November 17, 2010 by 1 Comment

Yesterday the Senate Banking Committee held a hearing looking into the foreclosure mess.  I really expected that it was going to be a bunch of political grandstanding, a la the Goldman Sachs hearing a while back.  I was pleasantly surprised that it was not a complete dog and pony show.  I was only able to watch about an hour and a half of it, so some of this is from memory, and the quotes are from some transcripts I found online.

Among those who testified were Georgetown Law professor Adam Levitin, Iowa Attorney General Tom Miller, Diane Thompson from the National Consumer Law Center, Barbara Desoer from Bank of America, R.K Arnold from MERS, and David Lowman from Chase.

AG Miller started off the hearings by dismissing outright the idea (frequently touted by banks) that robo-signing is a “technical issue”, saying that it is “an affront to state courts”.  I would go a little further and say that it is an affront to anyone with a modicum of respect for the concept of the rule of law.  Miller is one of the people who is leading up the joint attorneys general investigation into foreclosure fraud.

The testimony from the bank and MERS representatives was mostly bank boilerplate talking points, to the extent I don’t really want to rehash it here.  They touted their records of modifying mortgages when possible, and sort of acknowledged they had made errors in the past, and that they would correct these errors moving forward, although they did not really say how this was going to happen.  They emphasized that foreclosure was the last resort (although this point was more or less obliterated later in the hearings).  Honestly, the highlight of the lender testimony came when a guy in the crowd interrupted David Lowman’s testimony, screaming that he was “a liar”.  A commotion ensued, and the spectator ended up being dragged away by police.

Diane Thompson of the NCLC came through with some pretty damning testimony, despite the efforts of Senator Johanns (R-NE) to reframe and downplay the scope of the foreclosure problem.  Here is a portion of it:

“What robo-signing reveals is the contempt that servicers have long exhibited for rules, whether the rules of court procedure flouted in the robo-signing scandal or the contract rules breached in the common misapplication of payments or the rules for HAMP modifications, honored more often in the breach than in reality. Servicers do not believe that the rules that apply to everyone else apply to them.  This lawless attitude, supported by financial incentives and too-often tolerated by regulators is the root cause of the robo-signing scandal, the failure of HAMP, and the wrongful foreclosure of American families”.

I certainly recommend reading her testimony in its entirety.  She speaks to the cause of the current problems we are encountering, as well as some possible solutions.  Her testimony was met with a standing ovation.

Prof. Adam Levitin also had some good points.  At one point in the testimony, the B of A representative was insistent that B of A does not make money on foreclosures.  Levitin refuted this testimony, quoting from a Countrywide earnings call:

“Important to hear the words of another servicer. This was a public document. Countrywide’s earning call. He said “we are asked what happens to costs on servicing efforts. Increased operating expenses tend to be fully offset by greater fee income from late charges.” Countrywide settled with the FTC on overcharging on late fees. Head of Countrywide did admit “we sacrifice long term for short term.”

This is indeed one of the major reasons for the spate of foreclosures: servicers make money from them.  Plain and simple, as one can see above.  When asked if there is a problem with the laws governing foreclosure and securitization, Levitin said the following:

“It’s not the law, it’s compliance with the law.  This is a problem with following the law”.

This recap is already starting to run a little long, so I will close out with some of the statements made by Sen. Jon Tester (D-MT):

It’s clear servicers have been a little bit glib, particularly about risks to their own balance sheets.  Quite frankly, there ain’t gonna be more bailouts.  This [foreclosure problem] can be taken care of by the servicers.  Their heads need to roll.”

I have no idea what the outcome of these hearings will be, if anything.  It is good to see that some of these issues are starting to get a little broader attention, although I was kind of surprised not to find more coverage in the MSM today.  There is another similar hearing in the House on Thursday, which I will try to watch and recap for you as well.

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1 Comment

  •' Fred Smith says:

    Nobody has brought up the distinct possibility that the loan servicers may well have bundled and sold each of these loans MORE THAN ONCE to differernt investors via the securitization process. THIS COULD BE THE REAL REASON THAT THERE IS NO DOCUMENTATION / PAPER TRAIL. The non-existent documentation and accounting is entirely consistent with this scenario. This means that the entire plan was a true Ponzi scheme in the worst sense. In other words, rather than selling the loan once to investors, as we have all naively been assuming, there is no reason to believe that they did not double-dip or quintuple-dip and sell the exact same loan to completely new buyers. THIS IS A LEVEL OF FRAUD THAT THE AMERICAN PUBLIC HAS NOT YET CONTEMPLATED.

    There are no new laws that are necessary. All that is necessary is for the states to FOLLOW THE EXISITING LAWS which have been around much longer than any of us, or any of the banks themselves. These laws were devised to deal with all property frauds, including the current foreclosure frauds. No more bailouts. Let the chips fall where they may.

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