“It is happening again”: David Dayen on the Epidemic of Mortgage Fraud and the Rigged Economy that Sets it in Motion

David Dayen's new book explores the criminal conspiracy that destroyed the lives of millions

Salon| May 19, 2016      Earlier this week the New York Times featured a depressing story about homeless people living in the foreclosed and abandoned houses that still dot the landscape in Nevada, reminding everyone of that awful time just a few years ago when families all over the country lost their homes in what has become euphemistically known as “the housing crisis.” It was actually much more specific than that, it was an epidemic of criminal mortgage fraud and it devastated millions of people, many of whom have still not recovered.

My Salon colleague (and one-time blogging cohort) David Dayen has written a wonderful new book called “Chain of Title” about some amazing Americans down in Florida who were caught in the maw of this epic criminal conspiracy and bravely took on the system when no one else would do it. Faced with a morass of impenetrable documents and intractable officials they took matters into their own hands and uncovered the crime of the new century by becoming internet muckrakers, using crowd-sourcing and social media. And in the process of following their fascinating story, we learn the full scope of this massive crime which goes all the way from the Florida suburbs to the boardrooms of Wall Street.

I had a chance to ask Dayen some questions about the book this week.   Read more here.

Is the Rocket Mortgage a Fast Ride to Trouble?

CBS News | February 9, 2016   NEW YORK -- Bad mortgages to buyers who couldn't afford them put the U.S. on the road to the Great Recession. So CBS News was curious when we saw an ad during the Super Bowl for an eight-minute mortgage.

Quicken Loans' Super Bowl ad made a simple proposition.

"What if we did for mortgages what the Internet did for buying music and plane tickets and shoes," the voice-over in the advertisement said.

That's what they're offering with Rocket Mortgages.

But just seven years after the housing crisis nearly took down the economy, the ad rang alarm bells.

"Let's do the financial crisis again, but with apps," Dave Weigel of the Washington Post tweeted.

Rocket Mortgage:   Let's do the financial crisis again, but with apps!
— daveweigel (@daveweigel) February 8, 2016

Holden Lewis with bankrate.com said the median credit score of a mortgage applicant is now 753 (out of 850) the highest since 2001. Rocket Mortgage is just trying to streamline the application process.

"I know that a lot of people interpreted the commercial as saying we're going back to the days of easy money, but that's just simply not happening," said Lewis. "I think it's a game changer, in a sense that other mortgage companies are going to have to make it easier to put in your documentation and your paperwork."   Read more here.

Falling Oil Means Rising Foreclosures in These States

Plummeting oil prices are wreaking havoc on stock markets, and they're also causing problems for some housing markets.

CNN Money | January 14, 2016   Foreclosure filings on a national level dropped to a nine-year low in 2015, but some oil-producing states weren't so lucky, according to a new report from RealtyTrac.

Foreclosures increased in Texas, Oklahoma and North Dakota last year as oil prices fell, and that can be a telling trend.

Those three states remained relatively unscathed from the 2008 housing bust, explained Daren Blomquist, vice president at RealtyTrac, which means the activity isn't due to a backlog of foreclosures left over from the crisis.

"Instead the rise in foreclosures in these states is actually a new wave of distress coming through that is mostly unrelated to the subprime loan housing crisis."

Lower oil prices have led to massive layoffs across the country, which can strain local economies with close ties to the energy sector. Read more here.

Is Another Housing Crisis Just Around the Corner?

Fox News|  January 19, 2016     Movie sequels are rarely as good as the original films on which they’re based. The same dictum, it appears, holds for finance. The 2008 housing market collapse was bad enough, but it appears now that we’re on the verge of experiencing it all again. And the financial sequel, working from a similar script as its original version, could prove to be just as devastating to the American taxpayer.

The Federal National Mortgage Association (commonly referred to as Fannie Mae) plans a mortgage loan reboot, which could produce the same insane and predictable results as when the mortgage agency loaned so much money to people who had neither the income, nor credit history, to qualify for a traditional loan.   Read more here.

Trailer: The Big Short

Wikipedia |  The Big Short is a 2015 American biographical comedy-drama film written and directed by Adam McKay. It is based on the 2010 book of the same name by Michael Lewis, about the Financial crisis of 2007–2010 by the build-up of the housing and credit bubble. The film stars Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt. The film is scheduled to be released on December 11, 2015, by Paramount Pictures.


Are We Headed Toward Another Housing Crisis? What Hasn’t Changed Enough.

The Daily Signal |  November 8, 2015    Fannie Mae and Freddie Mac, the two government-backed housing corporations bailed out seven years ago by federal taxpayers, may be headed for trouble again.  Despite post-financial crisis pressure to reform, neither Fannie nor Freddie has done much to mitigate the risk to the American taxpayer inherent in government backing for these institutions.  Read more here.  

National Housing Outlook Hurt by Texas Slowdown

National Mortgage News |  November 3, 2015   The housing market is weakening due to slower economic and job growth, along with other factors, such as low inventories and tight credit conditions that continue to stymie potential buyers, according to industry analysts.  Read more here.  

MERS' Role in Foreclosures

Mortgage Electronic Registration Systems, Inc. (MERS) is a Delaware Company based in Reston, Virginia.  MERS is named on nearly all mortgages and deeds of trust in the USA as the “beneficiary” of the mortgage “solely as nominee for lender and lender’s successors and assigns.”  As is the case in these days of securitization, the original lender named in a mortgage or deed of trust is not usually the party that attempts to foreclose on the loan.  That means the original lender sold the loan into the secondary market, either to be securitized by Wall Street or otherwise. 

Since the 2008 housing crisis, many Texas state courts and Texas federal courts have upheld the proposition that a homeowner may challenge the standing of a bank that claims the right to conduct foreclosure.  These cases hold that a party that is not the original lender has to show an unbroken chain of assignments and/or transfers from the original lender to itself of either the mortgage note or deed of trust in order to foreclose. 

However, the banks have used MERS’ status as “beneficiary” of the security instrument “solely as nominee for lender and lender’s successors and assigns” to try to avoid showing what parties actually are in the chain ofassignments and/or transfers of the loan documents.  The banks will simply file an assignment in the real property records from MERS to the party that is foreclosing and argue that such an assignment demonstrates a complete chain of assignments from the original lender to the party that is foreclosing.  However, on nearly every MERS assignment, MERS does not state for whom they are acting as “nominee” in making the assignment; rather they simply recite that MERS is acting “solely as nominee for lender and lender’s successors and assigns.”  The question thus becomes, for whom is MERS making the assignment for as a “nominee”?

It is common knowledge that MERS does not actually hold or own mortgages or mortgage notes in its own name.  This is the conclusion reached by a federal judge in the Southern District of Texas in the case of Nueces County v. MERSCORP Holdings, Inc., No. 2:12-CV-00131 (Docket #70), 2013 U.S. Dist. LEXIS 93424 (S.D. Tex. July 3, 2013) (“MERS is not a lender, and it does not have the rights of a lender, note holder, or note owner to enforce a promissory note and seek a judgment against a debtor for the repayment of loans.  MERS is merely an agent or nominee of its members, who are banks, lenders, and other financial institutions that hold and trade promissory notes secured by deeds of trust naming them as the lenders and MERS as the beneficiary.”  Id. at 12 (emphasis added).  “MERS has no right to enforce the promissory notes or seek judgments against borrowers in default. MERS is simply the nominee of the beneficiaries of the security instruments with the right to foreclose on behalf of the secured parties under the deeds of trust. In sum . . . Texas law [does not] support Defendants’ argument that MERS may serve as a secured party or lienholder.”  Id. at 22 (emphasis added)).  You can read a copy of Nueces County v. MERSCORP Holdings, Inc. here.

Jackson & Elrod, LLP has several cases pending where this issue has been presented to the courts.  As of this writing, the firm has been able to convince one Texas federal court that MERS’ failure to identify for whom they are acting as “nominee” in a mortgage assignment creates a claim under the Texas Fair Debt Collection Practices Act for “misrepresenting the status or nature of a debt.”  Johnson v. Morrison Home Funding et. al., No. H-14-2549 (Docket #30) (S.D. Tex. August 6, 2015).  You can read a copy of the Johnson memorandum and order here.

Jackson & Elrod, LLP will continue to fight to protect Texas homeowners’ common law right to have the foreclosing bank reveal the true real-parties-in-interest along a chain of assignments and/or transfers of a loan.  If the banks are allowed to skirt this requirement, they will be incentivized to blow up more housing bubbles since the law will not require them to actually complete contemporaneous transfer documents when a loan is sold in the secondary market.  The ability to flash-trade mortgage loans leads to speculative bubbles and a lot of innocent victims in our society when the bubbles crash.