Beyond Foreclosuregate - It Gets Uglier
by:
Michael Collins, Daily Censored
| News Analysis
A foreclosed home in North Lauderdale, Fla., on Oct. 7, 2010. (Photo: Michael McElroy / The New York Times)
The ForeclosureGate scandal poses a threat to Wall Street, the big banks, and the political establishment. If the public ever gets a complete picture of the personal, financial, and legal assault on citizens at their most vulnerable, the outrage will be endless.
Foreclosure practices lift the veil on a broader set of interlocking efforts to exploit those hardest hit by the endless economic hard times, citizens who become financially desperate due medical conditions. A 2007 study found that medical expenses or income losses related to medical crises among bankruptcy filers or family members triggered 62% of bankruptcies. There is no underground conspiracy. The facts are in plain sight.
ForeclosureGate represents the sum total illegal and unethical lending and collections activities during the real estate bubble. It continues today. Law professor and law school dean Christopher L. Peterson describes the contractual language for the sixty million contracts between borrowers and lenders as fictional since the boilerplate language names a universal surrogate as creditor (Mortgage Electronic Registration System), not the actual creditor. Other aspects of ForeclosureGate harmed homeowners but the contractual problems that the lenders created on their own pose the greatest threats.
When the Massachusetts Supreme Court upheld a lower court ruling that the actual creditor must named in the mortgage agreement (a legal requirement that the banks forgot to meet in their contracts), there wasconsternation on Wall Street. What would happen if a class action lawsuit challenged these flawed mortgages? Isn’t the Massachusetts decision the latest of many attacking the legal basis of the shoddy business practices and boilerplate industry contracts? What if homeowners started walking away from their underwater mortgages based on the legally flawed contracts? If there were a viable prospect of a class action suit against financial institutions threatening to invalidate these contracts, wouldn’t that crash the stock values of the big banks and some Wall Street firms?
The big banks and their partners on Wall Street need a preemptive strike to derail the legal process that threatens their existence. They may get a temporary reprieve through pending consent decrees from the United States Department of Justice and consortia of state attorney’s general. If that protection fails, big money will make every effort to buy a bill from Congress that absolves them retroactively, en masse. The consent decree might cost them a few billion dollars. That’s much better than owing the trillions in lost home values due to their contrived real estate bubble and stork market crash.
As bad as this is, it gets worse.
Beyond ForeclosureGate
tial; background-repeat: initial initial; "> The surface scandal is about fraudulent business practices and a systematic assault on homeowners by lenders, servicers, and the legal system. A much broader picture must be viewed in order to understand the utter contempt that the ruling elite has toward citizens and the depraved tactics used to express that contempt, all to serve endless desire to accumulate more money and power.
The set up began when we heard about the ownership society in the 2004 presidential election. President Bush defined ownership as taking the government out of our lives so more people could own homes and control their destinies. The foundation was home ownership. As Bush said on the campaign trail, “We’re creating a home — an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property” October 2, 2004.
Then Federal Reserve Chairman Alan Greenspan was uncharacteristically coherent when he laid the foundation for the swindle earlier that year. Greenspan told the Credit Union National Association that the fixed rate mortgage was “an expensive way of financing a home.” He was clear when he advised lenders that, “consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.” February 2, 2004. Home equity through exotic mortgage products fueled consumption and became the new “margin account.”
The Chairman of the Federal Reserve and the president ratified the real estate bubble, already underway at the time, as political and financial doctrine. The advice was clear. Get an ARM, own your piece of the American Dream and spend that equity. Housing prices never go down, right? (Image)
Freddie Mac, Fannie Mae, Wall Street and the big banks provided the back room. Mortgage Backed Securities (MBS) derivatives were vastly expanded. This made it easy for more home buyers to qualify for mortgages they might not otherwise get, credit standards dropped. Those with good credit saw an array of tantalizing zero interest loans and other mortgage products to maximize available cash and feed the stock market.
It was all good until it wasn’t.
The real scandal is the unfathomable loss of wealth and opportunities by the vast majority of citizens and the vicious attack on the most vulnerable citizens as a part that process. The attack continues and is worthy of review.
Foreclosure and Bankruptcy
Foreclosure is the down side of the ownership society. When you’re sold a bill of goods, a property that you were told you were qualified to buy, and you lose it, you are evicted from ownership island.
Before Congress passed the 2005 bankruptcy reform act, homeowners could avert foreclosure in many states by filing for bankruptcy. Not just anyone could qualify. The process of qualifying was difficult and, oftentimes humiliating. But homes were saved and families were preserved with a chance to start over.
A myth emerged of the bankruptcy abuser, a high-class sort of welfare cheat. These reckless people worked the system to rack up large debts that were subsequently wiped clean through bankruptcy. The alleged abuse of the system became the excuse for a major overhaul of bankruptcy law. The legislation passed the Senate with 74 yes votes and soon became law.
The changes since the 2005 legislation provide substantial benefits to creditors. Morgan et al summarized the direct benefits to creditors in a forthcoming publication in the New York Fed’s Economic Policy Review. Before bankruptcy reform, the filer of a bankruptcy claim used to determine Chapter 7 or 13 filing status. That makes a difference in the amount and type of debt relief. The legislation imposes means test that determines precisely which chapter (7 or 13) filers must use. Significantly, chanter 13 filers retain more debt from medical and other unsecured credit.
Legal costs ranged from $600 to $1500 before bankruptcy reform. Legal fees now range between $2800 and $3700. Previously, there was no requirement for credit counseling prior to filing.
Filers must now document approved credit counseling six months before filing or face dismissal of their case (Morgan et al.). This counseling requirement can lead to unwarranted dismissals or inordinate delays in filing at a time when filers need relief.
Under the old law, only bankruptcy trustees appointed by the federal court could file claims of abuse by the filer. Under the new legislation, anyone can file a claim of bankruptcy abuse, which can lead to a dismissal of the cause. This is a huge benefit to lenders who wanted to keep citizens from realizing debt relief.
The Real Benefit for Big Money – Delayed Bankruptcy Filings
The new law makes it harder to file a claim, doubles costs, and gives the creditors a say in claiming fraud on the part of those who file claims. Significant delays in filing for bankruptcy became the norm.
Time is money for loan servicers. A long delay before a bankruptcy filing, allows servicers the opportunity to add on special fees, many of which the borrower can’t comprehend. One thorough study showed that many of these fees were questionable. The longer it takes, the greater the revenue opportunities. Delay benefits creditors since loan payments continue at their original level.
What happened to those big spending, reckless bankruptcy abusers that were the rationale for the 2005 reforms? The following graph from theConsumer Bankruptcy Project shows that there is virtually no difference between the incomes of filers before and after bankruptcy reform. The majority of filers made between ten and forty thousand dollars a year before reform. That has remained virtually unchanged. The big spending abusers were and remain a mythical construct; the centerpiece of a diversion strategy to keep attention away from this never-ending gift to creditors.
These newly empowered creditors were the same creditors who hired debt collectors to try and frighten people out of their filings. A major study found that 24% of filers reported that debt collectors told deliberate lies to avoid bankruptcy. They heard that filing for bankruptcy would lead to jail, job loss, or an IRS audit. Some were told that it was illegal to file for bankruptcy.Lawless, et al. Did the Bankruptcy Reform Fail? An Empirical Study, October 2008
The deck was stacked early against citizens and protection from creditorsdisappeared under the new law. The creditors, who so recklessly precipitated the economic collapse, came out on top. They were free to profit in any way they could from their new market,
What Causes Bankruptcy – Financial Shocks from Medical Expenses
Prior to the new law, the major cause of bankruptcy stemmed from medical care expenses and the resulting disruptions to families. Rather than the mythical big spender contrived by Congress, for nearly half of filers, major medical expenses, family tragedies, were the tipping point to a loss of financial viability.
The Consumer Bankruptcy Project audited a representative sample of bankruptcy filers in 2001. The audit found that 46% cited a “major medical cause” for bankruptcy. This includes the direct cost of uncovered medical bills for major illness or injury, lost work due to the same, and the need to mortgage the family home to cover medical costs.
Did Congress review this data? Were they intent on making it harder to file bankruptcy as a result of illness? When bankruptcy is delayed or simply not attainable, less money is available for needed medical care. Were the members supporting bankruptcy reform indifferent to the suffering compounded by their thoughtless legislation?
The situation is worse now. A comprehensive survey of those who filed bankruptcy in 2007 showed the increasing desperation of those faced with medical problems. When individuals or family members are in dire need of medical care, do they just sit home and suffer?
The results of this survey show that two thirds of bankruptcies result from medical care that they can’t afford or losses in income from medically required leave. Where are the big spending cheats?
Nihilists at the Helm
The big banks, Wall Street, the politicians they own, and the Federal Reserve Board created the real estate bubble in bad faith.
They knew or should have known:
- that the real estate bubble was unsustainable;
- when the bubble deflated, many homeowners would hit a financial wall; and, that
- when homeowners hit the wall, to maintain viability for their families, they would need relief of some sort.
What did the nihilists of the financial elite and their hit men walking the halls of power do with all this knowledge? They went ahead with the real estate bubble, fostered it, deregulated meaningful controls on the financial industry, and crafted a new bankruptcy law to stick it to filers. They knew or should have know that data from 2001 showed a very high rate of filings due to the financial stress of medical care and crises. Did they care? Do they care now? Has anything been done to correct this injustice?
While citizens suffer in financial distress, often due to illness, at the behest of influential bankers and investors, the Department of Justice crafts a settlement with lenders and their representatives to relieve them of the stern justice due for their specific crimes and the larger horrors they visit upon citizens, all in the name of short term profit.
We are most emphatically not a nation of laws. We are a nation where the law is used by a very few for their own purposes, without regard for the well-being of the nation or its citizens. We are a lawless nation.
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Geri Mellgren-Kerwin
Mon, 2011-05-09 15:27
It was President Ronald Reagan, republican, who said that anybody who doesn't have a million dollars at least says nothing worth listening to. His attitude about the working class to which he belonged underpinned his policy of wealth transfer from the Middle and working class to the rich that goes on to this day. Those who hoped Obama would repeal the Reagan/Bushes legacy have been disappointed. Obama has kept most of Bushs" program and the country continues to break down--that is what the policy is intended to do--reduce free Americans to impoverished slaves.
Ted Moffitt
Mon, 2011-05-09 09:19
It's ironic that the US Federal Govenerment has become the very same government that we revolted from in the 1776. The colonists were mad that English companies unfair advantages over the colonists in trade. We now find ourselves in that very same predicament once again as this article clearly illustrates one blatant example. Are we going to revolt now or wait until we have been utterly driven into poverty first.
John Bourke
Sun, 2011-05-08 21:35
VE FAILED US. GREEDY CRIMINALS HAVE GONE WITHOUT PUNISHMENT......These are all facts, IN FACT, successful manipulation of lies and media HAVE CAUSED INTERNAL DISSENSION among population,while citizens do NOT REALIZE OUR GREATEST ASSET IS OUR PEOPLE.Old time FEUDAL GREED is at work, in a last ditch attempt to destroy the educated middle class in America. The MIDDLE CLASS, less than a hundred years old has become contagious, and there are a SELECT WORLD WIDE FEW who do not want that to continue to happen, so they want to have it FAIL in the land where is was borne.There are enough greedy unpatriotic few who have sold out and who have gotten away with robbing AMERICA, and have not been indicted, prosecuted, and " attached" and PUNISHED.... because those representing us within our system HAVE SOLD OUT, and while doing so set up a set of complicated laws to PROTECT THEMSELVES and ASSOCIATES, their fortunes, and their greed...... ALL BECAUSE OF OUR "POLITICAL CORRECT COMPLICATED LEGALISTIC SOCIETY" that has thrown what is REAL LAW out the window. SIMPLE FACTS, if ya can't see this ya can't see the forest through the trees. Our system is "on the blink" . It has to be tuned up. Our only hope is PUNISHING THOSE, WEATHER on WALL STREET, IN BANKS or ON BOARDS or UNJUST REGULATORY COMMITTEES, lobbyist,and the BILLIONAIRES ,crooked EXECUTIVES, and CERTAIN SPECIAL INTEREST GROUPS they work for , and REVIEW and indite our legislatures and committees within, the judiciary and EXECUTIVEs...who have betrayed America, and sold us out. BRING BACK MANUFACTURING, REBUILD INFRASTRUCTURE, Become energy dependent.... WE MUST RESPECT ONE AND OTHER, no foolish bigotry, hatreds, etc...WE ARE ALL AMERICANS, and if we work hard should all reap what we sew.. we are a MIX that has produced the greatest country, life style, and innovations in the history of the world...WELCOME DIVERSIFICATION ! REWARD hard work,WELCOME LEGAL IMMIGRANTS, simply REFORM OUR HEALTH CARE....BUT START AT THE TOP! We have a great country with the mass of our diverse population being very good hard working people.... ARE WE TOTALLY APATHETIC, do we NOT WANT TO LOOK AT THE FACTS...AND SEE THE TRAITORS AMONG US.We must STOP THE WARS, stop policing the world, BUILD THE GREATEST DEFENSE AND SECURITY SYSTEM IN THE WORLD... STOP FOREIGN AID.... it never goes where it should any way. Our only chance is to look to our GLORIOUS MILITARY, to our true PATRIOTS, who have been abused by Commander in chief, congress and the military industrial complex who have raped us all;they have been underpaid and tooled around by forcing them to police and participate in limited warfare...a kinder , gentler kind of war DOES NOT EXIST". Our only chance is to have the few honest legislatures, and government officers CALL FOR return of DEPLOYED armies , with the assistance of the citizen soldier of the National and State guards .... and having them with concerned HONEST civilians GIVE OUR COUNTRIES LAWS A TUNE UP, UNCOMPLICATED OUR SYSTEM,and LET THE TRAITOR GREEDY CROOK AND POLITICIAN KNOW that there is justice, and THERE IS A TIME FOR TRAITORS TO PAY UP..."indite punish and recover", from those responsible for ROBBING and SELLING OUT AMERICA, while in a treasonous attempt to undermine the greatest most glorious system of government, and country in the history of the world.There is no other alternative, HARD ONE TO FACE, HUH ? We will have no recovery until we HAVE JUSTICE. LOVE , PATRIOTISM,JUSTICE , STRENGTH and facing the FACTS, can conquer greed any day.We must put fear in the hearts of those who have attempted to destroy us FOR THE BENEFIT OF THEIR OWN GREED ! We must let those privileged to represent the people that no matter what their position, they will be punished AS WERE THEIR PREDECESSORS who gave the house away, and complicated our government so much that only "one of them" could understand IT.A Glorious peaceful, just revolution must take place, and we must return AN un- complicated democratic republic, and OUR CONSTITUTION ... and REALIZE THERE IS NO NEED FOR AN ATTORNEY TO INTERPRET IT.... IT IS TIME FOR CHANGE, and a return to what this country is all about.
Michael Collins
Sun, 2011-05-08 13:14
Thanks for running this story TruthOut.
Instead of the big banks and Wall Streeet getting a cram down and "haircut" on their contribed real estate bubble, they got bailouts. What did the people get? Nothing but debt. That's how it works with wealth transfers, if they can't steal it the old fashioned way, they'll get it from the government in full public view.
We don't need a Truth Commission on this subject (although it needs broader publicity). We need public fitures like Cuomo and Blumenthal who, when they were their state's AG, prosecuted BofA, Moody's, S&P and others. These prosecutions need to be sustained and extremely aggressive. We need direct compensation to homeowners, not class action settlements. The perps have to go to jail. And, since people are suffering real-time, the cases need to move (like they do in the Eastern District of Viriginia, which proves justice can be "swift").
Any public official failing to take up the cause of prosecuting fraud and making whole the victims is not fit for public office. That's a start in activism. Make this a litmus test.
Bankruptcy attorneys have a great opportunity here with 50% of creditor filings lacking legally required paperwork. Challenge them and demand that the court obey the law. That's how the judges find out (although they could review the filings on their own).
Stu Pendous
Sat, 2011-05-07 18:34
We ALL know the WHO in this financial and otherwise, CRIME AGAINST HUMANITY.
There are 311,000,000 AMERICANS in this country according to the Census. Idiots are not the mainstream in this bunch and resources abound in the workforce. The military complex does NOT include those in uniform and true to history, they are NOT going to see their families grovel in the streets so Wall Street and the Elites can polish their nails and buy ocean view homes. Bunkers are not secret and NO-ONE is going to go UNACCOUNTED FOR in what will be the PRESERVATION OF THE GREATEST EXPERIMENT FOR SOVERIGNTY AND FREEDOM in history. The rest of the world will also get their turn in the ring, as they also have been screwed by these crooks.
Robert Hunter
Sat, 2011-05-07 16:34
I believe Ralph Nader put it best & simplest. The USA is a "Kleptocracy", a government of thieves. Only 20 years ago there were over 1000 felony indictments in the S & L crisis, now ZERO. They have consolidated their power to where the people have no rights. The future is not bright for the working people & perhaps not for the country as a whole. If things are to get better, it will have to come from the street. If the Arabs can do it, Americans can too, you can not depend on anyone saving you, you will have to do it yourself. It won't be Obama & it won't be Clint Eastwood or Batman, if it gets better, it will be you. Don't have the time, too bad, you may be next!
Jed Riffe
Sat, 2011-05-07 15:56
Less than 500,000 mortgages have been modified under Obama's HAMP Loan Modification program. Many of those 500,000 who received temporary modifications were denied permanent modifications after paying the bank the agreed upon reduced mortgage each month. Now they are being forced into bankruptcy as the banks are demanding penalties, interest and the original principal be brought current. These homeowners have now had their credit ruined and have no choice but foreclosure.
Many of us who are not in default but have lost our jobs do not qualify under HAMP or their Loan Service Agreement for a modification because they are not in default. The banks and the feds seem to be colluding to take away our homes. They are turning the American dream into a nightmare.
We need regime change in America now. This means both the Republican and the Democrats (except for Dennis Kucinich and Barbara Lee) who are doing nothing for consumers and everything for the banks and corporations who do not pay their share of taxes.
Robert Stahl
Sat, 2011-05-07 13:51
I think the patterns that get repeated are patterns of learning through their redundant recurrence, and this will teach us more about a lot in time. The pattern of patterns is what is at stake, however, and this may mean that the plutocratic forces in place are much larger than we realize, or our education is far darker than just this small piece of it. I agree with what is presented here, nevertheless, but I think there is a dinosaur in the room in the shape of an Old Guard just to begin with, globally even, and this is where a New Guard should be desirous in implementing a modicum of complexity for the purpose, or hope, of comprehensiveness at the outset, AI for instance (take Indira Singh's relationship to Thomas Tamm of the FBI) to derail the formation of these gargantuan beasts. With the public aware that this begins with some very fundamental understanding of the electronic age and not the Lolita properties that are so entrenched, it will be interesting to see if anything so ecological comes into being.
Don Emilio
Sat, 2011-05-07 13:02
Is anybody who can read surprised by this? Instead of the ritual wringing of hands and mouthing of ain't it awful, anybody who gave a damn would be working as hard as possible to destroy these racketeers. That would mean instituting a political system based on real democratic control of the economic resources of society. Hoping that, somehow, the self described "progressive" wing of the Democratic Party will, at least, ameliorate the rapaciousness of our corporate masters may be comforting, but it is the kind of delusion that keeps the criminals who run this country in power. SOCIALISM ANYONE?
Cassandra Vert
Sat, 2011-05-07 10:02
And add to that the Supreme Court has gutted class action to protect corporations.
Joseph Skrabut
Tue, 2011-05-10 15:11
the supreme court should be fired for that decision.
Zog Wee
Sat, 2011-05-07 05:37
Sounds to me like the banks are the biggest crooks of them all.
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