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Mortgage Fraud Foreclosure Fraud, Part III

October 15, 2010
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The New York Times’ David Streitfeld visits the woman whose foreclosure allegedly started what some are calling “foreclosure-gate.” While I’m not sure how anyone can say for certain that this is the Alpha case, it is a very good story.

Streitfeld quotes and describes the borrower, Nicolle Bradbury, who hasn’t paid in two years. We get a little hint of what her life is like, and how it got that way:

But Mrs. Bradbury lost her job as an employment counselor in 2006 and did part-time work after that. Her husband, Scott, was in poor health and had other problems. He could not work as a roofer. She fell behind and got a modification from GMAC. It increased her monthly payments and provided no relief.

The piece shines with the description of Thomas Cox, the volunteer lawyer who noticed how fucked up Bradbury’s foreclosure documents were, particular the signatures by a man named Jeffrey Stephan whose title was “limited signing officer.”

Cox deposed Stephan, who acknowledged that he hadn’t read the documents he signed, swearing to the court that GMAC had all its paperwork ducks in a row. This is not kosher. As Cox wrote in his motion following that deposition:

“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.”

GMAC (which, as the story helpfully reminds us, got $17 billion of taxpayer support last year) has been flailing ever since. The Times says the company has spent more than Bradbury’s house is worth trying to take it from her. And:

They also said that Mr. Cox, despite working pro bono, had taken the deposition “to prejudice and influence the public” against GMAC for his own commercial benefit. They asked that the transcript be deleted from any blog that had posted it and that it be put under court seal.

(This was denied.)

Great story. So what’s missing? Plenty, still. Consider the start of this saga:

In 2003, [Bradbury’s] brother-in-law at the time offered to sell her a house on property adjacent to his. It was across from a noisy construction supply site. But it was ringed by maple, evergreen and willow trees, and who does not want to be a homeowner, especially when GMAC Mortgage will give you a loan for the entire purchase price and then another loan to improve the property?

This kind of mortgage, sometimes called a 120 loan, because the lender is handing over cash worth 120 percent of the property’s value, was considered normal in the 2000s. What happened with Bradbury’s loan? Was she tricked into a high-interest deal or so-called “exploding ARM” with low teaser interest rates that reset to crazy rates a couple years later? No word on that, though her monthly payment, at $474, would suggest not.

As very astute observers (Mike Hudson, for example) have been exposing for years, most of those loans were fraudulent when they were made. The brokers forged documents and income statements, ginned up inflated appraisals and put fixed-rate paperwork on top of adjustable rate mortgages, and had the buyer sign the whole stack—anything to make the bigger commission. And then the flipper/fraudsters came and made it all so much easier, lying about their own income and prospects so broker deceit was not necessary.

Securitizers like Lehman Brothers hoovered up all this dreck sight unseen, sliced it and diced it and sold it to investors as AAA-rated bonds. How did all these liar loans, most of them sure to default, get AAA ratings? Because the bond rating agencies didn’t read the documents either. Pension fund managers and others took those AAA ratings at face value even as houses in their own neighborhoods—and in the crappy neighborhoods across town—inexplicably doubled and tripled in value. None of them read the loan documents. Very few of them stopped to wonder how ordinary people, whose actual incomes were basically flat, suddenly could afford homes at triple their former price.

The higher up the food chain this goes, the more money people made by not doing their jobs. By signing without reading, by “attesting to the truthfulness” without knowing.

I’ve long been impressed by how much money there is in pushing paperwork around. Who knew that so much more could be earned by doing that job shoddily?

Shout out too to the Sun’s Jamie Smith Hopkins who this week shed some light on the Maryland chapter of foreclosure-gate, prompting action at the state level.

The time of reckoning is near. Will we have the rule of law, or the rule of fraud?

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