So Friday Bank of America stopped its foreclosures nationwide in order to "review" its foreclosure practices. As WaPo reports,
"We'll go back and check our work one more time," CEO Brian Moynihan told the National Press Club in Washington.Things are spinning up faster and faster. And there's a new wrinkle—one I neglected to consider in my first post on the matter, and one which may ultimately prove to be the undoing of some banks, lenders, bagholders, whatever they call themselves. Turns out that in some cases, maybe, probably, the note—that is, the promise to pay generated by the original mortgage—did not transfer to the bond holder that ultimately lays claim to the house once the occupants stop paying their mortgage. Yves Smith at Naked Capitalism has been writing about this for a week or two, and some in Congress are taking notice. Florida Congressman Alan Grayson (D) sent a letter to the Financial Stability Oversight Council, calling for an investigation of this aspect of the problem. Excerpts from Grayson's letter (via NC):
The mortgage lending boom saw the proliferation of predatory lending and mortgage fraud, what the FBI called at the time "an epidemic of mortgage fraud." Much of this was lender-induced. Obviously these originators and servicers didn't keep good records of who owed what to whom because the point was never about getting paid back, it was about moving as much loan volume as possible as quickly and as cheaply as possible. The banks didn't keep good records, and there is good reason to believe in many if not virtually all cases during this period, failed to transfer the notes, which is the borrower IOUs in accordance with the requirements of their own pooling and servicing agreements. As a result, the notes may be put out of eligibility for the trust under New York law, which governs these securitizations. Potential cures for the note may, according to certain legal experts, be contrary to IRS rules governing REMICs. As a result, loan servicers and trusts simply lack standing to foreclose. The remedy has been foreclosure fraud, including the widespread fabrication of documents. (emphasis mine)The quick fix for this ginned up by the industry (and passed with no debate in Congress) was for all states to suddenly start accepting out-of-state notarizations. Presumably this would have allowed the perjury to continue unabated. Obama says no. So, if the alleged note-holder lacks standing to foreclose on the house, does that mean that the homeowner doesn't owe the money? No, it doesn't. It means that the loan is uncollateralized. In order to get a free house, the home debtor would have to file for bankruptcy. Meanwhile, the note-holder would sue the bank or lender that neglected to transfer the note, to try to recoup some of the money lent. The legal maneuvering might go on for years. The idea that this might be "good" for anybody—particularly anybody who relies on the real estate market—is fairly dubious.