A pair of foreclosure-defense lawyers scared the willies out of the largest audience the Sarasota County Council of Neighborhood Associations has seen in years. The Monday Sept. 10, forum was billed as “The Foreclosure Mess 101.”
By the time the meeting broke up, April Charney and Matthew Weidner had touched on government ownership of all residential property and the failure of huge pensions. Ideology didn’t figure into it. It was purely finance and paperwork.
Prior to the repeal of the Glass-Steagall Act of 1933, mortgages were simple. A bank looked at your credit history, you put up 20% of the purchase price and if all went well – congratulations! Welcome to a home where you will raise a family and enjoy your golden years; then – after the 30-year mortgage is paid off at the same bank – it would become property you could leave to your heirs.
A lot of people are still living in that snow-globe wonderland. The legislation was repealed in 1999 during the administration of then-President Bill Clinton. In the name of deregulation, you suddenly could do a lot more things with mortgages. The snow-globe world was shattered.
The great Depression-era comedian and movie star Will Rogers once gave investment advice in a quip: “Buy real estate. They ain’t makin’ it anymore.” Little did he know that 80 years later, banks and other financial organizations would snap the link between loan and land. Who “owed” and who “owned” would become questions of enormous significance. And no little confusion.
From prosaic to profound
Mortgages were a dull business before 1999. But after! Banks could move those mortgages to investment banks, which would bundle them like sheaves of wheat and sell them as investments. Mortgages were seen as top-drawer products, literally “safe as houses.” The problem was, there weren’t enough of those top-drawer mortgages. Not everybody had a solid job and saved up for the hefty down payment.
The market wanted more of these bundled products. So banks began cutting back on their high mortgage standards. After all, they weren’t keeping these mortgages anymore, so their risk was minimal and profits were strong. In a deregulated financial environment, other people could “originate” mortgages as brokers, giving the banks competition. The race was on.
As with every other capitalist undertaking, the finance industry makes money by selling products. The higher demand, the greater the price and profit. Mortgage-backed securities were hot.
To sell these financial products, ratings were needed. High prices could be charged if the ratings were prime. So rating agencies used models based on the era when mortgages required 20% down and a job. Based on that model, these products received the coveted AAA rating.
All this started a land rush. Oklahoman Will Rogers would have recognized it immediately. People who couldn’t qualify before for mortgages were now courted. Soon any down payment was waived, and eventually, even a job was no longer required for a person to get a so-called “signature mortgage.” Just sign and here are the keys. Suddenly, mortgages weren’t “safe as houses.”
“The sub-prime slime oozed everywhere,” said Charney. “The idea was, you could pool products sold to sub-prime borrowers, but use a model based on old-fashioned loans.” And it worked.
The bundled mortgages were slapped together and sold all over the world. China owns a lot of them. And so do American pension funds. Alas, people who were supposed to pay the mortgages every month like robots are no longer paying anything. “We exported this fraud and failure to the world,” said Charney. “In 2004, I estimated it was $8 trillion. Today, I cannot fathom the depth of the loss.”
“Our pensions and state funds are invested and infected by these mortgage-backed securities,” she said. “It is the Enron-ization of America.”
The number of foreclosures in America is staggering. Florida is on the front lines. This graphic from The Washington Post in 2010 shows the epidemic in the Sunshine State (http://www.washingtonpost.com/wp-dyn/content/graphic/2010/10/18/GR2010101806640.html?sid=ST2010101806160).
But this next graphic is scarier still, because you can drill down right into your neighborhood. How bad is it? See for yourself on this Sarasota County Property Appraiser display of foreclosures from 2007-2011: (http://www.sc-pa.com/new/foreclosers/foreclosuremap.asp).
Because judges began tossing out foreclosure cases based on fraudulent “robo-signed” documents, the number of cases in 2011 declined. Nationally, the number dropped 34%; in Sarasota County it went down 40%. This is only a pause, though, because banks and financial institutions are producing other documents and re-filing foreclosure cases.
“Neither national [political] convention mentioned the word ‘foreclosure,’” said Weidner. “We are still mired in the middle of the greatest crisis this country’s faced in decades. But anybody who’s in power or authority has stopped talking about it.”
Weidner and Charter are down in the weeds on this issue, fighting for their clients in court. Weidner coined the term “robo-signing,” after thousands of court documents were found to be frauds. The disclosure basically rebooted foreclosure proceedings until banks could produce authentic documents instead of forgeries. But were the fraudsters and forgers charged? Of course not.
In fact, with the exception of one well-publicized 49-state agreement, little has been done by the federal government to hold the financial industry to task. “The feds won’t do anything; states attorneys’ aren’t interested,” said Weidner.
Charney was just as downbeat. “I’m not here to say what the remedy is,” she said. “Banks are just debt collectors for money to fund the pensions depending on income. We don’t want to base the American economy on the foreclosure of homeowners.”
Cautions for you
Here’s my take-away from these two alarming attorneys:
• Get a lawyer: If you are served papers and don’t show up in court, the judge will render a deficiency judgment, and you’re toast. If you can’t afford a lawyer, at least show up before the judge and give yourself some breathing room. Charney’s longest-running foreclosure defense lasted 12 years.
• Get educated: While there is a lot of information online, much of it is suspicious, biased and maybe deceptive. A local group meets once a month for self-help. “Mortgage Justice Group” meets the fourth Saturday of the month at the Waldemere Fire Station at 10 a.m. For information, you can call 504-4873.
• Watch out for snake oil: Predators are circulating, looking for the weak and the scared. “Don’t pay a dime unless they have a local office,” said Weidner. “And ask to see their [Florida] Bar card.”
Charney added, “A good question to ask off the bat: Are you PSA-literate? If they don’t know, just walk out.”
PSA stands for a Pooling and Servicing Agreement, a key document in proving who owes and who owns.
• Do you own it? Near the end of the presentation, Charney raised a very provocative question. Many of the questionable mortgages were guaranteed by arms of the U.S. Government. “Have we nationalized our residential debt?” she asked. “This also applies to commercial loans; they were bundled. And student loans; they are securitized as well. Have we nationalized our property because there is no way of clearing title anymore?”
It is virtually impossible to tell who “owns” your mortgage, she said. One CONA attendee asked, “Can I find out who sold my mortgage to whom?”
“The bottom-line answer is, ‘No,’” said Charney. “It could be on three different schedules of three different trusts, and two of them are blind to the others. The income from the principal payment goes to one, the interest to another and servicing fees are [broken] out, too.”
“If you were financed or refinanced since 1996, your title might be cloudy,” she said. That was the year she began to specialize in foreclosure defense.