KeNo's Housing and Economic Portal: Tuesday October 26 Housing and Economic stories

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TOP STORIES:

Is David J. Stern the poster boy for the foreclosure mess? - (news.yahoo.com) Meet David J. Stern. He's the high-living Florida lawyer who just might be the poster boy for the foreclosure mess that has currently embroiled Washington and Wall Street. Legal documents examined by The Upshot offer details on how Stern's firm, and other "foreclosure mills" like it, may have helped to unfairly force thousands of struggling Americans from their homes.

As we reported yesterday, dozens of stateattorneys general are looking into allegations that major banks have been playing fast and loose with foreclosure rules in trying to speed troubled borrowers into foreclosure. Bank of America, JP Morgan Chase, GMAC Mortgage and others have announced a nationwide freeze on further foreclosures, and some federal lawmakers are calling for an across-the-board moratorium. But while the banks are ultimately responsible, the root of the problem appears to lie with "foreclosure mill" law firms like Stern's. These operations process foreclosure cases on behalf of lenders, and their business model is based on moving the paperwork through as quickly as possible. That's why such firms have pioneered practices like "robo-signing" — whereby their employees process thousands of court documents in pending foreclosures without ever actually reviewing them, as the law requires. Of course, it's in the banks' interest for their contractors to move quickly, because the faster a foreclosure moves, the less time a struggling borrower has to fight it.

September house foreclosures top 100,000 for first time - (news.yahoo.com) The number of homes taken over by banks topped 100,000 for the first time in September, though foreclosures are expected to slow in coming months as lenders work through questionable paperwork, real estate data company RealtyTrac said on Thursday. Banks foreclosed on 102,134 properties in September, the first single month above the century mark, RealtyTrac said. There were 347,420 total foreclosure filings in September, 3 percent higher than August and 1 percent higher than a year earlier. "We expect to see a dip in those bank repossessions -- and possibly earlier stages of the foreclosure process -- in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks," said James J.Saccacio, chief executive officer of RealtyTrac.

Fannie and Freddie in a Mess - (www.theatlantic.com) The foreclosure mess is now spreading to Fannie and Freddie, as our government-owned mortgage machines starts looking into what, exactly, its servicers have been doing with their loans. Meanwhile, I detect some overblown expectations on the part of various people; last night, after I gave a talk on a mostly unrelated subject, two different people asked me if this meant that they could simply walk away from their mortgages; it wasn't clear if they were hoping, or horrified. Might happen in a few rare cases, but I'm dubious. I don't want to minimize the scope of this problem: it's clear that overwhelmed servicers decided the fastest way to move through their vast backlog of foreclosures was to muster a sort of heroic insouciance about the legal niceties surrounding the paperwork. Courts (and banks) are right to say that the process needs to slow down until that's straightened out. But so far, we haven't seen many cases of people being foreclosed upon when they were not in default. If a bank tries to foreclose using bad paperwork, and you have in fact been paying the mortgage, then what you do is show up in court with record of the payments. If you can't do that--if there is a mortage on the house that you haven't been paying--the judge is unlikely to hand you your house as a freebie. Judges have other remedies to penalize servicers that misbehave which are a lot less drastic. You can probably stall the foreclosure until they get their paperwork in order, and well you should. But you're not going to get a free house out of it.

Foreclosure Fiasco’s Trail Leads to Washington - (www.bloomberg.com) What were banking regulators doing while some of the biggest U.S. lenders routinely filed false foreclosure documents in local courthouses around the country? In the case of IndyMac Federal Bank, it turns out the Federal Deposit Insurance Corp. was running the joint. This may help explain why the mortgage-servicing industry got away with such misbehavior for so long. The government, in one form or another, was doing it, too. The facts are there for anyone to see in the records of a circuit-court lawsuit against Israel and Neena Machado, a West Palm Beach, Florida, couple who last year beat back IndyMac’s attempts to foreclose on their home mortgage. They even won a judgment ordering IndyMac to pay $38,117 in legal fees. IndyMac sued the Machados in November 2008, four months after the government closed its predecessor, Pasadena, California-based IndyMac Bank, which had $32 billion in assets when it was seized. The FDIC formed IndyMac Federal in July 2008 as the successor to the failed bank, and continued operating it in conservatorship before selling it in March 2009.

Don't blame the government for mortgage lies - (www.salon.com) "There are so many fronts to the foreclosure crisis that it's now becoming difficult to stay on top of all of them," writes Naked Capitalism's Yves Smith. The attorney generals of all 50 states have opened a joint probe into "whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures," reports Bloomberg. American Banker brings the news that banks are investigating themselves on the question of whether their mortgage servicers were lying about whether or not key loan documents had been lost. JP Morgan, reports the New York Times, has dropped out of the Mortgage Electronic Registration System (MERS) -- a key component of the ever-widening scandal. The legal liabilities confronting the big banks are huge -- Yves Smith is convinced that at least one major institution will collapse. And on top of all this, Felix Salmon drops another blockbuster: He makes a compelling case that the banks that packaged mortgage bonds together and sold them to investors knew exactly how lousy the underlying loans were, but purposefully failed to disclose that information to their customers.