Saturday, December 31, 2011

Foreclosure as Crime Scene

One other important year-end read I want to recommend, from Matt Stoller (whose work I've discovered via Twitter) on why foreclosures should be treated as crime scenes.

These attorneys general have changed the legal environment around the mortgage and foreclosure mess — refocusing the core issue on justice. They are reframing the problem as a crime scene.

What is behind these suits? Simple: Crime by mortgage servicers and their contractors. And this is more than just the crime of these foreclosures themselves — it’s the residual tail end of a housing bubble based on fraud. The reason these bank servicers must now routinely employ notaries using false documentation is because they never established a clear chain of the property title upfront.

Bank regulators have now found that up to 5,000 military families may have been foreclosed on illegally, as The Financial Times reported last month. Yet the Justice Department settled with Bank of America for alleged violations of the service member act. BofA, like JPMorgan, doesn’t have to admit to wrongdoing — but it says it is very sorry anyway.
Which we've been writing about here at TPE for the past 18 months or so. The audacity of the Justice Department and the SEC "settling" these cases is beyond an outrage. One doesn't "settle" a criminal prosecution (as I've iterated over and over).

Yet as Stoller points out (and I pointed out in a cheeky retweet on Twitter), many in Washington still don't see the foreclosure crisis as an illegal activity.

President Barack Obama has argued, as recently as last Sunday on “60 Minutes,” that what happened on Wall Street wasn’t criminal. “Some of the most damaging behavior on Wall Street,” the president told Steve Kroft, “in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal. That’s exactly why we had to change the laws.”

Obama is wrong. Fraud was illegal before the crisis; it’s illegal now. The Servicemember Civil Relief Act was signed in 2003. So it was already on the books. During the savings and loan crisis, the George H.W. Bush administration sent about 3,000 white-collar criminals to jail. This administration has yet to send one.

Gretchen Morgensen and Josh Rosner detail a similar case in “Reckless Endangerment,” their history of the housing bubble. In 2003, before the bubble, Georgia lawmakers noticed that mortgage lending was riddled with fraud and predation. So the Legislature passed a law clamping down on fraud with a state consumer protection law.

The response was devastating — Standard & Poor’s declared it would no longer rate mortgage-backed securities with loans originated in Georgia. The agency made enormous profits by rating subprime mortgages, so a predatory lending law may well have proved a threat to this profit stream. The state quickly reversed the law for fear that there would be no more housing finance in the state.

I remember this cave well. Georgia actually tried to do the right thing, but was shut down by Big Mortgage and the corrupt ratings agencies (sidebar: when are people going to stop listening to Standard & Poor's, Moody's or any other credit rating agency who sold the American economy down the sub-prime mortgage mess river of the 2000's? Their opinion on anything today is 100% irrelevant).

As Stoller points out, the failure for there to be any kind of justice (criminal justice) will retard the housing markets much longer than is necessary.
Turning our markets into playpens for predatory behavior didn’t happen overnight, and it will not be fixed overnight. But until we have public servants strongly focused on justice for all, we can expect the crime spree to go on. After all, what we’re all learning is that, at least for large banks, crime pays.
Worse, foreclosure isn't simply a financial crime, it's a violent crime, according to the FBI. Forcing mass numbers of victims out of their homes and into the streets illegally is analogous to kidnapping and gang rape. And the bystander effect, by which we watch but fail to act, is keeping justice from being served.

I've read that one of the new goals of the Occupy Wall Street demonstrations has been to decamp to foreclosed homes and occupy them hoping to "disrupt bank auctions and block evictions." I can't think of a better idea to raise awareness of and draw attention to this brutal form of organized crime.

Happy New Year!

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