. But I got laid off, and as a freelancer, my income is now less than one-third of what I made then. In more normal times I would have sold the house and moved by now, but I cannot do so without coughing up the difference between what I paid and what I owe on the property, money I simply don't have. This is the story for so many, but I guess it's must be more satisfying to congratulate yourself for your moral superiority.
posted by Wordwoman at 2:41 PM on September 25, 2010 [11 favorites]

Wordwoman: I sympathize with your position, but moral superiority has nothing to do with it, and there are no congratulations being offered or accepted. I'm calling it out: that's a straw man designed less to promote sympathy for your plight than condemnation for those of us who (by luck or otherwise) aren't in the same financial straits. Why must you heap scorn in order to deflect from your very unfortunate circumstances?

Had you decided to invest that money in a company that went belly-up, would you be seeking reimbursement or recovery for that risk? If not, why not? If so, who would you suggest is responsible for mitigating that decision?

If your house had quadrupled in value while mine had halved, would you be offering to split the windfall with me, or with your lending institution?
posted by aberrant at 2:48 PM on September 25, 2010 [1 favorite]

aberrant, a lot of people never were told (and it's a subtle thing you'd have to be pretty informed to know for yourself) that if your house tanked in value you'd be trapped, unable to sell unless you could make up the short-sale difference to your mortgage holder. I certainly didn't know that when I was paying the mortgage on my house, so I guess I was lucky I paid it off before the market went kablooey. (Ironic note, I got it cheap because it was a FNMA repo from the Neil Bush years, so I guess I am the beneficiary of someone else's loss there.)

Home ownership has been promoted for years as the financial sina qua non whithout which you are not quite whole, and it had been a long time since that early-90's down market so a whole generation had come up who really didn't know what the down side looked like. I don't think it's reasonable to expect people to actually read 100+ pages of fine print to discover stuff like that, so not disclosing it more plainly really is a sin on the part of the banks who created the mortgage documents and agreements.
posted by localroger at 2:58 PM on September 25, 2010 [1 favorite]

Localroger: if you're signing an agreement that places you in indebtedness for years, I would suggest the onus is on you to understand what it is you're signing, and to ask for documented answers to any questions you might have. Sorry, not much sympathy for folks who didn't read their agreements - unless they were deliberately and specifically told something that turned out not to be true, in which case the fault should be with the person who attempted deceit.
posted by aberrant at 3:04 PM on September 25, 2010 [2 favorites]

aberrant, that's a nice theory but it's not how it works. People use advisors to guide them and when the advisors are lying en masse, people who might have had more sense following their own instincts get stuck.

If anybody has a right to be pissed at these homeowners it's me -- I fully paid for my house as of ten years ago tomorrow. It's small and the neighborhood is going meh, but it's OK. Beats renting. But I'm not pissed at them. I sure didn't understand all the i's and t's of the dozens of documents I signed at our closing; it's just not possible if you aren't a real estate expert yourself. You pay realtors and lawyers to understand this stuff for you because understanding it is a full time job, and you're probably employed doing something else. So when your advisors are either liars or suckers, who's to blame?
posted by localroger at 3:10 PM on September 25, 2010 [3 favorites]

Wordwoman: I'm sorry you are in such a crappy situation, I can understand your anger, and I'm sure you're doing your best to deal with the situation honorably.

There are two things to which, unfortunately, you need to own up, and they are harsh:

1. You picked a bad time to buy that house (obviously, you are not alone in this). There's an element of bad luck to this, and yes just about everyone was doing it, but the information that buying a house in 2004 was a bad idea was out there. You made the choice, and it turns out it wasn't a good idea.

2. By choosing to buy that house, it's entirely possible that you participated in the financial situation that eventually resulted in your own layoff. You are also not alone in this.

I also got laid off, in late 2008, as a direct result of the housing crash and subsequent credit availability crisis; my employer ran into trouble because first, our biggest client at the time suddenly went under without warning because the VCs that were funding them decided they were a bad risk and stopped. They couldn't get credit anywhere else, so poof, they folded. At the time they were behind on payments to my employer to the tune of tens of millions of dollars, in the middle of projects which were immediately cancelled, instantly depriving the company of income. My employer was already borrowing heavily to cover payroll and cash flow, when suddenly that credit line was cut off as well, causing mass layoffs and eventually resulting in the company being swallowed by a larger corporation at a fire sale price.

So, I and about 100 others lost our jobs as the direct result of everyone buying houses during the bubble years of 2003-2008. A lot of my former co-workers are in the same place you are - because they bought houses and suddenly could not afford to pay for them, nor could they sell.

I'm doing fine, because I didn't buy a house, even when everyone (and I do mean just about everyone) I knew was saying I was a total idiot for not doing so. I've been renting and saving whatever money I can for the last decade. I'm kind of a minimalist in terms of lifestyle, too, so losing a bunch of income was more comfortably survivable for me than many others.

Again, I'm sorry you're stuck, I sympathize with and share your anger at the situation. I had nothing to do with it all and still I got screwed. We'll all be continuing to pay for this probably for the next 20 years or more, we all got shafted here.

localroger: "aberrant, a lot of people never were told (and it's a subtle thing you'd have to be pretty informed to know for yourself) that if your house tanked in value you'd be trapped, unable to sell unless you could make up the short-sale difference to your mortgage holder."

No, that's not true, it's not a subtle thing. That information was and is easy to find, and there have been numerous historical precedents even within the last 30 years. If you didn't know this, you didn't do your diligence in understanding the transaction.

Mind you, most people didn't and were explicitly encouraged not to know this by predatory lending practices. If you had taken that stack of contract documents home and read it instead of just signing it, this possibility is spelled out in there, somewhere. It's legally required to be spelled out (but probably in confusing language).

"So when your advisors are either liars or suckers, who's to blame?"

You are. Always. Getting caught up in hysteria does not absolve you of responsibility, especially legal responsibility. I get your point, the advisors were lying. Note that those "advisors" were taking 6% of the transaction - anyone who's getting a cut should not be taken at face value on any transaction. They were not on your side, so... caveat emptor.

RTFC, people. RTFC.
posted by zoogleplex at 3:15 PM on September 25, 2010 [1 favorite]

Do you feel the same about those homeowners who knowingly signed "liars' loans"? In effect, they were also committing perjury.

I don't think it is equivalent to perjury, but if the homeowners lied about their income and assets, then it looks like fraud, and that should be punished as well.
posted by grouse at 3:18 PM on September 25, 2010

aberrant, have you actually ever bought a house? I mean really. Actually completed all the paperwork and signed everything IRL. Because I have, and I can tell you what you are advising is not physically possible.

You do not actually see any of this paperwork until the closing. This is a meeting attended by about 10 people including the bank writing the mortgage, the owner, the real estate agent, and a couple of other folks who were probably hollywood extras. The whole thing is a gauntlet of signature-signing, at the end of which you get a house. It simply isn't possible to read all the documents; there are literally hundreds of pages of them. If you were a lawyer you could probably get copies ahead of time for review but nobody is ever told that this might be a good idea, and even if they did they're all in legalese so the implications aren't clear to someone who speaks English instead of Law.

So you sign and sign and sign, and the lawyer for the bank does tell you "and this is saying that you intend..." for each one, but after awhile it all becomes a big drone of sign and sign and sign and about three hours pass and finally, it's over, and you're a homeowner.

In my case, I then said "OK, can I have the keys?" thinking, having bought a car before, that that's like the next thing. They hand you the keys.

Nobody had the keys. Keys don't figure into how this process is played out. After some bickering they figured out the house had been re-keyed to a standard set FNMA used, and one of the realtors loaned me his copy so I could get into my own house.

You see, people think of things like keys. Banks think of things in small fine print that only lawyers understand. The whole process has been streamlined for the lawyers. Expecting ordinary individuals to figure out how to protect themselves from that is ridiculous.
posted by localroger at 3:24 PM on September 25, 2010 [7 favorites]

if you're signing an agreement that places you in indebtedness for years

Then you can't afford whatever it is you are buying. Yes, this means that only the very richest in our society can afford to own a home.
posted by dirigibleman at 3:35 PM on September 25, 2010 [2 favorites]

"It simply isn't possible to read all the documents; there are literally hundreds of pages of them."

Ya think maybe that should have been your first clue that you were being railroaded? I mean, because you obviously were being railroaded?

Look, I'm not without sympathy here - this was part of the core of predatory lending practice, and a lot of people got taken by it.

But really, signing a pile of paperwork that you didn't read when you're about to owe someone several hundred thousand dollars, more than you've ever owed anyone in your entire life, doesn't seem like a great idea when stated that way, does it.

For example, did folks not understand that on a 30-year mortgage on $500,000 at 5%, you're going to pay over $440,000 in interest? Almost paying for the house twice? I got that info in 30 seconds on the Internet. You'd be signing up to pay out the next 1.2 MILLION DOLLARS you make, when you include tax and mortgage insurance.

And you don't think reading the paperwork would be a good idea, even if they're trying to railroad you?

I don't know about you, but I haven't even made a million dollars total yet over 25 years of working. I wouldn't take any chances with that kind of money involved.

Sorry the process is designed from the ground up to screw you, but welcome to life in the 21st century.
posted by zoogleplex at 3:36 PM on September 25, 2010 [1 favorite]

Localroger:

I bought a house in 2004. A condo, actually, so there were tons more documents that needed to be read: homeowners' association rules, bylaws, disclosures, etc. - that other people like my parents, who bought a single-family home, didn't have. My wife and I personally read every single page of every single document. It was more than 400 pages (I still have two copies here - one in my safe deposit box, and one in my files). I also hired an attorney, on my dime, to ensure that I understood what they meant, and I paid him just over $10k for that advice. (Since it was a "condo conversion", I didn't need a real estate broker.)

I had all the paperwork before closing - I simply asked for it. I don't accept that the information isn't available prior to closing. I made sure that the papers I signed at closing were identical to the papers I and my attorney had reviewed. The closing took six hours as a result, and everyone was exhausted at the end, but I knew what I was getting into and as a result I am comfortable that I entered into an agreement, the terms of which I am capable of honoring even in the most unfortunate circumstances.

This was my first real estate purchase. It was more than I thought I would ever spend for my "starter home" and I wanted to make sure I did it right. I'm sorry that you and others didn't perform this level of diligence, but it is possible to do so, and I'm glad I did, if only to better understand the risks involved in entering into an agreement that would leave a large amount of my net worth tied up, and me in debt for the balance, for the next several years.
posted by aberrant at 3:38 PM on September 25, 2010 [2 favorites]

Oh - and my closing had 4 people in the room: the attorney handling the seller's side of the transaction, our attorney, my wife, and myself. (The transfer of title was done separately.)
posted by aberrant at 3:41 PM on September 25, 2010

Please don't equate something large like "I didn't understand I could get underwater on my mortgage" with something small like "I didn't read paragraph 7 subsection c of page 37 where my right to establish a woodwind school is contingent on a vote of the homeowners association".
posted by Nelson at 3:49 PM on September 25, 2010 [2 favorites]

aberrant, good on ya but I'd say your nick is appropriate here. I am typical of most homeowners until 2008 or so -- I didn't know what the stupid papers said but it worked out OK. That's what most people know. I can't tell you why there were so many people at my closing; possibly because it was a FNMA repo. It was after all 18 years ago. Nobody then told me to do any of the things you're telling me should be done now, and I'm not aware of anybody who has ever told home buyers to do what you're saying to do now -- except lately, now that the crap has hit the fan. For ever and ever it has been considered a standard transaction and while theoretically those signature mean you know something, it's all been about greasing the process so you don't have to think about it too much before moving in.
posted by localroger at 3:57 PM on September 25, 2010

Localroger: I can't speak to anyone else's experiences so I don't have any way to support or refute your assertion that my approach was aberrant. It just seemed like the logical thing to do given that my financial future was on the line. It seems illogical to me that folks would spend more time picking out a computer, or reading the latest novel, than understanding an indebtedness agreement that would bind them for 10, 20, 30+ years. Not faulting their choice, but to claim ignorance after the fact seems disingenuous.
posted by aberrant at 4:06 PM on September 25, 2010

Wordwoman: I sympathize with your position, but moral superiority has nothing to do with it, and there are no congratulations being offered or accepted. I'm calling it out: that's a straw man designed less to promote sympathy for your plight than condemnation for those of us who (by luck or otherwise) aren't in the same financial straits.

My critique is for those who constantly drag the same straw man into this discussion: that those who are threatened by foreclosure are greedy, stupid, no-income, house-flipping, lying suckers living in McMansions.
posted by Wordwoman at 4:07 PM on September 25, 2010 [2 favorites]

Wordwoman: who did that in this thread?
posted by aberrant at 4:11 PM on September 25, 2010

aberrant, you spent nearly 20% of the purchase price of my house to hire a lawyer to review your transaction. I'd say the air must at the very least be very thin up there.
posted by localroger at 4:14 PM on September 25, 2010 [1 favorite]

Localroger: It's because I sunk a ton of cash into the condo that I felt obligated to pay for legal representation. I note that you bought your house when I was scraping my pennies together to afford home ownership. I'd say your air is pretty rare as well.

That said, I'd prefer it if we kept the ad hominems to a minimum. Deal?
posted by aberrant at 4:20 PM on September 25, 2010

aberrant, I think you misunderstood my metaphor -- I said the air might be thin, suggesting a high altitude. rare doesn't make any sense. And it's not an ad hominem; it's a suggestion that you have a lot more resources than I do.

I went through what I think was a pretty standard closing for 1992; there was nothing exceptional, everyone seemed bored, nobody jumped up and said they dunnit. And the whole process was guided by people who promised me they knew what was going on and what to do next. I doubt any of that changed in the next 15 years, except for the toxic mortgage terms and collapsing market.

You are asking ordinary people to exercise a level of diligence that nobody really expects them to exert, until this kind of situation arises when all of a sudden it's their fault. You are just the exception that proves the rule. Nobody actually does that because only those who are very knowledgeable would sink the money for the lawyer and spend the time reviewing documents. Your job isn't buying a house, it's something else. There are people who have not just your trust, but institutional trust that they will do these transactions right precisely because the individuals can't be expected to. When those people fail, it is not the fault of the people who trusted them.
posted by localroger at 4:29 PM on September 25, 2010 [2 favorites]

Localroger, you weren't paying attention. There was another real estate bubble back in the early 1990s where much of the same stuff happened, just at a far smaller scale than this mess. IIRC it was also more regional in nature, with some areas being bubbly and others not. Your FNMA repo in 1992 was very likely part of that bubble.

"aberrant, you spent nearly 20% of the purchase price of my house to hire a lawyer to review your transaction."

Localroger, do you see how your $50,000 transaction doesn't quite compare to the many $500K, $750K, $1 million transactions that happened during this bubble? In terms of how much you can make in a lifetime, I mean? I think your experience compared to aberrant's or Wordwoman's may kinda be apples-to oranges.

If you put 20% down on that $50K house, and your income was around $15,000/year, then your loan ($40K) was less than 3x your annual income. This is a sensible transaction, 3x your annual income is what anyone used to expect to pay for a house.

A lot of people during the bubble were buying houses where the selling price was 5x, 8x, 10x their annual income. This is just insane by all historical standards of house-buying. Even if you make $250,000 a year, you can't actually afford a $1 million house. Ever. Period.

Both aberrant and Wordwoman may have done this, with differing results as of today.

Anecdotally, man... I remember when I moved to LA in '98, the houses in the neighborhood around my apartment building were in the $275,000-$300,000 range, and I was kinda shocked at what a great deal that was. These were seriously nice houses in a very good neighborhood. Unfortunately I didn't have the cash on hand or credit rating to buy in at that point, or I most definitely would have.

By the time they started handing out no-money-down loans to just about everyone, around 2004-2005, these houses were all in the $800,000 range, and I knew that was totally outrageous. Nearly triple in 6 years? Nuts. No way I was going for that, way too risky.

Those houses went up as high as $1.5 mil, and now they're back down between $700K-$900K, which I personally think are wishing prices, even though it's still a great neighborhood. I wonder how far they'll go back down?

If I had been able to buy any of the houses I liked at $300K in '98, I would have been out when they hit $1 mil, socked the cash in the bank and dividend stocks and rented. I might have been able to semi-retire. It's all in the timing, though. I just didn't have the wherewithal when it was the right time to buy.

Problem is, neither did most people who bought between '03 and '07-08.

aberrant... ouch. Hope you didn't get burned too bad when things fell apart. :\
posted by zoogleplex at 4:31 PM on September 25, 2010

tyllwin:Nelson, so far as glyphs go, the idea is that some actual person is swearing on pain of imprisonment for the crime of perjury, that a real live human has reviewed the records and that the computer is correct. I doubt it will work that way in practice, of course. Stephan here has, so far as I can understand it, been committing an outright felony over and over and over. Do any of us suppose he'll actually face a penalty as harsh as as 21-year-old who admits giving a six-pack to his 20-year-old brother?

Stephan, and those like him, are going to make great fallguys if the government ever decides to investigate this as fraud. Pencil pushers like him will hang while the bankers laugh all the way to the...bank.
posted by dr_dank at 4:40 PM on September 25, 2010

Weell zoogleplex it's worse than that -- see, it was a FNMA repo so the government paid my closing costs and I only had to put up 3% down. So my total cost to move in was around $1,800.

But yah, at the time I took out the mortgage I was already making around $35K a year so it wasn't a bad decision, and the blackjack team paid it off.

Personally, I wouldn't have entered into any of these toxic transactions myself; but when I did buy I took the usual advice and I can easily see how naive buyers guided by those same guys would have done stupid things without necessarily understanding the stupidity level.
posted by localroger at 4:47 PM on September 25, 2010

Y'know, the level of legal complexity involved in a home closing is just completely out of control. I'm an aeronautical engineer, but I would never advocate scrapping the commercial aviation system as it is and replacing it with a system that requires everyone to design, build and fly their own ultralight aircraft if they want to fly anywhere and hire someone like me (at lawyerly fees) if they need help with anything. Yet this is analogous to what several people in this thread are advocating for a home closing -- reading and understanding hundreds of pages of legalese and hiring experts at great expense (if you can afford one) to handle things when you don't happen to be one of the very few people who does this for a living.

I guess I'm saying what localroger is saying. I don't do home closings for a living and you don't design aircraft for a living. It should be obvious, given the events of the last few years, that this is a system in dire need of reform.
posted by indubitable at 4:55 PM on September 25, 2010 [8 favorites]

Right, localroger, I get ya. As I said I'm not entirely unsympathetic to those who were taken advantage of.

But really, your house-buying experience is nothing like what we're talking about. At that income level your house was an excellent deal.

In contrast, a lot of people - many of them regular, honest people - in this mess put 3% down and borrowed $700,000 via an 80/17 two-lender Interest Option Only ARM that started at 7.5% interest. They were paying $1500 a month on a house whose payments should have been more like $6,000-$7,000 a month, until the mortgage "adjusted." This appeared to work just fine when the house was "appreciating" at 20% per year, and a lot of people after 3 years were able to refinance that with a new "full-value" IO/ARM and keep the payments at $1500... while the principal balance climbed and climbed every month. Some people got to 2008 owing well over a million bucks and then got hit with a $12,000/month payment "upgrade" while suddenly not being able to refinance. (Fairly rare, but it happened.) Meanwhile, the house lost 30% of its "value" and boom, underwater, foreclosure time.

That same pattern happened even to people who borrowed a lot less.

Apples to oranges related to your situation.
posted by zoogleplex at 4:57 PM on September 25, 2010 [1 favorite]

Well zoogleplex I work with a lot of what might be called 'ordinary' people (you'd call them that because "stupid" sounds bad). And I can see these people doe-eyed and trusting asking someone how much house can we afford? And the shyster getting out his calculator and figuring up how to maximize his 6%, getting them into one of these "deals" and they never really understand the implications until now, when the shit hits the fan and the original shysters have long since moved on with their 6%.

Granted, I'd like to have the mcmansion I deserve since I made a responsible buy and made every payment, but the thing is nobody is helped by throwing these idiots out in the street and boarding up their entire subdivision.
posted by localroger at 5:16 PM on September 25, 2010 [1 favorite]

As troubling as Mr Stephan's actions are, realize that this person is not the reason we're in the housing mess. We're there because people borrowed more than they could afford to borrow.

No, not really. People have been borrowing more than they could afford to since mortgages were invented. The mess is due to the banks attempting to evade the rights and responsibilities of the traditional, stability-ensuring legal recording process so they could make mortgage-backed securities that would be liquid enough to be attractive as investment vehicles.

In doing so, they obscured the connection between the securities themselves and the people and properties those securities were based on. This created perverse incentives, and induced subsidiary industries to cut corners on their due diligence, which ultimately created a system so rife with misinformation, deception, and corruption that it could not bear up under its own weight. That's the mess.

(If the banks had followed the legal process for recording mortgages -- which generally required them to file at the County Clerk's office and pay a fee every time the mortgage changed hands -- mortgage-backed securities would have been too cumbersome and illiquid to be attractive.)

That's how you end up with a Mr. Stephan who has three days worth of on-the-job training signing affidavits for billions of dollars of foreclosures he has no firsthand knowledge of. That's how you end up with 62 million mortgages where lenders are potentially unable to establish the chain of title required to foreclose. It's not bad borrowers who set this system up, and to blame them for it is to misunderstand the whole problem.
posted by Missiles K. Monster at 5:19 PM on September 25, 2010 [12 favorites]

While the banks do have a moral and legal obligation to protect their clients, the stronger obligation is for parties who entered into a contract to fulfill their obligations under that contract.

Uh, one of the parties who entered into that contract was the bank and one of their obligations under that contract was to review foreclosure documents for factual accuracy prior to foreclosing.
posted by Kid Charlemagne at 6:31 PM on September 25, 2010 [3 favorites]

zoogleplex: thanks for the concern. San Francisco actually has not seen the collapse that, say, Stockton or West Sacramento has seen, so I estimate we're probably down 5-10% from the highs. That, of course, comes straight out of the equity that the homeowner puts in, as we are the first "at risk" party. It's all good, though - not planning to leave anytime soon.

Missiles K. Monster: I agree with you with respect to the mess. However, the secondary market is not the thing that drove the bubble. The bubble happened first; the secondary market, sleazy though it may be, was established so that those who weren't primary (home-purchasing) investors could get a piece of the action.

The lack of due diligence is entirely the problem of the lending institutions. The fact that loans were given to people who otherwise/traditionally wouldn't qualify was entirely a risk-based decision for the banks. However, it takes two parties to make a contract, and the folks who agreed to the terms - the homeowners who assumed appreciation, or misstated their income, or otherwise agreed to terms that they shouldn't have (been able to) agree(d) to - bear equal responsibility.

Our current and previous administrations decided to allow BOTH parties to renege on their obligations at the expense of those who played by the rules and were honest brokers throughout. That's what's so galling.
posted by aberrant at 7:52 PM on September 25, 2010

On the other hand, if they held both parties to their obligations they would have drug the economy into a morass that makes the current situation look like Saturday in the Park with George.
posted by Kid Charlemagne at 9:47 PM on September 25, 2010

However, it takes two parties to make a contract, and the folks who agreed to the terms - the homeowners who assumed appreciation, or misstated their income, or otherwise agreed to terms that they shouldn't have (been able to) agree(d) to - bear equal responsibility.

I agree on an individual level, but this is a systemic problem. People have always been, and will always be, stupid and greedy. No system will last long if they don't account for the fact that there are a lot of dumb people out there. Systems are designed to deal with this fact. When it fails to do that, that's the fault of people running the system, the professionals, the banks, the loan officers, the lending institutions. Not the people in general who will do dumb things, because they're always there.

Everything the government has done has been damage control, or perhaps favors to their big donors in finance. Yeah those of us who didn't have much to do with this got hurt and are footing the bill, but the alternative was to likely get hurt a lot, lot worse. These people woulda screwed us even if the government didn't intervene.

Whatever works to get us out of this mess and get people back on their feet is what we need to do. If we have to incidentally help a few people who don't personally deserve it to get that done, well, the world ain't a perfect place. There's no sense cutting off your nose to spite your face. It's not like people who are now broke and losing their homes are a big source of campaign funds. So if anyone's claiming they're going to be the major winners out of any deal brokered by politicians, I'll bet that person's trying to pull on over on you.
posted by Zalzidrax at 9:48 PM on September 25, 2010

The homeowners signed a mortgage stating that they owed a certain amount of money every month, and if they didn't pay it the bank could take their house away.

Did they really? Stephan signed thousands of affidavits stating that he had checked the facts of the matter, and they were as claimed. However, he had not done so, so we have no evidence as to whether the homeowners had done any of the alleged acts, nor does the court. Until that evidence is supplied, the court cannot legally act.

His job was to check the evidence. Yes, he was given too much work to do and told to perjure himself in order to push the paperwork through. But suppose his bosses told him to forge signatures on those documents? Would that excuse him of any responsibility for his own obviously illegal actions?
posted by Jimmy Havok at 10:59 PM on September 25, 2010 [2 favorites]

I didn't read most of the documentation I signed either of the times I bought a house in the last few years. I can guarantee you I would not have understood most of it. Heck, when we took out a line of credit at the bank the dang bank officer didn't know how to calculate the interest.

But we also bought the house where I live now basically outright, with a mortgage that lasted only until we could sell the old house. We sold it to a woman who was practically crying with excitement at getting a piece of real estate, and who was financing it in a very complex way and clearly thought she was pulling the wool over our eyes. We sold the old house for about what we paid for the new one. We did not make a killing. We did not trade up. We did not do creative things with our money. None of what we did was what everyone was telling us to do. None of it. And right after we moved in and paid off the mortgage, the economy went blooey. But my house was paid off.

See, I'm dumb. I blow money on small things, like that cappuccino they're always telling us to forgo in order to save money. But I don't blow money on big things even when everyone is telling me it's really a magical way to make money. I'm so fiscally conservative people make fun of me.

And I guarantee you that right now, people are believing something just as crazy about money as they were believing a few years ago. But we don't know what it is. Yet.
posted by Peach at 12:59 AM on September 26, 2010 [4 favorites]

But we don't know what it is. Yet.

Yes we do: it's the idea that bailing out banks with taxpayer money will save a terminally ill economic system.
posted by stavrosthewonderchicken at 2:48 AM on September 26, 2010 [1 favorite]

Did they really? Stephan signed thousands of affidavits stating that he had checked the facts of the matter, and they were as claimed. However, he had not done so, so we have no evidence as to whether the homeowners had done any of the alleged acts, nor does the court. Until that evidence is supplied, the court cannot legally act.

Yes. This is a really weird thread, isn't it? A story about a production-line fraudulent document preparation system has turned into a weird pissing match about how much disdain can be appropriately heaped onto people who made a particular type of bad financial decision. Stephan's job would be wrong no matter how greedy and foolish the people whose homes he was signing away were. He could have been signing Radovan Karadzic's arrest warrant and it still would have been dodgy. I'm a little surprised that none of the links I read seemed to mention a pending criminal prosecution (for Stephan; it's too much to hope for that the people up the line will see any kind of justice) but maybe that's on the way. And my favourite part: according to one of the links, this company got in trouble for doing the same thing in 2006.

Also, I'd like to say that Torrens Title rocks. Just one more of the many great things my home State has brought to the world.
posted by A Thousand Baited Hooks at 5:26 AM on September 26, 2010 [1 favorite]

You are asking ordinary people to exercise a level of diligence that nobody really expects them to exert, until this kind of situation arises when all of a sudden it's their fault.

What level of diligence is that? You take a loan out, the bank gets paid. You don't, you lose the house. That's pretty simple to understand. Nobody is asking Joe Average to understand all the minutiae surrounding property law.

The idea that "hey, you could have gotten a McMansion too, if only you'd played the game and gotten your own ridiculous mortgage, too bad you didn't!" seems to bother many people -- and I mean, really infuriate the fuck out of them -- a lot more than the idea of some Wall Streeters making out like bandits.

The irritating part isn't that they got the houses. The irritating part is that they're allowed to keep them even after failing to pay for them. The infuriating part is that this is costing the good grasshoppers when it should be costing the ants. The system is not being allowed to correct itself.
posted by Civil_Disobedient at 6:11 AM on September 26, 2010 [4 favorites]

Yes we do: it's the idea that bailing out banks with taxpayer money will save a terminally ill economic system.
I can almost guarantee you that isn't it :)

I've found over the decades, however, that what I think is a terminally ill economic system persists in staggering along with or without an oxygen tank.

The irritating part is that they're allowed to keep them

I dunno about you, but I'd rather not have to live in a neighborhood where all the mortgage defaults have produced empty houses. Ain't nobody buying right now.
posted by Peach at 6:19 AM on September 26, 2010

Sorry, didn't check preview to make sure my quote code was correct. mea culpa
posted by Peach at 6:21 AM on September 26, 2010

Our current and previous administrations decided to allow BOTH parties to renege on their obligations at the expense of those who played by the rules and were honest brokers throughout.

I'm sorry, what legislation "bailed out" homeowners? The only one I can think of is a program that was to encourage banks to renegotiate rather than foreclose, but that was almost never used. The vast majority of the time that the homeowner stops paying, the bank forecloses and takes the house. Sometimes, through a combination of negligence and fraud, the bank takes a house they don't own or can't prove they own. In that case, sometimes a homeowner gets to unfairly keep their house. A house they can't realistically sell and which can be taken away at any time should the ownership mess be untangled. And, of course, their credit rating is still trashed, making it harder for them to get a job, much less another crazy mortgage. I don't know why I should be outraged at that any more than I should be outraged that a criminal goes free because the prosecutor messed up or a witness committed perjury.

I'm not wild about the "but no one told us it was a bad idea!" crap that's floating around, but my outrage meter pings a little higher for "bank commits fraud on a massive scale to take houses they have no right to take" than for "homeowner gets to keep their unsellable house -- for now -- until banks figure out who can foreclose on them."
posted by dirigibleman at 6:58 AM on September 26, 2010 [1 favorite]

I don't know why I should be outraged at that any more than I should be outraged that a criminal goes free because the prosecutor messed up or a witness committed perjury.

The only people that "should" be outraged are the ones that played by the rules and are ready to buy at a depressed market… except, whoops! no deals to be found. If Adam Smith were really getting his way, the housing market would be plummeting to the fucking earth like armless skydiver.
posted by Civil_Disobedient at 8:50 AM on September 26, 2010 [2 favorites]

Wait a couple more years, C_D. Try to keep that cash you have saved up earning a few points for you in the meantime.

I agree with Zalzidrax, the measures being taken were and are to try to keep the housing market from plummeting as you say; they're trying to let the gas out of the balloon as slowly as possible to keep things on a relatively even keel and deflating in a relatively orderly way.

If housing had been allowed to just flat collapse back in '08, it would have taken all the big banks with it and made the economic mess 100x worse. Could have triggered total or near-total collapse of the US monetary system, actually.

I feel like the efforts being expended, while in some ways odious, are probably necessary just to avoid problems that make what we're going through right now look cushy and pleasant. What we should hope for is that it will keep the decline at a manageable pace until an actual productive economic base can be rebuilt.

As far as "allowing" people to keep houses on which they're not making payments, this title paperwork thing won't let many just outright keep them, it's just going to drag out the foreclosure process for longer. They will eventually be foreclosed upon, they're not likely to just get off clean.

The interesting thing will be to see how it will work in states that have "squatter's rights" laws, like CA apparently does. If you stay in a house for 5 years, take care of it, maintain the property, pay property taxes etc. and nobody can produce a clear title deed, you become the owner.
posted by zoogleplex at 1:11 PM on September 26, 2010

I can almost guarantee you that isn't it :)

I've found over the decades, however, that what I think is a terminally ill economic system persists in staggering along with or without an oxygen tank.

Truth. But the seeds of the current toilet-spiral were planted in the early 1980's. These evil flowers take their time in blossoming.
posted by stavrosthewonderchicken at 3:16 AM on September 27, 2010

They will eventually be foreclosed upon, they're not likely to just get off clean.

Well, I don't know about that. As long as they're keeping the place up, you might file it under "cost of doing business" if you really, really don't want to sell for a huge loss but don't want it overrun with squatters. In such a situation, it would probably behoove you to take your sweet-ass time foreclosing in the first place. Maybe by, like, hiring one dude to foreclose on, I dunno, ten thousand houses a month or something crazy.
posted by Civil_Disobedient at 8:10 PM on September 27, 2010

the seeds of the current toilet-spiral were planted in the early 1980's

M'yeah...I see it as being the inevitable result of the concept of trickle-down economics. Our wages were stagnant, but we were told that we were rich and could afford all kinds of stuff, so we ended up with an economy that was built entirely on consumer debt...and now no is borrowing.
posted by Jimmy Havok at 9:27 PM on September 27, 2010

These jerks who knowingly lied on their mortgage applications to buy a bigger house than I have - and are now unable to pay for it, but instead are being allowed to maintain ownership at the expense of those of us who didn't lie, cheat, or steal to purchase our property (and who, like most, are out some equity as a result of the market decline) - are part of the reason this country is sliding into moral as well as literal bankruptcy.

When there is so little due diligence on the part of the brokers and originators, the fault really lies with them. As you may have noticed if you have tried to get a loan in the past couple years, you can't force the bank or anyone else to lend you money. It's not up to the buyer. People will always exist who will take easy money, even if it's highly problematic and not wise to do so. The environment around the housing market had a lot to do with it. Every time there's a bubble, there's this sort of excitement pervading it and chasing it all the way up that produces completely irrational behavior in otherwise rational people. This is not to excuse people of their individual responsibilities. But the people who wanted a bigger house who couldn't afford it would never have been given a loan in the first place if the parties involved in lending such a person money did their jobs correctly. I can't really fault the borrower (another can always be found if someone passes on the deal), who didn't make the decision to lend the money.
posted by krinklyfig at 11:29 PM on September 27, 2010

Put it another way. The mortgage is a product. It's really up to the parties involved in selling this product to make sure they're not screwing things up by letting or encouraging people to lie on their loan applications. This was commonplace during the boom. It's not up to the consumer to be responsible for making sure the bank didn't make a bad decision. The bank has a much bigger and specific responsibility when it comes to lending money that the borrower does not bear, and this is by design. If it were up to borrowers to regulate the market by their own individual decisions (based on self-interest), we'd be truly hopeless.
posted by krinklyfig at 11:35 PM on September 27, 2010

Bank of America joins the club.
posted by wierdo at 12:45 AM on October 2, 2010

Company Stops Insuring Titles in Chase Foreclosures.
posted by Nelson at 8:04 PM on October 2, 2010

"Company Stops Insuring Titles in Chase Foreclosures."

That, my friend, is the sound of a very, very big shoe hitting the deck.
posted by Diablevert at 3:30 AM on October 3, 2010