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Completely agree: (a) What laws were broken? Who broke them? (b) Why is there never any blame put on those on "main street" who took the loans that they could

by EugeneG 16y ago

Completely agree: (a) What laws were broken? Who broke them? (b) Why is there never any blame put on those on "main street" who took the loans that they couldn't repay?

acabal 16y ago
(b): because things like personal responsibility and basic, common-sense personal finance were long ago replaced in our national culture by blaming the other guy and a sense of entitlement. I'm actually on the side of putting more of the blame on the consumer than the banks, for that reason--but there's still plenty of blame left over for Wall Street.
- kls 16y ago
  I'm actually on the side of putting more of the blame on the consumer than the banks, for that reason--but there's still plenty of blame left over for Wall Street. I don't know why, they are the experts who are supposed to know who to lend to and who not to lend to based on statistics and analysis. If they where incompetent at doing there job then that is on them, not the consumer. Further they are getting bailed out by the consumer so there is really little blame to put on the consumer we are paying the tab. Blaming the consumer is akin to saying the consumer dressed too much like a hooker.
  - acabal 16y ago
    Accepting a variable-rate mortgage is taking just a big a risk as the lender lending it to you. If you accept one of those, you should be financially prepared for the rate to rise, even dramatically. And if the rate rises beyond what you can reasonably expect to pay, well then, your risk didn't pay off. Owning a house isn't a right, and just as you can make lots of money off them (and many did!), you can lose it all. The difference between that personal risk and the bank's risk is that the government ended up saving the banks, while the commoners got foreclosed on. And that's certainly a good reason to get angry. Edit: Great, downvotes for not blaming it all on those evil Wall Street fat cats.
    - kls 16y ago
      Right I got no problem with people getting foreclosed on that is the deal you make. But typically in law one looks at who is the professional and who is the laymen. Generally the burden of responsibility falls on the professional so from a legal perspective and from a moral perspective blaming the consumer is kind of backwards, that was the only point I was getting at. It is not right that the banks got bailed out but the fact that they did, further reduces any moral responsibility that one could place on the consumer. They are loosing their house and footing the bill so in my opinion they have paid their dues. I personally don't feel that the banks have paid their dues for their part in the mess. I will give you an up-vote because I think your point of view is valid and this thread is going to get political. No guarantee it is going to remain up though.
    - Klinky 16y ago
      Often the mechanics behind the adjustable rate mortgages were not fully disclosed to the lendee. In many cases banks did very little due diligence to verify the income of the lendee, yet the would pass these mortgages off to other banks & wall street as sound investments - despite having no idea really how well the person could pay it back. Additionally buying a house was considered a wise investment due to the ballooning home prices. This myth was perpetuated by the banks themselves. The only way to keep it going was to give everyone and their dog a mortgage & they practically did, knowing full well that most of the people would not be able to pay it back. Essentially fraud.
      - kls 16y ago
        Additionally buying a house was considered a wise investment due to the ballooning home prices. This myth was perpetuated by the banks themselves. It was also ingrained into the fabric of the American household. How many time has one heard, buy land they are not making any more of it or if you want to protect your money from inflation buy a house, they always go up. For 3 generations this has pretty much been a constant reality, one would have to go back to the depression to find wisdom that went against this reality. I remember many friends saying we just have to get in before we get priced out of the market forever. People where so afraid of becoming renters for life that they where doing anything possible to secure a house before prices doubled again and they where permanently locked out of the market. We are not talking about experienced investors here we are talking about people who just wanted to ensure they where not locked out of the American dream. Sure there where speculators, but the reality is speculators where only a fraction of the market and where some of the first to bail on their notes. There where also many who used their house as an ATM, but with the shrinking job market can you really blame them many unwisely used it to maintain their standard of living and to put off the pain of adjustment to some point in the future, with the hope that better times would cover the call. which while unwise is not that out of the norm hell the government has been doing it for years. To be clear, I am not making excuses for them but I think we are holding the consumer to a pretty high standard given the boom bust economy, the constant decline of jobs over the last decade, stagnant wages over the course of almost 2 decades, that has reduced real buying power and the financial shenanigans that have taken place. To blame the consumer after they have seen the middle class destroyed is really just rubbing salt in the wound.
mechanical_fish 16y ago
What laws were broken? Who broke them? For starters, fraud and perjury: http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/ http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-i... The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase). It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed. This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED). The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION). Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED). Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).
- EugeneG 16y ago
  Agree that the above doesn't sound good and should be investigated. But to be fair, this is something that happened in the aftermath of the crisis, and had nothing to do with the greater causes. Edit: A bit surprised at the thoughtless downvoting for not agreeing with the common narrative
  - mechanical_fish 16y ago
    this is something that happened in the aftermath of the crisis Not quite. The fraud that is happening today is part of the attempt to cover up the fraud that happened during the crisis. (That's the thing about crime, as all the good dime novels say: Once you do the first one it just leads to another.) I'm no lawyer, let alone a real estate lawyer, so I can't refute this to the extent that it probably deserves. But some things even I understand: If Bank A lent money to a customer, and then Bank A sold the mortgage to Bank B without properly transferring the paperwork (according to the very well established law concerning such things), and then Bank B sold that mortgage upstream to Bank C, and then Bank C sold Investor D a security that is "backed by actual mortgages"... someone committed fraud. Either Bank B lied to Bank C by selling something that they did not own, or Bank C happily paid Bank B for a thing that was not, legally speaking, a properly transferred mortgage ("Bank B hereby sells this IOU, written on a Post-It note, to Bank C") but then claimed to its investors that it actually owned mortgages. Post-It notes are not mortgages. What is happening today is that the Bank Cs of the world, who are on the hook to their investors to pay off those supposedly "mortgage-backed" securities, are foreclosing on houses to try and recoup some money. But Bank C doesn't actually own the houses because someone messed up the paperwork. So they wave the Post-It notes around with great energy, committing more fraud and perjury (and stupid mistakes) in the process, and hope that nobody gets prosecuted. EDIT: Note: these are not just alleged crimes, they seem like seriously embarrassing alleged crimes. They lost the papers! What a rookie mistake! If only they'd been a little less sloppy this wouldn't have happened! But, once again: Where there is one crime there may well be others. It's quite possible that this level of sloppiness and fraud was not allowed to go on just by accident. It may well have served to disguise other frauds, like (e.g.) effectively selling a mortgage more than once as part of different securities.
kjhgfhjkhgfv 16y ago
Guess who makes the laws. Copy a CD you own to an MP3 player you own and you're breaking the law. Sell a bad debt to a client and then bet on the same client failing and you get a bonus.
- EugeneG 16y ago
  When banks sell "bad debt" they are acting as principals - this means that they explicitly state to their client that they have no obligation to look out for their interests. Every security has a price, "bad" securities are just cheaper than "good" securities. Participants in the markets always have different views. A bank (or any other principal) is not obligated to make sure that you're aware of their view. By definition, the person selling a security thinks they are better off selling it, and the person buying it thinks they are better off buying it.
  - kjhgfhjkhgfv 16y ago
    If you know they are bad and are intending to make money out of destroying your client and the client is relying on a rating agency that is prepared to give it a AAA in order to get more business from you - then I think someone is being a bit naughty somewhere.
    - EugeneG 16y ago
      There's no such thing as "knowing" they are bad. Everyone has an opinion, and the price people are willing to pay reflects that. For example, Lehman stock trades now. It has a price. I can sell it to you and feel perfectly fine about it, even if I think it's the biggest piece of crap in the world and I can't wait to sell it. I may end up wrong, because my opinion is just one of many, many. Lots of money is made by others by disagreeing with people who absolutely "know" something.
      - jrockway 16y ago
        Going to have to agree with you here. Why does a share of Google cost more than a share of Illegal Online Pharmacy, Inc? Because the market has decided that Google is going to work out better than Illegal Online Pharmacy. The market could be wrong; that's not a crime, that's just losing at poker.
onedognight 16y ago
> Why is there never any blame put on those on "main street" who took the loans that they couldn't repay? They did repay them; they gave the bank their house back. In a non-recourse state (which California is), when you make a loan you the lender agrees that it will take the house at any time instead of the full value of the outstanding loan. Given this, any sane lender wouldn't make a loan without a reasonable down payment to protect against any downside. The lenders however were giving no money down, no income, no asset loans where one didn't even have to pay the full interest (though it still accrued) for the first 5 years (and then selling them as quickly as possible to investors).
- kls 16y ago
  Don't forget selling the split up mortgage out of the back of the house before the ink was dry on the papers. So the people extending the note where not the people backing the note.
ZachPruckowski 16y ago
> Why is there never any blame put on those on "main street" who took the loans that they couldn't repay? While I agree that people should have known better, I still blame the mortgage brokers, banks and realtors. The average American barely has the math skills for "12*12=144". There's a principal-agent issue here in my mind. The average American thought that the broker/bank wouldn't offer a clearly unpayable loan, because they would lose money on it. Not to mention that they don't look like sketchy auto body shops or something, but they look like legitimate businesses. So when this guy who's clearly a mortgage/finance expert says "Great news, because of assorted financial wizardry that's WAY, WAY over your head, we can put you in your dream home for about what you're paying in rent right now", people are going to believe him, because (a) they're primed to trust this guy, and (b) they badly want it to be true. There's a lot of resemblance to a con in that way. To add to this, Joe Schmoe is seeing his coworkers, friends, and neighbors getting into these deals as well - it can't be a trick if everyone's doing it, right? Not to mention that I've read standard MERs mortgage documents, and they are ludicrously opaque. So while I agree that "main street" people screwed up and should shoulder some blame, I can certainly see their perspective.

by EugeneG 16y ago

Completely agree: (a) What laws were broken? Who broke them? (b) Why is there never any blame put on those on "main street" who took the loans that they couldn't repay?

acabal 16y ago

(b): because things like personal responsibility and basic, common-sense personal finance were long ago replaced in our national culture by blaming the other guy and a sense of entitlement. I'm actually on the side of putting more of the blame on the consumer than the banks, for that reason--but there's still plenty of blame left over for Wall Street.

kls 16y ago
I'm actually on the side of putting more of the blame on the consumer than the banks, for that reason--but there's still plenty of blame left over for Wall Street. I don't know why, they are the experts who are supposed to know who to lend to and who not to lend to based on statistics and analysis. If they where incompetent at doing there job then that is on them, not the consumer. Further they are getting bailed out by the consumer so there is really little blame to put on the consumer we are paying the tab. Blaming the consumer is akin to saying the consumer dressed too much like a hooker.
- acabal 16y ago
  Accepting a variable-rate mortgage is taking just a big a risk as the lender lending it to you. If you accept one of those, you should be financially prepared for the rate to rise, even dramatically. And if the rate rises beyond what you can reasonably expect to pay, well then, your risk didn't pay off. Owning a house isn't a right, and just as you can make lots of money off them (and many did!), you can lose it all. The difference between that personal risk and the bank's risk is that the government ended up saving the banks, while the commoners got foreclosed on. And that's certainly a good reason to get angry. Edit: Great, downvotes for not blaming it all on those evil Wall Street fat cats.
  - kls 16y ago
    Right I got no problem with people getting foreclosed on that is the deal you make. But typically in law one looks at who is the professional and who is the laymen. Generally the burden of responsibility falls on the professional so from a legal perspective and from a moral perspective blaming the consumer is kind of backwards, that was the only point I was getting at. It is not right that the banks got bailed out but the fact that they did, further reduces any moral responsibility that one could place on the consumer. They are loosing their house and footing the bill so in my opinion they have paid their dues. I personally don't feel that the banks have paid their dues for their part in the mess. I will give you an up-vote because I think your point of view is valid and this thread is going to get political. No guarantee it is going to remain up though.
  - Klinky 16y ago
    Often the mechanics behind the adjustable rate mortgages were not fully disclosed to the lendee. In many cases banks did very little due diligence to verify the income of the lendee, yet the would pass these mortgages off to other banks & wall street as sound investments - despite having no idea really how well the person could pay it back. Additionally buying a house was considered a wise investment due to the ballooning home prices. This myth was perpetuated by the banks themselves. The only way to keep it going was to give everyone and their dog a mortgage & they practically did, knowing full well that most of the people would not be able to pay it back. Essentially fraud.
    - kls 16y ago
      Additionally buying a house was considered a wise investment due to the ballooning home prices. This myth was perpetuated by the banks themselves. It was also ingrained into the fabric of the American household. How many time has one heard, buy land they are not making any more of it or if you want to protect your money from inflation buy a house, they always go up. For 3 generations this has pretty much been a constant reality, one would have to go back to the depression to find wisdom that went against this reality. I remember many friends saying we just have to get in before we get priced out of the market forever. People where so afraid of becoming renters for life that they where doing anything possible to secure a house before prices doubled again and they where permanently locked out of the market. We are not talking about experienced investors here we are talking about people who just wanted to ensure they where not locked out of the American dream. Sure there where speculators, but the reality is speculators where only a fraction of the market and where some of the first to bail on their notes. There where also many who used their house as an ATM, but with the shrinking job market can you really blame them many unwisely used it to maintain their standard of living and to put off the pain of adjustment to some point in the future, with the hope that better times would cover the call. which while unwise is not that out of the norm hell the government has been doing it for years. To be clear, I am not making excuses for them but I think we are holding the consumer to a pretty high standard given the boom bust economy, the constant decline of jobs over the last decade, stagnant wages over the course of almost 2 decades, that has reduced real buying power and the financial shenanigans that have taken place. To blame the consumer after they have seen the middle class destroyed is really just rubbing salt in the wound.

mechanical_fish 16y ago

What laws were broken? Who broke them? For starters, fraud and perjury: http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/ http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-i... The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase). It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed. This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED). The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION). Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED). Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).

EugeneG 16y ago
Agree that the above doesn't sound good and should be investigated. But to be fair, this is something that happened in the aftermath of the crisis, and had nothing to do with the greater causes. Edit: A bit surprised at the thoughtless downvoting for not agreeing with the common narrative
- mechanical_fish 16y ago
  this is something that happened in the aftermath of the crisis Not quite. The fraud that is happening today is part of the attempt to cover up the fraud that happened during the crisis. (That's the thing about crime, as all the good dime novels say: Once you do the first one it just leads to another.) I'm no lawyer, let alone a real estate lawyer, so I can't refute this to the extent that it probably deserves. But some things even I understand: If Bank A lent money to a customer, and then Bank A sold the mortgage to Bank B without properly transferring the paperwork (according to the very well established law concerning such things), and then Bank B sold that mortgage upstream to Bank C, and then Bank C sold Investor D a security that is "backed by actual mortgages"... someone committed fraud. Either Bank B lied to Bank C by selling something that they did not own, or Bank C happily paid Bank B for a thing that was not, legally speaking, a properly transferred mortgage ("Bank B hereby sells this IOU, written on a Post-It note, to Bank C") but then claimed to its investors that it actually owned mortgages. Post-It notes are not mortgages. What is happening today is that the Bank Cs of the world, who are on the hook to their investors to pay off those supposedly "mortgage-backed" securities, are foreclosing on houses to try and recoup some money. But Bank C doesn't actually own the houses because someone messed up the paperwork. So they wave the Post-It notes around with great energy, committing more fraud and perjury (and stupid mistakes) in the process, and hope that nobody gets prosecuted. EDIT: Note: these are not just alleged crimes, they seem like seriously embarrassing alleged crimes. They lost the papers! What a rookie mistake! If only they'd been a little less sloppy this wouldn't have happened! But, once again: Where there is one crime there may well be others. It's quite possible that this level of sloppiness and fraud was not allowed to go on just by accident. It may well have served to disguise other frauds, like (e.g.) effectively selling a mortgage more than once as part of different securities.

kjhgfhjkhgfv 16y ago

Guess who makes the laws. Copy a CD you own to an MP3 player you own and you're breaking the law. Sell a bad debt to a client and then bet on the same client failing and you get a bonus.

EugeneG 16y ago
When banks sell "bad debt" they are acting as principals - this means that they explicitly state to their client that they have no obligation to look out for their interests. Every security has a price, "bad" securities are just cheaper than "good" securities. Participants in the markets always have different views. A bank (or any other principal) is not obligated to make sure that you're aware of their view. By definition, the person selling a security thinks they are better off selling it, and the person buying it thinks they are better off buying it.
- kjhgfhjkhgfv 16y ago
  If you know they are bad and are intending to make money out of destroying your client and the client is relying on a rating agency that is prepared to give it a AAA in order to get more business from you - then I think someone is being a bit naughty somewhere.
  - EugeneG 16y ago
    There's no such thing as "knowing" they are bad. Everyone has an opinion, and the price people are willing to pay reflects that. For example, Lehman stock trades now. It has a price. I can sell it to you and feel perfectly fine about it, even if I think it's the biggest piece of crap in the world and I can't wait to sell it. I may end up wrong, because my opinion is just one of many, many. Lots of money is made by others by disagreeing with people who absolutely "know" something.
    - jrockway 16y ago
      Going to have to agree with you here. Why does a share of Google cost more than a share of Illegal Online Pharmacy, Inc? Because the market has decided that Google is going to work out better than Illegal Online Pharmacy. The market could be wrong; that's not a crime, that's just losing at poker.

onedognight 16y ago

> Why is there never any blame put on those on "main street" who took the loans that they couldn't repay? They did repay them; they gave the bank their house back. In a non-recourse state (which California is), when you make a loan you the lender agrees that it will take the house at any time instead of the full value of the outstanding loan. Given this, any sane lender wouldn't make a loan without a reasonable down payment to protect against any downside. The lenders however were giving no money down, no income, no asset loans where one didn't even have to pay the full interest (though it still accrued) for the first 5 years (and then selling them as quickly as possible to investors).

kls 16y ago
Don't forget selling the split up mortgage out of the back of the house before the ink was dry on the papers. So the people extending the note where not the people backing the note.

ZachPruckowski 16y ago

> Why is there never any blame put on those on "main street" who took the loans that they couldn't repay? While I agree that people should have known better, I still blame the mortgage brokers, banks and realtors. The average American barely has the math skills for "12*12=144". There's a principal-agent issue here in my mind. The average American thought that the broker/bank wouldn't offer a clearly unpayable loan, because they would lose money on it. Not to mention that they don't look like sketchy auto body shops or something, but they look like legitimate businesses. So when this guy who's clearly a mortgage/finance expert says "Great news, because of assorted financial wizardry that's WAY, WAY over your head, we can put you in your dream home for about what you're paying in rent right now", people are going to believe him, because (a) they're primed to trust this guy, and (b) they badly want it to be true. There's a lot of resemblance to a con in that way. To add to this, Joe Schmoe is seeing his coworkers, friends, and neighbors getting into these deals as well - it can't be a trick if everyone's doing it, right? Not to mention that I've read standard MERs mortgage documents, and they are ludicrously opaque. So while I agree that "main street" people screwed up and should shoulder some blame, I can certainly see their perspective.