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Romney, Federalism and The Mortgage Foreclosure Crisis

Yesterday, Mitt Romney said:

"Don’t try to stop the foreclosure process. Let it run its course and hit the bottom," Romney said when asked what he would do to jump-start the floundering housing market. "Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up," he continued. "The Obama administration has slow walked the foreclosure process ... that has long existed and as a result we still have a foreclosure overhang."

(Emphasis supplied.) This is likely a political problem for Romney but it is also wrong as a factual matter. Indeed, Romney notes in his next sentence that HAMP was "inadequate." Obviously the Obama Administration "slow walked" nothing. Apparently, "states rights" federalism is only important to Republicans when they are trying to destroy the social safety net. When federalism interferes with the interests of Wall Street, then it is a bad thing. Consider today's ruling from the highest court in Massachusetts on "the process that has long existed:"

We agree with the judge that the [the plaintiff banks], who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied.

State rights federalism will seem less important to the GOP on this issue I bet. Also too, so much for adherence to "strict construction" and "the rule of law" from the GOP:

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    I say... (5.00 / 1) (#6)
    by kdog on Wed Oct 19, 2011 at 11:25:04 AM EST
    "Don't stop the bankruptcy process for big banks, investment houses, and the insurers of their junk.  Let it run it's course and hit bottom."

    Oops, too late.

    If Scott Brown (5.00 / 1) (#7)
    by CST on Wed Oct 19, 2011 at 11:26:04 AM EST
    gave us anything, it will be Elizabeth Warren as a senator and Martha Coakley as AG - where she belongs.

    She is taking up this forclosure business and running with it.

    And Abdul - what makes you think this isn't in the interest of the public in MA?  If she is an aspiring gov - which I'm unconvinced of - and you are suggesting she is doing this for political gain - wouldn't that mean that the public is interested in it?

    Keeping people in their houses also clears the overhang because they are no longer clogging the market.

    As near as I can tell, whatever (5.00 / 2) (#8)
    by Anne on Wed Oct 19, 2011 at 11:36:45 AM EST
    the Obama administration has done with regard to the foreclosure mess has been focused on limiting the damage to the banks, both monetarily and legally; they have been  trying for months to get the state Attorneys General to agree to a settlement that would amount to little more than a slap on the wrist for banks/lenders, but Steve Schneiderman and Beau Biden - and to some extent, the California AG - are refusing to play along.  These two crazy guys apparently cling to the notion that banks should have to be able to prove ownership of these mortgages, and it isn't the homeowner who should have to suffer for the banks' actions.

    HAMP has probably done more harm than good if you're a homeowner looking for help; if you're a lender or mortgage servicer, HAMP hasn't hurt you one little bit.

    But, here's the thing: does Romney not know how many foreclosed/short sale homes are already on the market?  Homes that no one has to be "allowed" to buy, or given permission to rent out, or fix up or live in once the deal goes through?  It sure doesn't seem like it.  

    I've mentioned before that my daughter and her boyfriend are looking to buy.  One house that had possibilities was purchased for $385K in 2007 and mortgaged - first and seconds - up to $360K.  Owner defaulted, Freddie Mac bought it at auction from Sun Trust in December, 2010 for $306K.  Freddie Mac listed it for $245K, and the price has been dropped to $175K.  It is now under contract (kids decided it was too close to the road, and not on a big enough lot - but a 2,600+ sq ft home for that price in a semi-rural location is a steal).

    There are all kinds of homes just like this sitting on the market, with asking prices dropping, dropping, dropping.  And as much as I want my kids to be able to take advantage of the market, I have to tell you that every time I look up a property's deed of trust, and see MERS, I wonder whether the story it tells is true.  And I think about how buyers have been and will continue to profit from someone else's tragedy - one that might not have had to happen.  And the prevalence of MERS in the land records here does make me worry about chain of title.

    That just shouldn't be.  If lenders short-cut the process, there should be a consequence for them - but that's what the 50-state agreement that Obama's so hot for is going to help them avoid to a significant degree.

    What I don't get is how flooding the market with more foreclosed homes that will sit empty because there aren't enough buyers is going to help anything.  It would make more sense for banks to write down loans to the current value of the properties so that the people who live in them can continue to live in them.

    And jobs, so people have the wherewithal to make mortgage payments might be a good idea, too.

    Further to my point that the Obama (5.00 / 1) (#9)
    by Anne on Wed Oct 19, 2011 at 11:59:27 AM EST
    administration is looking to protect the banks, here's Marcy Wheeler:

    Back when the foreclosure fraud settlement was purportedly only going to cover robo-signing abuses, the price tag was going to be $17 billion.

    Now that the Obama Administration is desperately trying to craft a settlement deal to include origination problems, the price tag has grown to $25 billion.

    Under the proposed terms of the settlement -- which could total $25 billion -- banks would get broad legal immunity from state lawsuits in exchange for refinancing underwater loans, those mortgages where borrowers owe more than their homes are worth, the sources said.

    The deal could provide some relief to the battered U.S. housing market and clear up some uncertainty about banks' legal exposure that has been a drag on their shares.

    Banks have been holding out on a multi-billion-dollar settlement because they wanted broader legal immunity than state attorneys general were prepared to offer.

    Originally, the states were only considering immunity for shortcuts taken during mortgage servicing and foreclosures, including the so-called "robo-signing" of documents to evict people behind on their mortgages.

    In recent days, the state attorneys general agreed to release major banks from claims that they made legal errors when first originating the loans, such as approving loans for borrowers without verifying any income, according to two people familiar with the talks.

    That means for all the additional things the banks would get immunity for-at the very least, the liars loans and the predatory lending, all the things they're getting hammered for in reps and warrants suits, though the language might well immunize securitization failures-banks would pay just an additional $8 billion.

    That, in spite of the fact that FHFA filed lawsuits against the banks that might be worth $40 billion, with $11.5 billion from Bank of America alone.

    So basically Obama wants to fund HAMP 2.0 by letting banks out of at least 80% of what they stand to lose in court.

    I guess this is what ABG means by "taking a moderate path that doesn't piss off Wall Street too much."

    I think (none / 0) (#34)
    by AngryBlackGuy on Wed Oct 19, 2011 at 05:29:45 PM EST
    you are well read and make good points Anne, I just wish that you would channel some of that brain power into something other than taking every topic and turning it into an expression of displeasure for Obama.

    BTD had a really good Romney bash going and the first thing you say is "Obama f&^%ed up by . . ."

    I get it.  You do not think Obama is a very good president.  But new flash, the person he will run against is going to be much, much worse.  Take everything you hate about Obama, multiply it by 2,365 and that's what we are talking about here.  Scary stuff.

    I'd love to propose a truce: I won't defend Obama against your every attack, you don't attack Obama with every single comment and we all focus just occasionally on the absolutely terrifying person with an (R) after their name who could be our fearless leader in a short period of time.

    Now as to your actual point, there are a number of issues with trying to get more money than what is being sought from privity of contract, problems with counter suits by the note holders destroying the banks, etc.

    In addition (and this is the part missed when the focus is all hate-on-obama-all-day), it is the state attorney generals who are cutting the deal.  Obama has no real power to stop any deal being cut by the AGs because they are the ones running the show.

    Shorter: The immunity being sought is from state lawsuits Anne, which Obama has no control over.

    So no, that is not what I mean when I say "taking a moderate path that doesn't piss off Wall Street too much."

    Parent

    Oh, ABG, you really need to get (5.00 / 3) (#36)
    by caseyOR on Wed Oct 19, 2011 at 06:57:26 PM EST
    your facts in order. While that settlement is on the surface an agreement between the state AGs and the banks, the real power in those negotiations is the U.S. Dept. of Treasury and Mr. Geithner. Timmy and friends are calling the shots; federal regulators are the ones trying so desperately to negotiate away any bank liability for pennies. Tom Miller, Iowa AG and titular head of this effort, is nothing more than a tool of both Geithner and the banks.

    The Obama administration is anxious to put this problem to bed with as little actual impact on the thieving banks and securitizers as they can possibly get away with.

    If you are truly interested in learning the facts surrounding this bogus negotiation, I suggest you do some reading over at NakedCapitalism.com Yves Smith and others have written extensively on this subject.

    Parent

    Thank you, casey, for your comment; (5.00 / 1) (#38)
    by Anne on Wed Oct 19, 2011 at 07:57:57 PM EST
    I read what ABG wrote and just felt tired at the prospect of countering what I know - as you do - to be utter baloney.

    There is a ton of great info out there in addition to Yves - she always has great links, and great guest posters - but as we've all seen, information and facts are not ABG's strong suit.

    I guarantee you he has no idea that the "offer" the banks are willing to make in exchange for the huge release of liability would only apply to the small percentage of people who have loans that are not only still performing - current, in other words - but which have not been securitized.  Anyone following this issue at all knows that it is these securitized loans which are the problem, for heaven's sake, but as we also know, the one and only thing that matters to ABG is that we all rally 'round Obama so he can win, win, win!

    Like I said, it just exhausts me sometimes.

    Parent

    Obama's a stealth Republican (none / 0) (#35)
    by NY Progressive on Wed Oct 19, 2011 at 05:31:56 PM EST
    If we're stuck with a real Rethug, at least people will take to the streets in protest when he steals our money to give it to the rich.

    Parent
    Bevilacqua v. Rodriguez? (5.00 / 1) (#19)
    by Anne on Wed Oct 19, 2011 at 01:51:10 PM EST
    I'm wondering, BTD, if you meant to post a cite to the Bevilacqua case, the decision in which was handed down today?  The link you provided is to the Ibanez decision.

    Frank Bevilacqua purchased property in Haverhill out of foreclosure from U.S. Bank. Apparently, Bevilacqua invested several hundred thousand dollars into the property, converting it into condominiums. The prior foreclosure, however, was bungled by U.S. Bank and rendered void under the Ibanez case. Mr. Bevilacqua (or presumably his title insurance attorney) brought an action to "try title" in the Land Court to clear up his title, arguing that he is the rightful owner of the property, despite the faulty foreclosure, inasmuch as the prior owner, Rodriguez, was nowhere to be found.

    Land Court Judge Keith Long (ironically the same judge who originally decided the Ibanez case) closed the door on Mr. Bevilacqua, dismissing his case, but with compassion for his plight.

    "I have great sympathy for Mr. Bevilacqua's situation -- he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title -- but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied," Long wrote.

    [snip]

    The SJC agreed with Judge Long that Bevilacqua did not own the property, and therefore, lacked any standing to pursue a "try title" action in the Land Court. The faulty foreclosure was void, thereby voiding the foreclosure deed to Bevilacqua. The Court endorsed Judge Long's "Brooklyn Bridge" analogy, which posits that if someone records a deed to the Brooklyn Bridge, then brings a lawsuit to uphold such ownership and the "owner" of the bridge doesn't appear, title to the bridge is not conveyed magically. The claimant in a try title or quiet title case, the court ruled, must have some plausible ownership interest in the property, and Bevilacqua lacked any at this point in time.

    The court also held, for many of the same reasons, that Bevilacqua lacked standing as a "bona fide good faith purchaser for value." The record title left no question that U.S. Bank had conducted an invalid foreclosure sale, the court reasoned.

    The WSJ:

    The highest court in Massachusetts ruled that a homeowner who bought a foreclosure that hadn't been properly conducted by the foreclosing bank in 2006 didn't have legal ownership of the property.

    The decision by the Supreme Judicial Court casts a cloud over the legal ownership of any properties in Massachusetts where banks didn't properly convey title when foreclosing. The problem has gained attention nationwide because of banks' use of "robo-signing" and other dubious practices that may have broken chains of title on foreclosures.

    David Dayen:

    Think about that. Banks who failed to convey title during foreclosure have clouded the title of any property for the foreseeable future, meaning that whoever buys up the foreclosed property may not be the legal owner. And extrapolating that out, all the homes across the country where the banks failed to convey title properly through securitization has clouded the titles there. That means tens of millions of homes pretty much have no legal ownership chain.

    Think this might blow the still-not-done 50-state AG agreement to hell and back?  No wonder the Obama administration has been frantically trying to get that deal done...

    mr. romney is wrong as a (5.00 / 3) (#37)
    by cpinva on Wed Oct 19, 2011 at 07:41:50 PM EST
    practical matter:

    "Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up,"

    it's not like there's a long line of investors, just a dyin' to buy those empty properties, all over the country. the situation is so dire in some areas, the banks have taken to razing foreclosed on properties, and donating the now empty lots to the jurisdiction they're in. true, they have to eat the cost, but the liability risk on the empty houses was far greater.

    one positive result is that those properties still occupied won't have their values continually decreased by virtue of those empty, rotting houses. as well, the bank does get some tax benefit for the donation of land to the city/county. the cost of razing the improvement is capitalized as part of the basis of the land.

    i guess it would be expecting too much for mr. romney to actually have a clue what he's talking about, before he opens his mouth.

    The bottom line remains the same (none / 0) (#1)
    by Abdul Abulbul Amir on Wed Oct 19, 2011 at 10:49:54 AM EST
    .

    Dragging out the process will delay recovery.  The sooner the overhang in housing is cleared, the better.  The interests of the state AG's (aspiring governors) don't necessarily align with those of the public.

    .

    Permanently preventing more foreclosures would (5.00 / 2) (#2)
    by ruffian on Wed Oct 19, 2011 at 11:00:43 AM EST
    accomplish as much as speeding foreclosures to help clear the overhang. HAMP was meant to do that, not to delay inevitable foreclosure. The fact that it was an inadequate program inadequately executed gave foreclosure prevention a bad name.

    Parent
    It wasn't just that HAMP was inadequate, (5.00 / 1) (#26)
    by Anne on Wed Oct 19, 2011 at 03:42:53 PM EST
    or inadequately executed, it was that the lenders/servicers figured out how to game it - and make even more money in the process, while ruining the credit of many people who were still current on their loans but looking for some relief.

    Parent
    Permanently preventing more foreclosures (none / 0) (#10)
    by Abdul Abulbul Amir on Wed Oct 19, 2011 at 12:20:08 PM EST

    would ensure that only an idiot would ever lend mortgage money in the first place.  

    Would you loan money if you could not recover if the payments stopped?

    .

    Parent

    True (5.00 / 2) (#13)
    by Big Tent Democrat on Wed Oct 19, 2011 at 12:36:39 PM EST
    that why Chapter 11corporate bankruptcies never work right?

    That's why Argentina is not loaned money today right?

    So much nonsense.

    Parent

    Chapter 11 (none / 0) (#21)
    by Abdul Abulbul Amir on Wed Oct 19, 2011 at 02:10:57 PM EST

    does not prevent all foreclosures.  

    Parent
    Idiots have been lending mortgage money (none / 0) (#16)
    by Militarytracy on Wed Oct 19, 2011 at 01:19:26 PM EST
    At one point it may very well have been (none / 0) (#17)
    by Militarytracy on Wed Oct 19, 2011 at 01:19:55 PM EST
    only idiots too

    Parent
    I didn't state that the best.... (none / 0) (#20)
    by ruffian on Wed Oct 19, 2011 at 02:07:47 PM EST
    I did not mean permanently as in all foreclosures forever. I meant preventing the foreclosure of particular houses by a program that really works for people, not HAMP that temporarily forestalls the foreclosure. Permanently in the sense that the loan is restructured and the "fix" works.

    Parent
    OK (none / 0) (#22)
    by Abdul Abulbul Amir on Wed Oct 19, 2011 at 02:13:17 PM EST

    I was responding to what you wrote, rather than what you now meant.

    Parent
    When I read it again I could see how it sounded (none / 0) (#39)
    by ruffian on Wed Oct 19, 2011 at 08:17:40 PM EST
    no problem

    Parent
    Dragging out what process? (5.00 / 1) (#5)
    by Militarytracy on Wed Oct 19, 2011 at 11:20:04 AM EST
    If titles are not properly conveyed and clear ownership established, then the banks will have to suffer.  They are the ones who broke the rules and the laws, not me.  If the rule of law is not observed it puts all future home buyers at risk and it makes buying a home even riskier which does what?  It destroys confidence in home buying and it destroys the market.

    The whole system and the rules and laws that governed it had evolved over years handling legal issues and now the banks don't want any rule of law to govern because there are no "substantial" profits and no multi million dollar bonuses if the rule of law must be observed.

    If you destroy the rule of law though, you will also destroy the housing market as it existed in any form during your lifetime.  A home is the most expensive thing most of us will ever buy, if there is no observed rule of law that protects all involved why go to the trouble of buying an expensive home?  You are not insured of eventual ownership, what you have spent thousands and thousands of dollars on can be taken from you in error within 24 hours.

    Parent

    Case in point (none / 0) (#3)
    by Big Tent Democrat on Wed Oct 19, 2011 at 11:04:16 AM EST
    so much for state rights federalism for the GOP.

    Now it's about "bottom lines."

    Parent

    The states (none / 0) (#11)
    by Abdul Abulbul Amir on Wed Oct 19, 2011 at 12:25:35 PM EST

    The states should move with alacrity to settle the issue rather than dragging it out.  There appears to be no reason for the tardiness other that the AG's short term political interests.

    The "bottom line" we all should be interested in is a return to economic growth and a better jobs and housing market.

    Parent

    Indeed we need a huge stimulus package (none / 0) (#12)
    by Big Tent Democrat on Wed Oct 19, 2011 at 12:35:40 PM EST
    to reignite economic growth.

    Parent
    Also "rule of law" (none / 0) (#4)
    by Big Tent Democrat on Wed Oct 19, 2011 at 11:05:11 AM EST
    and "strict constructionism" don't matter either.

    Legal Realism anyone?

    Parent

    Who is that for? (none / 0) (#14)
    by Towanda on Wed Oct 19, 2011 at 12:36:43 PM EST
    Always the question to ask yourself -- or others, like me, will have to ask it of you.

    Parent
    Baaawaaaa (none / 0) (#15)
    by Ga6thDem on Wed Oct 19, 2011 at 12:58:33 PM EST
    Romney is now proposing that the heavily Republican exurbs like mine be turned into slums. But all the bozos around here will vote for him and then wonder what happened.

    One More Battle on the Class Warfare Front... (none / 0) (#18)
    by ScottW714 on Wed Oct 19, 2011 at 01:38:19 PM EST
     ...we are sure to lose.

    "Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up,"

    Give the nobility discounted property so they can charge the surfs* to occupy the space they once owned... for a handsome profit of course.

    Me, I think we should tell the investors to go F themselves and start figuring out how to get the surfs* back into their homes.

    *spelling intentional, I feel like they look at us more like smurfs then serfs.

    yup - why do we need the investors as middle men? (none / 0) (#23)
    by ruffian on Wed Oct 19, 2011 at 02:13:23 PM EST
    The gov owns those loans as a result of TARP, right? I am fine with HUD playing landlord, given the right director and oversight.

    Parent
    Obvioulsy (none / 0) (#24)
    by Ga6thDem on Wed Oct 19, 2011 at 02:29:12 PM EST
    Mitt has never rented from anybody or he wouldn't think this was a good idea.

    We rented from a guy who wouldn't fix the a/c or the heat. You virtually have no recourse but to move in these situations. There are some real scum bags that are in the rental business.

    Parent

    Who can say? (none / 0) (#25)
    by sj on Wed Oct 19, 2011 at 02:48:08 PM EST
    Maybe he is/was a landlord in which case he would think this is a most excellent idea.  

    I hear the slumlord biz is quite profitable.

    Parent

    Yep (none / 0) (#29)
    by chrisvee on Wed Oct 19, 2011 at 04:42:00 PM EST
    It's the new American Dream -- rent the home you once dared to  own -- and probably at twice the price!

    What's next?  paying people in company scrip?

    Parent

    No doubt (none / 0) (#32)
    by Zorba on Wed Oct 19, 2011 at 05:23:06 PM EST
    And then they can "owe their souls to the company store" as well.
    http://www.youtube.com/watch?v=jIfu2A0ezq0

    Parent
    Romney's correct... (none / 0) (#31)
    by redwolf on Wed Oct 19, 2011 at 05:13:55 PM EST
    As far as real problem is the bad housing debt is not being defaulted on fast enough.  However, his solution is a poor one.

    As long as these huge bad debts hang over the US economy we will end up up with Japan's/Great depression's slow deflation over 10-20 years.  Discharging the debt quickly should be our goal.

    The quickest solution is to give the houses free and clear to the home owners.  This would cause an immediate large scale stimulus as these home owners would have lots of income to spend.  This comes with a huge moral hazard and most voters would hate it.

    Best solution: Take any mortgages owned by the government and reduce the debit size to that of the market value of the house less the amount already paid directly by the home owner.  The amount of value gained by the home owner is limit to what they fairly paid in and their monthly payments are reduced.  This avoids the moral hazard and gets the bad debt out the system very quickly.  It would also be quite popular with the general public and stimulate the economy.

    Codifying all future loans in this manner would limit future housing bubbles as banks themselves would have an incentive to put the breaks on speculation.

    Has anyone here seen (none / 0) (#33)
    by NY Progressive on Wed Oct 19, 2011 at 05:23:38 PM EST
    any good articles on lawsuits over origination fraud such as mortgage officers bumping up applicants' income on with stated income loans? What types of lawsuits are working? Are the issues coming up during foreclosure, or outside of the foreclosure process?

    Here are a few (none / 0) (#40)
    by ruffian on Wed Oct 19, 2011 at 08:27:46 PM EST
    FDIC suing over shoddy commercial loan originations

    Could not find links, but I have also seen loan origination mentioned in some of the suits brought on behalf of investors in mortgage backed securities.

    Parent

    Found a blog keeping good track (none / 0) (#41)
    by ruffian on Wed Oct 19, 2011 at 08:38:38 PM EST
    of such legal activity Subprime Shakeout. The link is to a post about FDIC suits against appraisers, and if you follow some of his links to other posts you will find more.

    I'm glad to see the legal activity, I just wish the benefit was going to trickle down to the borrowers.

    Parent

    And the debacle of the (none / 0) (#42)
    by gyrfalcon on Thu Oct 20, 2011 at 02:25:36 AM EST
    necessary slaughter of all those magnficient "exotic" animals, at least partially the result of Kasich's allowing Strickland's order on private zoos like this to expire, isn't helping him a whole lot.  Pretty much everybody is rightfully horrified by what happened, and then to find out Ohio has zero regulations for these private zoos...