Tuesday, October 19, 2010

NOT JUST PAPERWORK. I only just saw Megan McArdle's post on the foreclosure mess, which easily could have been Shortered, "Won't someone please think of the banksters?" McArdle wonders why everyone's feeling sorry for people who were perhaps improperly foreclosed upon, when bankers and their agents stand to suffer from attempts to redress their grievances. (And some customers, too: Why, McArdle herself has a new home, and may have to delay her renovations until the whole thing blows over.)

She endeavors mightily to keep focus on the relatively benign-sounding "notary fraud" involved, I suspect because it makes the whole thing seem picayune. But the real issue isn't some document-management whoopsie, it's the unseemly haste of banks and their subsidiaries to grab people's houses.

I heard someone on the radio saying that this all could have been avoided if banks had modified loans with generous principal reductions, like they ought to have. I find this remark puzzling. If a loan servicer doesn't have sufficiently clear authority to foreclose, then presumably they also don't have any authority to modify the loan. In fact, shouldn't banks be stopping their modifications, too, until clear lines of ownership are established?
Har de har har. But that's not how criminals think. Back in 2008, Graham Rayman at the Village Voice examined the activities of a mortgage servicer owned by Lehman Brothers called Aurora:
[Aurora's website claimed]: "We routinely work with customers who are having difficulty in making their mortgage payments to explore alternatives to foreclosure that would enable them to stay in the home."

Despite these rosy assertions, an industry survey in 2007 by Moody's found that companies like Aurora were only modifying a tiny percentage of their loans. The Center for Responsible Lending reported in January that foreclosures were outstripping modifications by 7 to 1, and 13 to 1 among subprime loans.
Aurora wasn't reticent to modify loans because they were unsure of their authority. They just preferred to grab property as fast as they could, and they weren't scrupulous about how they did it:
The letter that Aurora sent to Grant said he was behind on his payments, and the company was going to foreclose on his four-family house in Bed-Stuy.

Grant was indeed behind—but only by a few weeks, he says. Moreover, he had already mailed in the payments that would bring him up to date.

He contacted Aurora to plead his case, but, incredibly, the company refused to accept the payments. Instead, company officials moved ahead with the foreclosure. No matter what he did, Grant says, Aurora would not work with him to resolve the debt.

"I had the money, and I sent them the money, but they didn't want it," he says. "It's like they would rather have had the house back."
Rayman has more horror stories; you may read others here. Some of those people are suing; I wouldn't be shocked if Aurora's paperwork were discovered to be faulty. And that's just one servicer, flying under the banner of a major financial services company.

You know me, I don't like to think ill of anyone, but under the circumstances I have to suspect that the people who are crying "Whoa, let's not go overboard" with respect to this crisis are not really trying to protect the innocent.

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