Everyone by now is aware that several of the largest mortgage providers are holding up on their foreclosure proceedings because they have not offered legitimate proof that they own the mortgages and that they are in default. We don’t get to toot our own horn very often about things but this is a situation that I discussed over a year ago when the home mortgage rescue was being pushed by the politicians in Washington. Then there was discussion of the way the mortgages were bundled into packages and sold and re-sold several times with serious questions as to who was the real owner.
There was concern expressed that many of the home owners were being foreclosed on wrongfully and that they had been tricked into taking the loan n the first place. I pointed out then that anyone who thought they had been defrauded or were being foreclosed on wrongfully already had a perfectly adequate remedy by using the court system. The lender has to have two things to proceed with a foreclosure. They must be the owner of the mortgage itself and the debt. The law has for centuries recognized that real estate transactions are very special and that they must be handled correctly–in writing and filed of record in the appropriate county office for land records. The mortgage can be sold as can the debt to another person. There is nothing inherently wrong with that transaction but it must also comply with the laws regarding real estate rights. That means the owner of the mortgage at any point in time must be in writing and filed of record to have effect against third parties.
Because these lenders were doing so many of these and bundling them like so many carloads of corn they got sloppy and careless with their paperwork. I predicted that. I predicted that many of those “lenders” would not be able to prove they were the legal owner of the mortgage they sought to foreclose on. The current scandal is that they cannot produce definite ownership but that they in the hurry have been signing false affidavits for foreclosure proceedings. There must be a proper chain of title to that mortgage and the signers of those affidavits obviously were not checking the records to determine the truth of the facts they were swearing to. If the lender can’t prove a proper chain of title then they are not allowed to foreclose under the law. The are in the eyes of the law a stranger to the original transaction and have no standing. It is not complicated to transfer such an interest in a mortgage but it must be done correctly. They got too fancy for their own good and were processing way too many of these transfers and now they are paying the price for their mistakes which is as it should be not only under the law but as a matter of morality.
Also there is the issue of the debt. A mortgage is meaningless unless there is a corresponding debt to go with it. That is another reason it is so important that the chain of title be correct–so that the mortgagor who has been making payments is given the correct credit and that some stranger he did not deal with cannot foreclose on his property. When the mortgage was sold to another investor the note supporting the mortgage should have been sold with it. This would normally be done with one document and one transaction but again you have to be the owner of a debt from the homeowner to foreclose. If you hold a mortgage against A but if fact you have no proof that A owes you any money you can’t foreclose against him which again is as it should be. It generally is the burden of proof on the mortgage and note holder to proof the legitimacy of their instruments, the debt and the mortgage. The homeowner typically can just say “prove it”.
These mortgage holders who got many of these dubious mortgages can probably in most instances correct the paperwork. There is nothing legally wrong with a correction deed or deed of trust or mortgage. For example if everything was correct in the original mortgage but the land description was wrong it can be corrected later and the corrected instrument filed of record. But with the tens of thousands or hundreds of thousands of these mortgage out there in these bundles it will take a long time to go back through them one by one to verify the chain of title and then properly record them.
Again the government jumped in where it was unnecessary. Politicians wanted to win points. The legal system already had the mechanism in place to deal with these issues and we would be so much further along in restoring the housing market. Those that were defrauded would be protected and those lenders who didn’t have proper paperwork would have to correct it or lose. I said long ago that there can’t be a mystery owner of a mortgage who gets to foreclose on you. You are entitled to know who holds your debt and mortgage and that was true then and now.
We don’t need a federal remedy for every perceived problem. This can be straightened out and will be. I don’t feel sorry for those who took out loans that couldn’t afford in the first place with federally subsidized money nor do I cry tears for the lenders who gambled on those loan packages sold like a commodity on the market.
“A slack hand causes poverty, but the hand of the diligent makes rich” Proverbs 10-4. www.olcranky.wordpress.com
We have reached the point where we now have to refer to the bailout philosophy that dominates political discussion in the plural. There is yet another proposal that is being bandied about on Capital Hill and those wood paneled rooms where wise men meet to determine our economic future. The latest seems to be a smorgsborg of government largess for various groups, including naturally the proponenets say the “middle class”. The Government can print money. They don’t need to convince us that they can do that. It does raise questions though about the worth of that money when more simply rolls off the printing press. Supply and demand factors apply even to money. If you have more of it then the value of each dollar diminishes. I know that at the moment our dollar is holding its value well against other currencies but that is more due to the weakness in other countries than the inherent value of the dollar based upon the fundamentals of our American economy. We are less sick than our contempories. I consider that pretty faint praise for our dollar. And once put into circulation it is hard to remove the money from the stream of commerce. The only effective way to reduce the money supply in the future will be higher taxes and the Government spending much, much less than it is now. How likely do you think it that that outcome will be tried? The Government’s appetite for money is boundless because that money equates to power and influence and my experience is that politicians are loath to surrender either except when faced with a groundswell of opposition. Where will that opposition come from down the road? Certainly not from the plethora of special interests groups feeding at that Federal trough of money.
Our current spending binge for bailouts is like saying the cure for alcoholism is to offer another bottle of whiskey to the sufferer. The misuse of money and credit got us where we are. Sometimes cures require hard work and some sacrifice by the people and the Government. Mistakes have been made by individuals and the Government and there are consequences that have to be paid for all of them. By trying to eliminate those consequences for stupid behavoir the Government will be picking losers and winners. I would much rather have the market pick the winners and losers. At least then you can ride or fall on your own decisions and actions rather than the whim of politicians.
We have been told that we had a credit crisis and that was the driving force behind the bailouts of AIG, the banks and the investment banking houses and our dear friends at Fannie and Freddie. It is postulated that the credit system among banks and investors has become so tenuous that the entire system is in danger of meltdown. That without all that credit flowing our economy can’t function. At the same time we are told by others that the real issue is not just credit but the housing market and the falling price of housing in the US. Many argue that the housing issue is the root cause and therefore that we must offer a panoply of rescue packages to the homeowners, builders and mortgage lenders to stabilize those prices and values to make things start to turn around. Some pundits even say we should help stabilize the market in those crazy securitized mortgage instruments that were bundled and apparently sold around the world. What is a laugh to me is that those buyers were supposed to be the “smartest guys in the room” whether here or abroad.
I posit that it is a credit problem we face but not the one involving investors or the banks. Rather it is the credit that was extended in the first place to those buying these subprime loans. The buyers of these houses with no money down and virtually no stake in their asset got a free ride up front and now are going to get another free ride from the Government. Hell, they got an asset for nothing and only had to pay “rent” if you will and make the bet that the price would continue to increase and that someday they could sell the asset that they didn’t pay for at a nice profit. There are no free lunches. The fact they paid mortgages payments doesn’t impress me because they would have been paying rent anyway. They had to live somewhere and pay for it. At least that used to be the American approach that you had to pay your own way and pay for what you got. I’m not so sure anymore. It was the abuse of credit by the banks, mortgage bundlers, Fannie and Freddie and those homebuyers and all the others in that daisy chain that got us into trouble. It was not the use of credit but abuse of it. Credit is supposed to be earned based upon performance, collateral and trust. Those houses were and are worth something. I am sure many are quite nice homes in nice neighborhoods but the market was overbuilt because of the credit manipulation in the lending process. It is a credit crisis, not a housing crisis and we are aiming our efforts in the wrong direction. Without that credit abuse there would have not been all those homes built and all those near worthless mortgages extended. That excess inventory of both housing and credit needs to be adjusted downward. The law of supply and demand can be manipulated for a while and it can be nudged this way or that but the fundamental truth of the theory can’t be denied or changed by
Government manipulation. I hate that I have been hurt by all this mess and I bet your have been hurt also and are as angry about it as I am. Those homes are still there and other buyers with legitimate credit will be there to buy them for a price in time. We have already been hurt and letting some hedge funds and others go down won’t make things any worse in my opinion. We do not need to be pouring more money down the rat hole of this mess. It will sort itself out over time if the Government will stand aside. If the Government wants to do something helpful it could do everything in its power to promote business of all kinds and the creation of jobs in the private sector. Most Government jobs don’t add to the economy but are a direct or indirect drain on it. Yes, I know Government employees spend money and add to the GDP but they also have to be supported by taxes which takes away from the economy. Do the math for most of them and you’ll see they don’t help the economy. We need some naturally; I want firement and policemen in my city. Some of our fellow citizens rode the free train for a while and now we are all having to pay for that ride. I don’t want to mortgage the future of my kids and grandchildren to promote the self aggrandizing agenda of politicians. Let the market work. Let our court system work. Those that were defrauded have a remedy already in our law. Yes “we ” are losing value in our investments but we’ve taken the hit. Some people and businesses belong in Bankruptcy court for good reasons. Some are the “waste” brush that needs to be burned off every now and then to make a healthier forest like our good envoirnmentalists friends teach us.
Maybe it is time to employ the Fabian tactics to thwart the idiocy of even more money being hurled at the wrong problem with dangerous unintended consequences for us all. Oh, Fabian tactics means to wear out an opponent by delaying or obfuscating the battle rather than the direct attack. I prefer the direct attack myself but will adopt whatever will work to put a cork back in the genie bottle of Government handouts to the wrong people.