The attempts to minimize outright fraud and to blame homeowners for it is makes my stomach churn. It would be nice if Reuters reporters would at least edit (it might be too ambitious to require a reporter to actually investigate the facts) the public relations communiques of our well-funded (at least on paper) financial institutions before reporting verbatim on their spin. Yves at naked capitalism has been doing a great job on reporting this:
“But the banking industry is still in denial about the severity of its new headache, the foreclosure mess, from a legal and therefore monetary perspective. The battle lines are pretty clearly drawn. On the one hand, you have the industry apologists, as represented by the Wall Street Journal and some websites that I normally respect, such as Housing Wire, but in this case are taking up industry talking points verbatim.
A good piece by Max Abelson of the New York Observer discussed the yawning cultural divide:
A former member of the Goldman Sachs management committee was not so sure. “Don’t you think, out of 10 million data points, there will be 500 unbelievably screwy examples? It’s a little bit so what,” he said on Tuesday. “I don’t get it. It doesn’t feel like this is fraud. Maybe there is sloppiness, but at the end of the day, people took out mortgages they can’t pay back. Now I worry that if anything, the government is making something that is just a clerical error into something that would be nefarious or whatever.”
Yves here. We keep coming back to the “my dog ate your mortgage” excuse. It’s “sloppiness” or “error” (better yet, “clerical error”, those Masters of the Universe never got close to the operational stuff to be accountable, right?). And now the defenders will ‘fess up that there were abuses, but really it was very few people, so what’s the fuss? After all, as Reuters argues in an article that reads like dictation from the banks’ communications department, the borrowers were all deadbeats anyhow.
It has hit the point that the increasingly disconnected financiers are getting told they are way off base as far as little niceties like the rule of law, not by the usual pro-borrower sorts, but the Financial Times, in its editorial yesterday “Wall Street’s bad behaviour redux” (hat tip Richard Smith):
The growing scandal over the improper, and perhaps fraudulent, foreclosures on homes by US banks is becoming both a financial and a political hot potato. Wall Street is being forced to admit to yet more unsavoury practices linked to mortgage bonds….
The banks and their defenders mutter that this is all a bureaucratic technicality and much ado about nothing. Almost all the borrowers had defaulted on their mortgages, they point out, and the problem is simply of the paperwork being improperly prepared, which can be corrected.
They are wrong, and the fact that they regard court proceedings to repossess homes so lightly is a worrying reflection on Wall Street’s ethical standards, or lack of them. At worst, the banks may have been lying to courts over a vital safeguard in property law – the sanctity of documents.
This scandal is a mirror image of the lax and often improper lending practices that grew up in the years before the 2008 financial crisis as Wall Street raced to extend mortgages in order to have fodder for asset-backed securities. They never took seriously the importance of lending soundly and thoughtfully to homeowners.
In a sad bit of synchronicity, the World Justice Project published its Rule of Law index this week, and the US showed dismal rankings:
The world-wide study examined how nations implement and enforce its laws for ordinary citizens. And more importantly, whether the poor have equal access to civil justice remedies that are available to the wealthy. How did the U.S. measure up? Not good. The exorbitant costs of lawyers and limited access to civil justice placed the greatest country on earth at number 20 out of all 35 countries surveyed. The countries of Mexico, Croatia and the Dominican Republic treat their poor and disenfranchised better than we do when it comes to civil justice.
And a more pointed take came in comments from reader ABSGuy:
This has the makings of a mess of monumental proportions.
Back in 2007 when the ABX (the subprime MBS index) had fallen a few points, the Street came out in force saying this was a gross over-reaction. Losses would never be more than a few percentage points. Buyers of protection (like myself) were pooh-poohed as hysterical nut-jobs. Within a few months the ABX had dropped by a third, on its way to 40, and a short time later the entire banking system was on life support.
The lack of a perfected security interest in the mortgage loans on the part of the securitization trust (if true) is a very, very big deal. The requirements for the conveyance of mortgages is well-established, “black-letter” law. Anyone who says this is a “technical” problem is uniformed or lying.”
Full article here.