For people saddled with unsustainable mortgage payments, foreclosure proceedings come with a heavy emphasis on the "closure" part-since they mean eviction, devastated credit and near-permanent status as a financial pariah. But the purveyors of the fraudulent debt instruments behind the nation's present foreclosure tsunami play, as always, by a different set of rules. For even in managing the wind-down of home loans poisoned by their own special brand of recklessly securitized debt, American banks continue hewing to the same fee-seeking, asset-stripping mode of enterprise that originally jeopardized the U.S. housing market, and much of the broader economy along with it. Now, as then, they've distorted the housing market with howlingly unprofessional and dubiously legal conduct. And now, as then, they're pursuing short-term financial incentives that have nothing to do with the actual provisions in the contracts they're legally obligated to honor.
As Ariana Eunjung Cha and Zachary A. Goldfarb explain in the Washington Post, the nation's financial institutions are processing the greatest volume of home foreclosures in our history-now numbering more than 2 million properties, with another 2.3 million seriously delinquent–"through a mass production system of foreclosures that was set up to prioritize one thing over everything else: speed."
[T]he problems plaguing the foreclosure process extend well beyond a few, low-ranking document processors who forged documents or failed to review foreclosure files even as they signed off on them. In fact, virtually everyone involved – loan servicers, law firms, document processing companies and others – made more money as they evicted more borrowers from their homes, creating a system that was vulnerable to error and difficult for homeowners to challenge.
The unrivaled king of the great foreclosure speed-up is Florida attorney David J. Stern, whose law firm processed 70,000 Broward Country foreclosures in 2009 alone. Mostly, he moves through repo proceedings for Fannie Mae and Freddie Mac-together with bailed-out mortgage giants like Bank of America, Wells Fargo and Citigroup. According to a report from Mother Jones writer Andy Kroll, foreclosure mills like the Stern shop command flat fees, of around $1,300 per foreclosed property, rather than the hourly fees law firms normally charge. The result is a premium on rapidfire processing-usually by a reserve army of temp workers who sign off on forbidding stacks of legal and real estate documents that few have been trained to interpret-and none, effectively, have the time to review in any meaningful fashion.
Indeed, long before the mortgage fiasco had fully metastasized in 2008, foreclosure mills were drawing legal reproofs, Kroll notes, with a New Jersey firm processing a battery of foreclosures over the signature of an employee who had left the outfit a year earlier, a Texas concern submitting computer-generated documents that a federal judge called "gibberish" and "erroneous," and a Florida default operation raking in fees by, in the words of another federal judge, "filing any old pleading without undertaking any investigation into its accuracy is perfectly acceptable practice."
But there were plenty of similar warning signs preliminary to the 2008 meltdown as well, with shady national mortgage operations constructing subprime loans that actually had mortgage-holders kiting balloon payments on their interest, all but guaranteeing the eventual doom of their loan contract. But in both that crisis and today's foreclosure fiasco, the lure of quick-turnaround fees simply proved too powerful to draw much sustained critical scrutiny. During a deposition in a suit against the Stern firm, Cha and Goldfarb report, senior paralegal Tammie Lou Kapusta described the work routine thusly: "The girls would come out on the floor not knowing what they were doing. Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to the original documents."
As it happens, the latest wave of disclosures about the foreclosure mess coincided with former Countrywide CEO Angelo Mozilo's $67.5 million settlement of a Securities and Exchange Commission lawsuit accusing the bottom-feeding mortgage firm of fraud. The agreement stipulates that Mozilo can never again serve as a corporate officer-something of an academic stricture, since the original S.E.C. complaint furnishes plenty of detail showing his unfitness to manage much of anything beyond a sock drawer. In one internal email from April 2006, he offered this frank assessment of the company's equity-destroying adjustable-rate mortgage deals: "In all my years in the business, I have never seen a more toxic product," he wrote to a Countrywide financial officer. "With real estate values coming down… the product will become increasingly worse." And in a September 2006 email, he fleshed out that dour estimation further: "The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales." The day afterward, the S.E.C. complaint notes, Mozilo approved a massive sale of his own Countrywide shares-part of an ongoing sell-off that netted him $260 million between 2005 and 2007.
So to recap: Even after his SEC penalty, Mozilo walks away with something just shy of $200 million in well timed stock proceeds alone. The note-holders seduced by the stirring vision of risk-free universal homeownership and now getting the free market's bum's rush, meanwhile, can't count on even any meaningful semblance of due process. And that being the case, most of them dare not dream of a rationally restructured loan arrangement that might start to undo some of the fathomlessly cynical ruin that a corps of Mozilo-esque financial cretins have left at their doorstep. This de facto social compact was neatly summed up in the Legal Aid case against GMAC-yet another federal bailout recipient farming out its repo workload to unscrupulous foreclosure mills-that brought the whole sordid business to light in the first place. As New York Times reporter David Streitfeld writes, that challenge involved a fight to keep the holder of a $75,000 mortgage-a laid-off employment counselor, fittingly enough-who consulted with a Maine legal aid firm. There, as luck would have it, her case caught the attention of a onetime bank attorney named Brian Cox-who suffered a debilitating depression and divorce from his own tour in the foreclosure trade, and had recuperated by building houses and switching sides as a pro bono volunteer in the housing wars. With a little digging, Cox established that the signatory on all the documents, a "limited signing officer" named Jeffrey Stephan, moved through foreclosures for GMAC at the forbidding clip of 400 a day. As Cox summed things up in a court filing:
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 â€˜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.
Such is the face of the quest for economic justice in our age. In the face of such outrages, we could do a lot worse than remember Samuel Johnson's crisp assessment of the inequities of the British debtor prison: "Those who made the laws have apparently supposed, that every deficiency of payment is a crime of the debtor. But the truth is, that the creditor always shares the act, and often more than shares the guilt, of improper trust… and there is no reason, why one should punish the other for a contract in which both concurred."
By the way, I almost forgot: Angelo Mozilo's legal fees were paid by Bank of America, which bought out the toxic Countryside operation-with some conspicuous assists from well-padded lawmakers-in 2008.