FacebookTwitterGoogle+RedditEmail

Foreclosure Funny Business

by DEAN BAKER

Virtually everyone has had the experience of being forced to pay a late fee or a bank penalty because of some fine print provision that we overlooked. Sometimes begging by good customers can win forbearance, but usually we are held to the written terms of the contract no matter how buried or convoluted the clause in question may be.

That is the way it works for the rest of us, but apparently this is not the way the banks do business, at least when those at the other end of the contract are ordinary homeowners. As a number of news reports have shown in recent weeks, banks have been carrying through foreclosures at a breakneck pace and freely ignoring the legal niceties required under the law, such as demonstrating clear ownership to the property being foreclosed.

The problem is that when mortgages got sliced and diced into various mortgage-backed securities it became difficult to follow who actually held the title to the home. Often the bank that was servicing the mortgage did not actually have the title and may not even know where the title is. As a result, if a homeowner stopped paying their mortgage, the servicer may not be able to prove that they actually have a claim to the property.

If the servicer followed the law on carrying through foreclosures then it would have to go through a costly and time-consuming process of getting its paperwork in order and ensuring that it actually did have possession of the title before going to a judge and getting a judgment that would allow them to take possession of the property. Instead banks got in the habit of skirting the proper procedures and filling in forms inaccurately and improperly in order to take possession of properties.

GMAC, the former financing arm of GM, has become the poster child for these sorts of practices. Jeffrey Stephan, a leader of one of its foreclosure units, acknowledged that he had signed thousands of affidavits claiming that he had reviewed documents that he had never seen.

In addition to being a major subprime lender during the heyday of the housing bubble, GMAC — following its collapse last year — also has the notoriety of being primarily owned by the federal government. This fact may ensure greater accountability at GMAC, but there is no reason to believe that its practices are qualitatively different than those of other servicers carrying through foreclosures. The basic point is that the banks foreclosing on homes don’t feel that they should be held to the letter of the law like ordinary people.

As we approach the two-year anniversary of the Troubled Asset Relief Program it is certainly understandable that the big banks would think that the laws that apply to others don’t apply to them. After all, the lesson of the TARP was that when the banks got themselves into trouble with their reckless lending, the taxpayers would come to the rescue with whatever loans and guarantees were needed to keep them in business.

In fact, many of the bankers who were begging Congress for below-market loans two years ago are now bragging about having paid back the money with interest. This should prompt ridicule. Instead, all the reporters and columnists who were too thick to see an $8 trillion housing bubble are repeating the banks’ lines and telling us how happy we should be about the bailouts.

In the financial crisis of two years ago, these banks would have been forced to pay enormous interest rates to borrow money in private markets. This would have pushed most of them into bankruptcy.

Instead, the Treasury and the Fed gave them money at near-zero cost. This was an enormous subsidy that allowed them to stay in business. It’s nice that the banks tossed us a few nickels in interest, but the taxpayers preserved trillions of dollars in wealth for their shareholders, top executives and creditors. We would have a very different economy, with a very different wealth distribution, if we had allowed the magic of the market to do its work on the financial industry.

But, that’s history. The current issue is whether we will again grant special treatment to the financial industry by allowing them to skirt the legal procedures required for foreclosures. In the land of endless affirmative action for the rich, the smart money is on the banks. After all, huge multi-national banks can’t be expected to read all the fine print that binds the rest of us.

DEAN BAKER is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This column was originally published by The Guardian.

February 11, 2016
Bruce Lesnick
Flint: A Tale of Two Cities
Ajamu Baraka
Beyonce and the Politics of Cultural Dominance
Shamus Cooke
Can the Establishment Fix Its Bernie Sanders Problem?
John Hazard
The Pope in Mexico: More Harm Than Good?
Joyce Nelson
Trudeau & the Saudi Arms Deal
Zarefah Baroud
The Ever-Dangerous Mantra “Drill, Baby Drill”
Anthony DiMaggio
Illinois’ Manufactured Budget Crisis
Colin Todhunter
Indian Food and Agriculture Under Attack
Binoy Kampmark
Warring Against Sanders: Totalitarian Thinking, Feminism and the Clintons
Robert Koehler
Presidential Politics and the American Soul
Thomas Knapp
Election 2016: The Banality of Evil on Steroids
Cesar Chelala
Is Microcephaly in Children Caused by the Zika Virus or by Pesticides?
February 10, 2016
Eoin Higgins
Clinton and the Democratic Establishment: the Ties That Bind
Fred Nagel
The Role of Legitimacy in Social Change
Jeffrey St. Clair
Why Bernie Still Won’t Win
Mike Whitney
Putin’s Aleppo Gamble Pays Off
Chris Martenson
The Return of Crisis: Everywhere Banks are in Deep Trouble
Ramzy Baroud
Next Onslaught in Gaza: Why the Status Quo Is a Precursor for War
Sheldon Richman
End, Don’t Extend, Draft Registration
Benjamin Willis
Obama in Havana
Jack Smith
Obama Intensifies Wars and Threats of War
Rob Hager
How Hillary Clinton Co-opted the Term “Progressive”
Mark Boothroyd
Syria: Peace Talks Collapse, Aleppo Encircled, Disaster Looms
Lawrence Ware
If You Hate Cam Newton, It’s Probably Because He’s Black
Jesse Jackson
Starving Government Creates Disasters Like Flint
Bill Laurance
A Last Chance for the World’s Forests?
Gary Corseri
ABC’s of the US Empire
Frances Madeson
The Pain of the Earth: an Interview With Duane “Chili” Yazzie
Binoy Kampmark
The New Hampshire Distortion: The Primaries Begin
Andrew Raposa
Portugal: Europe’s Weak Link?
Wahid Azal
Dugin’s Occult Fascism and the Hijacking of Left Anti-Imperialism and Muslim Anti-Salafism
February 09, 2016
Andrew Levine
Hillary Says the Darndest Things
Paul Street
Kill King Capital
Ben Burgis
Lesser Evil Voting and Hillary Clinton’s War on the Poor
Paul Craig Roberts
Are the Payroll Jobs Reports Merely Propaganda Statements?
Fran Quigley
How Corporations Killed Medicine
Ted Rall
How Bernie Can Pay for His Agenda: Slash the Military
Neve Gordon
Israeli Labor Party Adopts the Apartheid Mantra
Kristin Kolb
The “Great” Bear Rainforest Agreement? A Love Affair, Deferred
Joseph Natoli
Politics and Techno-Consciousness
Hrishikesh Joshi
Selective Attention to Diversity: the Case of Cruz and Rubio
Stavros Mavroudeas
Why Syriza is Sinking in Greece
David Macaray
Attention Peyton Manning: Leave Football and Concentrate on Pizza
Arvin Paranjpe
Opening Your Heart
Kathleen Wallace
Boys, Hell, and the Politics of Vagina Voting
FacebookTwitterGoogle+RedditEmail