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Stop Payment

“What’s happened is that, almost overnight, we’ve switched from democracy in real-property recording to oligarchy in real-property recording. There was no court case behind this, no statute from Congress or the state legislatures. It was accomplished in a private corporate decision. The banks just did it.”

-Christopher Peterson, a law professor at the University of Utah, on the “wholesale transfer of mortgages to a privatized database” and why it’s no coincidence more Americans are being foreclosed upon than any time since the Great Depression.

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The quote above is from an article in the January 2012 Harper’s. It’s ostensibly about the ongoing battle between Homeowners and Bankers (PDF is online at Scribd, Think Tank, but not for long).

The print edition is illustrated with the artwork of Amy Casey (Housing as a Recurring Dream (Nightmare), previously showcased here)

What makes the article so remarkable is it has one of the most powerful anti-MERS arguments I have ever read in the mainstream media. In addition to the quote above, there is this:

At the heart of the clouded-title problem is a Virginia-based company, recently much in the national news, called Mortgage Electronic Registration Systems. MERS was created in 1995 as a privately held venture of the major mortgage-finance operators, chief among them the government-sponsored mortgaging entities Fannie Mae and Freddie Mac. Its stated purpose was to manage a confidential electronic registry for the tracking of the sale of mortgage loans between lenders, which could now place loans under MERS’s name to avoid filing the paperwork normally required whenever mortgage assignments changed hands. No longer would the traffickers in mortgages have to document their transactions with county clerks, nor would they have to pay the many and varied courthouse fees for such transactions. Instead, MERS was listed in local recording offices as the “mortgagee of record,” the in-name-only owner, a so-called nominee for the lender, so that MERS would effectively “own” the loan where the public record was concerned, while the lenders traded it back and forth.

This centralized database facilitated the buying and selling of mortgage debt at great speed and greatly reduced cost. It was a key innovation in expediting the packaging of mortgage-backed securities. Soon after the registry launched, in 1999, the Wall Street ratings agencies pronounced the system sound. “The legal mechanism set up to put creditors on notice of a mortgage is valid,” as was “the ability to foreclose,” assured Moody’s. That same year, Lehman Brothers issued the first AAA-rated mortgage-backed security built out of MERS mortgages. By the end of 2002, MERS was registering itself as the owner of 21,000 loans every day. Five years later, at the peak of the housing bubble, MERS registered some two thirds of all home loans in the United States.

Without the efficiencies of MERS there probably would never have been a mortgage-finance bubble.

After the housing market collapsed, however, MERS found itself under attack in courts across the country. MERS had singlehandedly unraveled centuries of precedent in property titling and mortgage recordation, and judges in state appellate and federal bankruptcy courts in more than a dozen jurisdictions—the primary venues where real estate cases are decided— determined that the company did not have the right to foreclose on the mortgages it held.

In 2009, Kansas became one of the first states to have its supreme court rule against MERS. In Landmark National Bank v. Boyd A. Kesler, the court concluded that MERS failed to follow Kansas statute: the company had not publicly recorded the chain of title with the relevant registers of deeds in counties across the state. A mortgage contract, the justices wrote, consists of two documents: the deed of trust, which secures the house as collateral on a loan, and the promissory note, which indebts the borrower to the lender. The two documents were sometimes literally inseparable: under the rules of the paper recording system at county court-houses, they were tied together with a ribbon or seal to be undone only once the note had been paid off. “In the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity,” said the Kansas court, “the mortgage may become unenforceable.”

MERS purported to be the independent entity holding the deed of trust. The note of indebtedness, however, was sold within the MERS system, or “assigned” among various lenders. This was in keeping with MERS’s policy: it was not a bank, made no loans, had no money to lend, and did not collect loan payments. It had no interest in the loan, only in the deed of trust. The company—along with the lenders that had used it to assign ownership of notes—had thus entered into a vexing legal bind. “There is no evidence of record that establishes that MERS either held the promissory note or was given the authority [to] assign the note,” the Kansas court found, quoting a decision from a district court in California. Not only did MERS fail to legally assign the notes, the company presented “no evidence as to who owns the note.”

Similar cases were brought before courts in Idaho, Massachusetts, Missouri, Nevada, New York, Oregon, Utah, and other states. “It appears that every MERS mortgage,” a New York State Supreme Court judge recently told me, “is defective, a piece of crap.” The language in the judgments against MERS became increasingly denunciatory. MERS’s arguments for standing in foreclosure were described as “absurd,” forcing courts to move through “a syntactical fog into an impassable swamp.”
(emphasis added)

I was so thrilled with this piece, I subscribed to Harper’s Magazine thru Amazon ($10)

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Source:
Stop payment! A homeowners’ revolt against the banks
Christopher Ketcham
Harpers, January 2012
http://harpers.org/archive/2012/01/0083752

The easier part of Italy’s bond auctions this week took place earlier today as they sold a 2 yr zero coupon bond and a 6 month bill. Both though were priced at yields well below one’s sold last month. The 2 yr ytm came at 4.85% vs 7.81% in Nov and the 6 month bill yields 3.25% vs 6.5% one month ago. Whether the catalyst for the sharp drop in yields over the past 4 weeks was due to the ECB 3 yr lending facility remains to be seen but a good test of the appetite for Italian debt will be tomorrow’s bond sales that have maturities past 3 yrs (up to 10). Looking at 2012 with respect to Europe, it is inevitable to me that Europe will have a tough recession, not mild that many believe. Their banking system is literally shrinking and while foreign banks will fill some of the void, it won’t be enough over the next 6-12 months. European companies source 80% of their loans from banks and the credit dearth will be obvious, notwithstanding ECB longer term funding facilities. Slower economic growth will then lead to further stress on sovereigns and the ECB will then be left with the political choice of presiding over economic pain that will ultimately lead to debt restructurings (the healthy long term solution) by not sterilizing bond purchases or they will print and print and try to inflate their way out. With respect to stocks in 2012, it may simplistically come down to this, pre printing action and post printing action. Sell the former and buy the latter. I didn’t mention the Fed in this discussion but be sure, QE3 will come along when the travails of Europe hit the US economy. II: Bulls 50.5 v 48.4, highest since May, Bears 29.5 v 30.5

Source:
The new Bentley Continental V8
Classic Driver, December 2011

Some interesting midweek reads to start your day:

• BRIC Decade Ends With Record Fund Outflows (Bloomberg)
• Gold Up, Gold Miners, Down (WSJ)
• 5 trading days before Jan. 1 + 2 after generate abnormally high returns (Marketwatch)
• Obama Picks Bipartisan Pair for Fed (WSJ) see also In Praise of Jeremy Stein, Obama’s New Fed Board Nominee (The New Republican)
• MF Global sows winter of discontent for CME (Reuters)
• Manager Two fer:
…..-Gundlach Steers Clear of Mortgage REITs (Bloomberg)
…..-Another black eye for Fairholme’s Bruce Berkowitz (Reuters)
• Cracked Foundation Threatens U.S. Housing Recovery (WSJ)
• Surowiecki: The Return of Layaway (The New Yorker) see also Retailers Try to Thwart Price Apps (WSJ)
• Are Smart People Getting Smarter? (Frontal Cortex)
• Ron Paul: Media’s Rodney Dangerfield is running neck and neck with Newt and Mitt, yet ignored (Marketwatch) see also Gingrich’s Account of First Divorce Contradicted by Documents and Ex-Aides (Bloomberg)

What are you reading?

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Stocks’ Volatile 2011
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Source: WSJ

MW and Mercedes-Benz are locked in an expensive race for bragging rights as this year’s top-selling luxury car in the U.S. market, and customers are benefiting. Mike Ramsey has details on The News Hub from Detroit.

…than to open it and remove all doubt.

Invictus here.  I usually know exactly where I’m going when I sit down to write a post — some numbers tell me a story that I think would be interesting to be share.

Not so this time.

I’ve wondered often and aloud what it takes these days for an individual to be discredited.  The answer seems to be that it is simply not possible.  Being wrong — about anything and everything — no longer carries any consequences whatsoever.  On many levels, it’s quite remarkable.  As it relates to economics, stories about hyperinflation, sky-high interest rates, rampant government spending, expansionary austerity, an economic plan that will get the unemployment rate to 2.8%, etc., etc., have been making (or made) the rounds for the past few years.  Yet the purveyors of these fictions lose no credibility and somehow maintain their status as experts, continuing to appear on business television shows and on op-ed pages nationwide. (Post-market on Friday, December 23, Bloomberg Television trotted out Harry “Roaring 2000′s” Dent, for example.  How’d that call work out?)  Paul Krugman has railed about all this countless times, most recently here, and he has a very valid point.

But Rush Limbaugh has now taken it all to a new level by demonstrating a mind-numbing cluelessness about one of the most fundamental of our employment statistics, the unemployment rate.  Mr. Limbaugh did not just twist, distort, or massage statistics (though he most certainly did do those things), he displayed an abject ignorance of what the BLS measures and how it is measured.

In an error-laden, wince-inducing screed that was somewhat painful to read, Rush explains to his Dittoheads that the government manipulates its economic releases to make them administration-friendly.  (Of course, that being the case, he does not tell us why, three years into the current administration, the unemployment rate is not a second-term-insuring 5 percent instead of 8.6, but never mind that.)

In the hope of maintaining my sanity, I’ll confine myself to the most egregious assertion in Rush’s comedy of errors (emphasis mine):

What was the number of jobs created [in November]?  It’s 120,000 jobs.  It’s 120, 126,000, whatever. That’s in the ballpark.  That number of jobs created can lower unemployment rate 0.4%, almost one half of a percent? Creating 120,000 new jobs can do that?  [...]

A mere 126,000 job increase drops unemployment rate almost one half of a percentage point.

If you’re thinking, “Hey, Invictus, the payroll number comes from the Establishment Survey and the Unemployment Rate from the Household Survey,” congratulations, you know more about how BLS does its job than Rush Limbaugh.  Try as I might to think of something funny to say about this, words escape me.  What is there to say?  Millions (tens of millions?) of people listen to this man, and in all likelihood believe what he said, despite the fact that his claim is wholly, totally without any merit whatsoever because he conflated the two surveys to simply fabricate a narrative — the narrative being that a modest rise in payrolls could cause an outsize decline in the unemployment rate. So, the question then becomes, did he know what he was doing and just not care, or did he simply opine ignorantly on a topic about which he clearly knows nothing?  Honestly, as jaded as I have become, this one threw even me for a bit of a loop.

For those who are going to accuse me of picking on Rush, I’ll simply say this:  Find me other examples of such blatant intellectually dishonesty and I’ll criticize those, too.

If there are any Rush defenders in the audience, please drop it in comments — I’m tired of the market volatility and could use both a break and a laugh.

via crowdsourcing.org

full graphic after the jump

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Hey, looks who attacking me now! A reader sent me this from the Editorial Board of Investors Business Daily — I guess I must have touched hit a nerve.

And even better, lil’ ole me is now described as a member of the “media elite:”

No Lie — Credit Crisis Was Fault Of Gov’t, Not Business

The media elite are worried the false narrative they’ve crafted about Wall Street causing the crisis is starting to crumble. Instead of fessing up, they blame us.

‘One group has been especially vocal about shaping a new narrative of the credit crisis and economic collapse,” economic pundit Barry Ritholtz wrote in the Washington Post. He condemned this rogue element for having the temerity to blame Washington. “These people are engaged in an active campaign to rewrite history,” he complained. “They are winning.” Ritholtz throws IBD in that camp, citing on his blog our past editorials plus a recent front-page article documenting how banks came under siege by regulators to cut standards and lend more to boost minority homeownership in the crisis run-up.

Ritholtz calls this the “Big Lie.” But it is Ritholtz who is intellectually dishonest. In trying to refute government’s central role in the mess, he recites the same shopworn arguments about “unregulated financial instrument(s)” and “Wall Street bundling mortgages.”

-IBD

Despite the enormous respect I had for William O’Neil as a market analyst, I stopped reading IBD a decade ago. Their editorial policy was so off the rails that it made me wonder if I could trust their reportage.

Anytime you folks at IBD would like to have a live, fair, public debate moderated by neutral judges, let me know. I’d be happy to participate in a discussion about this issue.

Chris Whalen and Josh Rosner have suggested putting together a causes of the crisis debate (I sarcastically described it as flat earth loons versus a data driven analysis), but there is merit in that idea.

On my squad I select Bill Black and Mike Konczal, with a research team of Yves Smith, David Min, William Cohan and Janet Tavakoli. I am sure there are more folks to add to this, but that’s the debate squad I would go with.

U.S. home prices fell ~1.2% respectively in October versus September, with 19 of 20 cities covered by the indices decreasing over the month. Year over year drops of the 10- and 20-City Composites fell -3.0% and -3.4% respectively versus October 2010.

As of October 2011, average home prices across the U.S. are back to their mid-2003 levels. (See chart below) Measured from their June/July 2006 peaks, the peak-to-current declines for the 10-City Composite & 20-City Composite are -31.9% and -32.1%, respectively.

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Source: S&P Case Shiller

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More charts after the jump

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