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Mortgage Fraud Collection Fraud

October 1, 2010

The New York Times did its inevitable pull-out piece on the collapse of the foreclosure mills today, and basically missed the story.

You didn’t hear about this?

It’s big news in the mortgage industry. On Sept. 20 GMAC suspended all foreclosures in 23 states (Maryland, alas, is not among them), apparently because a lawyer working for its servicing arm admitted in a lawsuit that he had not actually read the tens of thousands of documents he “signed” (with a rubber stamp) telling judges in foreclosure cases that all the paperwork was righteous and that the foreclosing company (GMAC; others) had all the proof anyone could ever need that it did, indeed, have the legal title, the right to foreclose, ownership of the loan, etc.

Dude was submitting affidavits at the rate of 10,000 per month.

Now, there is a substantial subculture of people—lawyers, mostly, but real people too—who have long been shouting “fraud” on these mortgage servicers and their hired “foreclosure mills” on the basis of just this kind of technicality. (This site is just about ground zero for this movement). As the Times notes, these lawyers slow up the foreclosure business. It’s actually their job.

What the Times misses, however, is the base fact: In all but a very few cases,  the foreclosures are happening because the people who borrowed the money aren’t paying. They are in default, living for free. And the company trying to take the house back actually is entitled to do so.

So why the fraudulent docs?

Because, during the bubble, almost every lender dispensed with the checks and balances that lenders used to employ to keep everything on the square. Things were moving too fast, you might hear them say.

Then, too, if people with professional integrity had been present at the creation of these loans, mischief (i.e., loan denials, lawsuits, federal investigations, prison terms) would have ensued.

The bubble would have popped in its infancy. That would not have been any fun at all, now would it?

So we now have this very ironic situation whereby:

1. Loan servicers are creating bogus “affidavits” to attest to the legal sufficiency of

2. Sloppily-documented loans ginned up by mortgage brokers and fly-by-night lenders who

3. Either flim-flammed or willingly collaborated with borrowers who were either

A. delusional, or

B. larcenous

The snake is eating its own tail.

The Times’ take?

Stricken neighborhoods across the country, for example, could benefit. One big factor undermining home sales is fear of a large number of foreclosed homes coming to the market. If the foreclosures are delayed or never happen, housing prices might find a floor.

I don’t think so. I think this will just delay the floor, and lower it, as lawsuits cloud titles on hundreds of thousands of empty houses. They’ll ultimately end up in the hands of investors, laying the groundwork for the next bubble.

Commenter number 49 from Eastern PA got the thing right. Here is his or her anonymous take:

I was in this industry. This article was very liberating. I actually sighed relief reading this over breakfast. I left the industry because it made me sick. I could not do what they wanted us to do. Bank management wanted us to lie, but they did not want to KNOW that we lied. They were being crushed under lawsuits and complaints from borrowers. I pray reporters investigate more deeply into the law firms and their “professional” relationship with mortgage servicing companies. It is a mess. Mortgages that were bad from the start, fraud on so many levels whether it be at the closing table (ARM loan at very high rate without the borrower knowing) broker fraud, appraisal fraud, title co fraud. Then Wall St bundled subprime mortgages (high risk mortgages with an extremely high default rate) as investment vehicles…are you kidding me?! Well the avalanche began. Foreclosures are a mess and the uneducated poorly trained employees are signing documents they do not understand because they under so much pressure.

Pressure? What pressure? The system was saved. Word now is that the TARP may not lose as much as originally planned. AIG is even planning to pay back the money it borrowed. Next year.

Good news is busting out all over.

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