With Foreclosure-Gate, Bad Investment Practices Threaten To Unleash More Suffering
Bank of America's decision to put a full stop on all foreclosures in the United States was welcome news for some almost homeless people.
But BOA's radical action is just the first stage of what may become a full-blown crisis caused by wide scale, corrupt business practices. The short of it: It looks like millions of mortgages were improperly documented during the 20 years leading to the Financial Crisis, creating an absolute nightmare now that the real estate boom is over.
Many homeowners literally have no idea who actually owns the mortgages to their homes, because the banks who originally granted them turned around and sold them to all kinds of buyers as part of now-infamous mortgage-backed securities. All of this was done extremely quickly, often by automated processes lacking proper safeguards.
Working with a bank-run company called Mortgage Electronic Registration System (MERS), mortgages were sold again and again with no paper trail whatsoever.
The trouble for banks is that now that the game is over, they can't prove they still own the mortgages, and in many cases no longer do. So now, as Ralph Nader wrote for CounterPunch on Tuesday, the millions of foreclosures that have been issued in the past two years are being called into question:
"How can a company—whether MERS or a bank—seize a home by foreclosure if it does not show proof of owning the mortgage? This is the question more attorneys general, including Texas, Maryland and Connecticut, are demanding an answer to from MERS and the Banks."
As investigators, including Attorney General Eric Holder, look more closely and courts hear more suits claiming that banks' foreclosure notices are bogus, a massive number of foreclosures may turn out to be invalid, leaving banks without recourse for removing delinquent residents. This could have severely dangerous implications for the larger economy, just coming out of recession.
One blogger wrote the following: "It would be difficult to understate how much of a nightmare Foreclosuregate is going to be for U.S. mortgage lenders. Having to go back through the paperwork of millions of old mortgages is going to be a complete and total disaster. If banks end up being unable to foreclose on a large number of bad mortgages, it could potentially be enough to put many banks out of commission for good ... The U.S. mortgage industry was already on the verge of death, and Foreclosuregate may just be the straw that broke the camel’s back.
It gets worse. The evidence says that banks knew they didn't have the right documents to legally perform foreclosures, so they did those fraudulently also.
Two examples of how bad things got:
"One GMAC Mortgage official admitted during a December 2009 deposition that his team of 13 people signed approximately 10,000 foreclosure documents a month without reading them.
One Bank of America employee confessed during a Massachusetts bankruptcy case that she signed up to 8,000 foreclosure documents a month and typically did not look them over 'because of the volume.'"
Once again, the same mortgage-backed securities that helped send the global economy into a near-death spiral have the potential to cause a great deal of pain. Once again, the major players of the American economic system have demonstrated a reckless disregard for the law. This time, we may get a more complete picture of just how brazen the mismanagement has been, and just how broken the system is. Unfortunately, this knowledge could come at an incredible cost.
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