A bizarre meme seems to have popped up recently regarding prosecuting banks for fraud and other crimes. What makes it weird is that its not exclusively coming from the usual collection of asshats and idealogues. Very little that tumbles out of the piehole of Megan McArdle suprises me — her record precedes her. But a few others have surprisingly been picking up on this theme. Even Roger Lowenstein had a Bloomberg column with the unfortunate headline No Jail for Economic Crisis May Mean No Crime. [Update: Original BW title was Wall Street: Not Guilty]

By that logic, O.J. didn’t kill Nicole Simpson and Ronald Goldman.

Thus, we are forced to interrupt our usual cheery blather for a little schooling about what the rule of law is, why it needs to be protected.

Let’s start by noting that there is a major conflict between Treasury/Justice Department and the banks, all of whom received major bailout dollars. You tend not to want to prosecute companies you just showered with 100s of billions in cash and now own a substantial stake in. This is yet another reason why Uncle Sam should not be in the bailout business: It prevents the DOJ from doing its job.

Next, lets note the difference between a high profile CEO perp walk and busting a minor bank criminal. While lots of people are calling for Angelo Mozilo’s head, I believe the more productive path to law enforcement is starting with the known law breakers and proceeding from there.

This is not a glamorous approach to law enforcement, It is a slow laborious grind. As I presented to the National Association of Attorneys General, there are 10 major areas of bank and mortgage fraud:

2. Mortgage Pools (Warranties & Reps)
3. Bad Securitization (Quality)
4. “Misplaced” Mortgage Notes
5. Force-Placed Insurance
6. Illegal “Pyramid” Servicing Fees
7. Document Fraud for Sale
8. False Affidavits, Perjury (Robo-Signing)
9. Foreclosure Mills, Process servers exacerbate problem
10. Active Servicemen losing homes while on tour of duty

Of this list, five issues are prosecution-ready, where individual states have jurisdiction. These include: 1) Force-Placed Insurance; 2) Illegal “Pyramid” Servicing Fees; 3) Fraud Documents for Sale; 4) False Affidavits, Perjury (Robo-Signing) and 5) Foreclosure Mills, Process servers.

There is an immense paper trial for the first two. The issue of Force-Placed Insurance represents such an egregious, embarrassing conflict of interest, that its hard to imagine any publicly traded bank is going to want to defend that in open court. Bring a few actions against the majors,get an agreement to permanently stop the practice, and a big fat fine, then move on to the next item on the list. Do the same for the illegal “Pyramid” Servicing Fees wrongfully charged by a few loan servicers.

As an aside, Lender Processing Services (LPS) is a monopoly, handling — or should I say mishandling? — more than 50% of all mortgages for the major banks. The Justice department should be doing an Anti-Trust prosecution, perhaps forcing a break up. Maybe some competition in this space will yield some competence as well.

Back to the our list: Fraud Documents for Sale and the Foreclosure Mills / illegal process servers can be pursued on a case by case basis. work with the foreclosure defense bar to track down many examples of egregious criminality here.

In my opinion, the area that is most ripe for criminal prosecution are the False Affidavits/Perjury aka Robo-Signing. Treat this more like a drug kingpin than a bank fraud crime. Bust the low level eejits who did this, granting immunity for cooperation. Find  who ordered them to perform the fraud, and then their boss and so on. Somewhere in between the $8 per hour, former burger-flippers hired as robo-signers and the CEO is a mid-level bank executive who decided to systemically break the law. This is the person who turned what used to be a simple process of filing legal paperwork into a criminal enterprise. THAT motherfucker needs to go to jail.


Just because Angelo Mozilo is not in jail does not mean no crime was committed. Prosecutors need to focus on the low-level criminality within banks, and work their way up.

Do that, and we restore confidence in nor only our financial institutions, but our society and constitutional principles as well. Fail at that and Japan’s decade long recession looks more and more like our future.


Foreclosure Fraud Reveals Structural & Legal Crisis (October 5th, 2010)

Why Foreclosure Fraud Is So Dangerous to Property Rights (October 12th, 2010)

Time for Criminal Charges To Be Filed . . . (October 14th, 2010)

Why Is Due Process a Big Problem for Banks? (October 23rd, 2010)

Follow the Money: How Systemic Bank Fraud Contributed to the Financial Crisis (NAAG presentation, April 2011)

Dodo Bird Bankers (May 9th, 2011)

No Jail for Economic Crisis May Mean No Crime
Roger Lowenstein
Bloomberg, May 12, 2011

Is Another Major Mortgage Investigation Really Necessary?
Halah Touryalai
Forbes, May. 17 2011

Video: Taibbi vs. McArdle on Goldman
Matt Taibbi
Rolling Stone, May 16, 2011

Category: Bailouts, Credit, Legal, Politics, Really, really bad calls, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “Rule of Law: Banker Criminality Demands Prosecution”

  1. PDS says:

    Interesting piece BR…but it appears to miss the point…ie not one banker or politician has been brought to atone for their part in this ongoing slow moving financial trainwreck.

    Whereas in places like Iceland they have done exactly the opposite and gone after not only the small fish…but the big ones as well…the heads of two of the major banks, Kaupthing and Landisbank were arrested and charged as was the former Prime Minister…. is the Icelanders willingness to stop pandering to banksters one of the reasons why their economy has been on an upward path ever since?

    BTW…as an aside…apparently during bailout protests in Spain this AM…the protesters are chanting..”we want to be Icelanders”…..connected? Could be

  2. HEHEHE says:

    Barry here is my personal experience with force placed insurance:

    In 1999 my girlfriend, future wife, now ex-wife – ain’t love grand, and I bought a condo in NJ. The condo building was located on a flood plain so HUD required flood insurance. Our building had a policy. The proper information was given to our initial mortgage lender on the purchase.

    In 2001 JP Morgan Chase purchases our mortgage from the initial mortgage lender. Soon after, JP Morgan Chase decides to purchase a flood insurance policy and charge us for it. They claim that there was no notice of our having flood insurance in their file. It turns out they had not only purchased it for the current year but FOR THE PREVIOUS TWO. The dollar amount was outrageous- like $1000 a year. It took me literally about 30 phone calls and faxes between our flood insurance company, myself and JP Morgan Chase to get the issue resolved and get the charges removed. They kept claiming what was sent by the insurance company wasn’t sufficient proof of insurance etc. At one point I was literally explaining to the JP Morgan rep the entire concept of insurance – YOU BUY IT IN CASE OF SOMETHING HAPPENING IN THE FUTURE – NOT FOR SOMETHING THAT HAS NOT HAPPENED IN THE PAST. It did not matter to this moron – “there’s no proof in the file”. Thankfully we sold the place a year later and I never had to deal with them again.

    To this day I can’t tell if it was a scam that was being run on me or if the employees were just that dumb. I had mortgages with ABN Amro and several smaller insurance companies and never once did I have an experience remotely as bad as that one.

  3. MayorQuimby says:

    People in the USA have taken our way of life for granted but will eventually need to awaken to the cold hard fact that the political class needs to be torn asunder and reworked entirely for it is that political class that is protecting the monied one.

    The mantra still rings true, “We have to break the money trust.”

  4. Tarkus says:

    To paraphrase the market saying, “It’s when the criminal wave recedes when you see who’s ethically bankrupt.”

    I think it is good to see who spouts the “no crime” meme – because it is not an argument that persuades at all but it is a good “Scarlet Letter” on who has sold-out, or been forced to sell-out, to the “monied interests”.

    The list of malfeasance is so long and the breadth so wide, that even the suggestion that no crimes were committed is preposterous. But maybe it is the same methodology Madonna used in her career – raise the shock and outrage value until you can numb your audience so they eventually shrug it off.

    Doesn’t work in this case. Instead, it just pisses everybody off more.

  5. Jim67545 says:

    While most of the 10 have been explored before now in this blog, I don’t recall the topic of force placed insurance. As HEHEHE explains, force placed insurance might be misapplied and there are problems in how lenders use this. For example, lenders are lax in terms of inducing homeowners to get their own insurance after force placed insurance takes the non-insurance issue off the servicer’s radar. But I don’t know why you have included this issue among the 10.

    What is your actual beef with this? What is the illegality associated with force placed insurance when the (FNMA/Freddie) mortgage clearly empowers the lender to purchase insurance when the borrower fails to obtain it? Is the issue cost? Is it the lack of understanding that the insurance, and any premiums, are refunded/cancelled as of the date when the homeowner provides proof their own insurance was in force – even if years prior? Is the issue the belief that the banks get an agent’s commission (the banks I know don’t)?

    What’s the beef chief?

  6. AHodge says:

    Lowenstein particularly annoyed me
    as he wrote one of the decent books on the crisis.
    His latest really lame,
    and only quoted a couple obvious stooges

  7. Moss says:

    Most certainly crimes were committed, by banks, lawyers, regulators and others. The ‘political class’ is mainly concerned with maintaining the status quo which tends to protect, not prosecute criminal activities by individuals and corporations. It is in fact the public against the money trust.


  8. ilsm says:

    If fraud on the US were actioned DC would be empty.

    Marcus Licinius Crassus maintained a professional construction business manned by artisans and skilled workmen, all slaves. He made himself very wealthy, among other business models, buying burning buildings very cheap and rebuilding them quickly at great margins. His slaves were not fightfighters, it is not true that he charged the owners “insurance” to save their building.

    Did the US go off and lose it all in an Iraqi desert as Crassus at Carrhae?

  9. Jim67545 says:

    Another comment… The global problems in these respects are 1. that there is a growing concentration of banking services in the larger institutions. Monopolies (or approaching monopolies) are inclined to do whatever the heck they wish, customers be damned. This, incidentally, is occurring throughout many industries where M&A activity moves us toward monopolies.

    2. There is virtually no transparency. In this blog respondents have recounted horror stories with various banks. But, where does one go to see how likely one is to have privacy or servicing problems or abusive charges with one’s checking account, for example? What about one’s car loan or mortgage loan? If banks can do whatever they want to 1,000,000 customers and maybe get another $100 from 150,000 customers and maybe 1,000 move their accounts as a result, the math behind that becomes attractive.

    Yet, will full transparency help?? I recently advised a relative to go to a local smallish bank for a mortgage loan instead of a questionable mortgage broker. The mortgage broker promised a SLIGHTLY lower rate and more hand holding so the relative went that way…and got screwed at the close with a higher rate and fees, despite the world’s full of new RESPA disclosures. The more things change the more they stay the same.

  10. wally says:

    I’m afraid, BR, this is no longer the country that you think you grew up in. I certainly don’t recognize much of it anymore.
    Good luck with your outrage… but I think the perps got to the prosecutors before you did.

  11. AHodge says:

    i do think there must be big fish remedies
    ackerloff -romer looting ?
    taking huge dollars then leaving your company bankrupt?
    has been prosecuted, or lynched, for the 200 years of corporate existence.
    if this isnt a giant insider trading i dont know what is?
    or your obvious 10B-5 fraud?
    if this has been gutted by precedent
    or is now ground undared by prosecutors
    we need new laws
    but i doubt that, they are wussies or stooges.

  12. Petey Wheatstraw says:


    If the Rule of Law fails (and by all evidence, it already has), we have far more to fear than a Japan style economic future. We can look forward to Orwellian government or worse — something more akin to Terry Gilliam’s Brazil.

    That we know of the criminality and sit idly by while it is left unprosecuted exemplifies to what extent our national disconnect with reality has been advanced. We are clearly governed by players outside the official framework of the Law, and we have means to recourse, yet we are waiting for those who enabled the paradigm shift to make things right. In our state of disbelief, we are waiting for the usurpers to become honest, legitimate, and law-abiding citizens.

    More galling, perhaps, than the “official” narrative being created for consumption by the hoi polloi, is the willingness of those more capable of resisting the fiction to ignore their responsibility in the hopes that they will exploit the meme for relatively meager financial gain.

    “Go along to get along” is the chute to a cattle car for anyone who has the intellectual ability and resources to resist, but doesn’t.

    Here’s a link for your reading list (linked to from naked capitalism):


    The comments section is especially good.

  13. jlj says:

    Start with the basics. Not how many are being prosecuted, but how many are being tossed out of the trade. How many bankers, brokers, insurance reps have had any regulatory actions taken against them to insure they can never commit same or similar crimes in the same industry?

  14. Orange14 says:

    What is needed is a letter writing campaign (and even an election campaign if needed) to the States’ Atty Generals. The Federal Govt is likely not to do much since the Republicans in Congress won’t let them. The whole thing stinks like week old fish.

  15. gloppie says:

    The rule of Law better not fail, because we will get social chaos faster than you can say Tahrir square. And with the average American armed to the teeth, it won’t be pretty.

  16. KidDynamite says:

    Barry – one should note that Lowenstein’s original title on BusinessWeek was not the idiotic “No Jail for Economic Crisis May Mean No Crime.”

    I don’t think you’ll like the original title any better though: Wall Street: Not Guilty


  17. Jim Greeen says:

    Nothing personal Barry, but what took you so long??

  18. bulfinch says:

    “Good luck with your outrage… ”

    Geezuz, Wally – the cocktail of resignation/sarcasm in that comment made me wince…

    I know this is going to sound ass-kissy – and I’m sorry because I hate that sort of thing as much as anyone – but I can’t help but feel a little better knowing a guy like BR cares enough to be outraged. He’s fighting the good fight in his own small way. Plus, unlike some in the MSM, he manages to express his disgust in a manner that is sincere, straight from the hip and totally readable. No sententious BS targeted at a specific demographic. That to me is special, and it bums me out to see someone like yourself treat it so dismissively.

  19. rktbrkr says:

    I think this covers all the bases, a convicted bank swindler sues insurer (AIG no less) for not paying his legal bills!


  20. rktbrkr says:

    I think there is a fuzzy notion that pursuing BIG banks and bankers for their massive criminality would be bad for the economy, these crimes get blanket “systemic risk” immunity, it’s OK to run down smaller community banks and bankers. Logical extension of the preferential treatment of the TBTF who get unlimited free money from the FED while other banks can chase depositors for funding.

  21. Tim says:

    Brilliant Barry! Please consider running for public office. Seriously.
    At the very least, please have a concerted made to distribute this post as widely as possible.

  22. “…Such is the inevitable result of the Financial Accounting Standards Board (“FASB”)’s abandoning fair value accounting standards in April 2009.

    Extent of FDIC Loss-Sharing Agreements

    Of the 40 bank closings so far this year, the FDIC accomplished 27 by entering into loss-sharing agreements covering a high percentage of the assets taken over by the acquiring banks. To be more precise, in these 27 cases the acquiring banks took over a total of about $12.7 billion of the failed banks’ assets, and the FDIC entered into loss-sharing agreements covering $8.3 billion of those assets – approximately 65%.

    This brings to about $199 billion the total value of assets the FDIC has agreed to guarantee under loss-sharing agreements between 2008 and the present. The FDIC has, in effect, placed a floor under the value of $199 billion of failed banks’ assets for a period of ten years from the date of failure.

    This slowing in bank closings could be interpreted as evidence of a recovery in the banking sector and the economy as a whole. However, there is a great deal of evidence to suggest it is more likely an exercise in Manipulation of Perspective Economics….”

    “…an exercise in Manipulation of Perspective Economics….”

    for such an Age, a new Anthem..

    or, you know, We can buck up, understand that this: “THAT motherfucker needs to go to jail.” is, in Fact, a Rational response, and get on with ‘mucking out’ the (Augean) Stable..




  23. carleric says:

    if any of these assholes ever get convicted I will volunteer to drive the bus to Sing Sing for free….sadly, I think I will remain unused….doesn’t it all come down to who bought whom?,,,,

  24. riley says:

    “Bring a few actions against the majors, get an agreement to permanently stop the practice, and a big fat fine,”

    A big fat fine is just a cost of doing business for the banks. Steal billions, pay millions in a fine and the illegal activity was still very profitable. A fine is not deterrent. It is an incentive for more illegal activity.

    “This is the person who turned what used to be a simple process of filing legal paperwork into a criminal enterprise.”

    It may not have stared with senior management, but once they learned of the practice, the head of which bank immediately ordered it to stop? An accomplice is just as guilty.

  25. Al_Czervik says:

    The problem with a “big fat fine” is that it’s paid by the stockholders, not the criminals.

  26. wannabe says:

    It’s not often I catch one of these around here (this comment is not meant to be snarky, just to help, please delete it):

    “9. Foreclosure Mills, Process servers [exasperate] problem” – should be “exacerbate” plus add a “the” in front of problem?
    Also: above that you said “Thus, we are forced to interrupt [are] usual cheery blather ” – you mean “our usual cheery blather”, of course.
    Also: “yet another reason why Uncle Sam [SHOULD ] not be in the bailout business” – missing the “should”.
    Last: “Fail at that and Japan’s decade long recession looks more and more like [out] future.” – “out” should be “our”


    “THAT motherfucker needs to go to jail” – exactly right. I’m pissed my fellow right-wingers are screwing the pooch so thoroughly on this call. makes me think they’re more then just pro-free-market, they’re pro crony-capitalist criminal.

    Stupid, stupid, stupid.


    BR: Good catches — my brain works faster than my fingers

  27. Topspin says:

    “THAT motherfucker needs to go to jail.”

    Why THAT one?

    I understand the desire to get SOMEONE prosecuted and the idea that going after the CEO will impede this result, yet its the idea that the CEO is innocent, unknowledgeable, unknowing, ignorant, what???? that is killing us. Its not a bunch of rough edged “mid-level bank executives” that are pillaging our system and getting money drunk. Sure they may get high on the power, but its the bank CEOs that could end any practice in an hour that is wrong, yet they don’t, and they got massively rich doing it.

    Did mid-level bank executives set up MERS? Was it them that kept it running and in fact leveraged it to high heaven? No.

    I think sending THOSE guys and gals to jail just might be an even greater injustice than letting everyone go. No, that’s an overstatement. Sure it would help correct the system if it were done with a vengeance, yet the CEOs would just find new guys and gals to do the dirty work and it wouldn’t take long. Corporate America is run by shifting all the responsibility onto THOSE guys while requiring them to break the law to make bank.

  28. wally says:

    “That to me is special, and it bums me out to see someone like yourself treat it so dismissively.”

    I don’t mean to come off as sarcastic, bulfinch, but as realistic. If you really think that solid reforms or meaningful prosecutions (not just a token broker of Indian origin) are going to happen, make some predictions and let’s wait and see.
    However, there are two money-pumps that keeps our current system in operation: corporate campaign contributions (now blessed by our 5-4 ideological court) and the government-corporate revolving door. Other than maybe one socialist in Vermont, I don’t think anybody in government has any intention of changing either of those things, so the capture of our government will continue. If you can look at the landscape and be anything but cynical, you’re not looking very hard.

  29. socaljoe says:

    Yes, it’s time the weasels go to jail… but more emphasis should be placed on restitution. Too many innocent people got fleeced and too many bankers got rich illegally. This won’t be corrected with a perp walk unless there is restitution.

  30. Lebowski says:

    Barry, you linked ‘asshats’ to Matt Taibbi. I am surprised you feel this way about him. Would you elaborate on way you are of this opinion. I’m not a finance guy, but read about it all of the time, and this blog is one of several I visit in order to try to understand the world around me a bit better. I’ve always thought Taibbi had it right on the subject of the financial crisis and what corrupt entities precipitated it. His stuff is populist, sure, but why is he an asshat? Can you or anyone else here set me straight, what am I missing?

  31. clawback says:

    BR, I almost never link to my own stuff, but you might be interested in this point-by-point takedown of Lowenstein’s article.

    BTW, “Bailout Nation” makes a nice cameo appearance ;-)

    “In Bailout Nation, Ritholtz discusses a number of factors leading to the crisis and puts Alan Greenspan, loose monetary policy, Phil Gramm and the ratings agencies at the top of his list. CDO managers are much further down (232). However, he also points out that “the vast majority of Wall Streeters are hardworking souls who are deeply upset about the way their industry has been hijacked and what that has done to our nation” (288).

    Ritholtz is not only influential, but I would argue that his view of Wall Street is probably representative of even the most fierce critics of the DOJ. Not everyone who works in finance or the capital markets committed fraud or some other crime. But some certainly did.”

  32. DJ Gadfly says:

    I understand the concept of Justice is usually neurologically reconciled with a person’s desire for Fairness, but clearly this is not a likely outcome from the Global Financial Crisis. Money and Power have too much to lose if a chink in the armor of our ridiculously inefficient legal system is exposed. Citizens who aren’t bankrolled like corporations live in almost a unilateral world where they can’t afford to litigate personal injustices. The legal process is a boone to lawyers incomes, not Justice or Fairness…

    We have managed to transform the altruism available in a Democracy to a sucker-bet on the craps table of Capitalism by ascribing the principle of equality to a legal entity. What an olive-branch that now extends to the business community (by limiting personal liability and treating Corporations as humans with ‘rights’)…

    I suppose Professor Black would be a good read: “The Best Way to Rob a Bank is to Own One

  33. Brent_in_Aurora says:

    Money borrowed is money earned? I heard that one early in my career.

    The force placed insurance fraud is two fold: 1) the insurance is not necessary; and 2) it was typically placed with a captive or friendly insurance company that kicked back to the bank.

  34. Francois says:

    “If the Rule of Law fails (and by all evidence, it already has), we have far more to fear than a Japan style economic future.”

    Systematic skirting of the Rule of law create abuses of power. The next step is then abuses of people.

    May I remind the readers that abuses of people (foreigners to be sure, but nonetheless) already took place by the hundreds under the pretense of Nazional Sekurity? It’s only a matter of time before we become the targets.

    Before anyone has the silly idea of laughing of brushing off the idea as preposterous, remember that it happened elsewhere. (have a look at the history of Argentina or Chile as starters) And the last time I checked, there is no known “ethical gene” in the American population that makes their elites immune to the temptations of abusing power.

  35. philipat says:

    Excellent piece Barry, agree with every word. But what about the Fuld’s of the world? It would be possible, should happen, that we see him perp walk if only for the Repo BS. SarbOx doesn’t permit these guys plausible deniability. They are responsible and they didn’t know that’s their problem. If SabOx is not going to be used for prosecutions, it becomes just another expensive and burdensome piece of red tape. Use ir or lose it.

    I was thinking also that with the all the characters who are going to do time (Madoff, Raj, DSK) maybe the prison service could establish an Investment Bank/Hedge Fund inside. It would have very low overheads, no bonus culture and could be very profitable for the Government becuase these Guys would be able to act without fear of being caught and sent down. Happy days are here again?!!!

  36. Francois says:

    “Let’s start by noting that there is a major conflict between Treasury/Justice Department and the banks, all of whom received major bailout dollars.”

    No! let’s start by the most deeply corrupt federal agency ever to stain this country, a.k.a. the Comptroller of the Currency. To call them shills is a grave insult to shills of all kinds.

    Like Joe Nocera started his last column:

    Though, to be honest, calling the Office of the Comptroller of the Currency a “regulator” is almost laughable. The Environmental Protection Agency is a regulator. The O.C.C. is a coddler, a protector, an outright enabler of the institutions it oversees.


    It’s deeply offensive when we have officials like the acting Comptroller of the Currency John Walsh provide cover for this deep-seated corruption as he did in a speech yesterday:

    Fortunately, we found relatively few cases in which a foreclosure should not have proceeded: although a small number of borrowers were entitled to protection because of a modification in process, bankruptcy filing, or military status, all foreclosed borrowers in the sample were seriously delinquent. And while the sample was small, I don’t expect to see much change in those proportions.Our mortgage metrics project, which captures loan-level data on 63 percent of all first-lien mortgages in the country, found that 94 percent of borrowers foreclosed upon in 2010 were at least six months past due on their payments.

    It’s easy not to find anything if you don’t verify underlying processes and check for data integrity. And if you think it’s been hard for the banks to wean themselves of robo-signing, imagine what it will take them to fix this mess. It should be no surprise that bigger and better PR is their preferred remedy .

    Let’s continue with the entity once lead by none other than Turbo Tax Timmy:


    This one is a doozy, full of links and info. Yves Smith does a great job quartering the spin of the NY Fed asshats.

    The Big Lie here is that the problem lies with “the complexity, and the outdated nature of the relevant law.” The NY Fed argues that the real estate regime was fine when banks held the mortgage to maturity and everything that was important that needed to happen took place in the same local area.

    The paper, astonishingly, acts as if the operational requirements of mortgage securitization have led servicers to lose money. The argument made in these two paragraphs is pure fabrication:

    The process of selling loans and mortgages requires that there be some method of determining the current owner of each particular loan and mortgage. In fact, that is a necessary component of the foreclosure process. The loan and mortgage owner, or a servicer who is acting as the owner’s agent, must determine whether it is appropriate to exercise foreclosure rights. When a loan and mortgage securing the loan is created, the initial lender will ensure that the mortgage is recorded in the correct real estate records based upon the location of the real property. However, when the loan and mortgage are sold, the manner of transferring the right to realize on the security for the loan does not typically require that an assignment of the mortgage be recorded in the real estate records. In many cases the loan and mortgage will be registered with an entity called MERS, which is a tracking system, so that interests in it can be followed when the loan and mortgage are transferred. In some cases, MERS also is listed as the mortgagee in the mortgage as an agent of the initial lender and all of the initial lender’s subsequent assignees (buyers of the loan and mortgage).

    This division and fractionalization whereby there are entities that are owners of the loan and mortgage (or some part of the loan and mortgage), a servicer for the loan and mortgage, and a named mortgagee that is not necessarily the owner of the loan and mortgage has caused significant confusion. Mark Kaufman, Commissioner of the Maryland Office of Financial Regulation (OFR) testified about the remarkable changes in securitization and third-party servicing before a Congressional legislative committee, noting that these developments “forever changed the mortgage landscape.” Today, he said community banks only hold a fraction of mortgage loans in Maryland and account for next to none of the foreclosure complaints received. “The unbundling process may have facilitated the flow of cheap capital, but it has also fragmented roles, distorted market incentives, and severely complicated the task of modifying loans to avoid preventable foreclosures.” Moreover, Kaufman continued, the same economies of scale drove consolidation in the mortgage servicing business line, so that today the top five mortgage servicers are responsible for over 60% of the mortgages serviced. Every one of the five is owned by a major bank holding company. He noted that this concentration not only created an enormous management challenge, but left money losing servicers trapped in too-big-to-fail institutions. As a result, “the invisible hand of the market will not fix this.”

    Notice how there is no timeline in this discussion? If you were to read the paper, you’d think banks created this great system called securitization which “enables the initial lender to replenish its supply of capital to make new loans.” But whoops! They somehow didn’t realize there would be a lot of operational demands, and now we have “money losing servicers trapped in too-big-to-fail institutions.” Notice NO OTHER EXPLANATION is offered. The only possible culprit is therefore those pesky but important legal requirements that bit the securitizers in the ass.

    In a word, NY Fed economists are lying through their teeth, screwing the very taxpayers that pay their salary, and bending over to suck to the fucking banksters who deserve nothing less than a 95% reduction in income as well as a colossal curtailing of their influence.

    NOTE: Bankers are NOT capitalists; they are wards of the State!!

    Finally, we’d be remiss not to discuss the role of the DOJ under Eric “Place” Holder, who seem to be much more eager to engage in abetting a cover up than prosecuting fraudsters.



    But of course, as per the punditofuckologists living in the Beltway (NPR too BTW), only the small fry borrowers were responsible for ALL this mortgage mess, right?

  37. PDS says:

    Interesting piece BR…but it appears to miss the point…ie not one banker or politician has been brought to atone for their part in this ongoing slow moving financial trainwreck.

    Whereas in places like Iceland they have done exactly the opposite and gone after not only the small fish…but the big ones as well…the heads of two of the major banks, Kaupthing and Landisbank were arrested and charged as was the former Prime Minister….perhaps does the Icelanders willingness to stop pandering to banksters one of the reason why their economy has been on an upward path ever since?

    BTW…as an aside…apparently during bailout protests in Spain this AM…the protesters are chanting..”we want to be Icelanders”…..connected? Perhaps

  38. [...] doesn’t? That’s what I mean by a collapse in morality and ethics.Florida Times-UnionBanker criminality demands prosecution, yet there have been no prosecutions against the top banksters. Will our federal law enforcement [...]