Posts filed under “Foreclosures”
Fascinating discussion in BusinessWeek from renowned Peruvian economist Hernando de Soto.
As we have discussed previously (here and here), de Soto has identified the property record keeping — he calls them “public memory systems” — as one of the major advantages of Western Capitalism. The recording, rule-bound, certified, and publicly accessible registries, titles, balance sheets, and statements of accounts, especially for land and houses — is how our system creates “economic facts.”
Various elements in our economy — Shadow banking systems, MERS, abdication of lending standards (i.e., no doc loans and origination fraud), Robosigners, mark-to-model accounting fraud, off balance sheet bank assets — have conspired to destroy those facts. These economic fact destroying gambits turned out to be prime underlying elements of the financial crisis.
Here is de Soto:
“During the second half of the 19th century, the world’s biggest economies endured a series of brutal recessions. At the time, most forms of reliable economic knowledge were organized within feudal, patrimonial, and tribal relationships. If you wanted to know who owned land or owed a debt, it was a fact recorded locally—and most likely shielded from outsiders. At the same time, the world was expanding. Travel between cities and countries became more common and global trade increased. The result was a huge rift between the old, fragmented social order and the needs of a rising, globalizing market economy.
To prevent the breakdown of industrial and commercial progress, hundreds of creative reformers concluded that the world needed a shared set of facts. Knowledge had to be gathered, organized, standardized, recorded, continually updated, and easily accessible—so that all players in the world’s widening markets could, in the words of France’s free-banking champion Charles Coquelin, “pick up the thousands of filaments that businesses are creating between themselves.”
The result was the invention of the first massive “public memory systems” to record and classify—in rule-bound, certified, and publicly accessible registries, titles, balance sheets, and statements of account—all the relevant knowledge available, whether intangible (stocks, commercial paper, deeds, ledgers, contracts, patents, companies, and promissory notes), or tangible (land, buildings, boats, machines, etc.). Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: “economic facts.”
Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts. The very systems that could have provided markets and governments with the means to understand the global financial crisis—and to prevent another one—are being eroded. Governments have allowed shadow markets to develop and reach a size beyond comprehension. Mortgages have been granted and recorded with such inattention that homeowners and banks often don’t know and can’t prove who owns their homes. In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.
The results are hardly surprising. In the U.S., trust has broken down between banks and subprime mortgage holders; between foreclosing agents and courts; between banks and their investors—even between banks and other banks. Overall, credit (from the Latin for “trust”) continues to flow steadily, but closer examination shows that nongovernment credit has contracted. Private lending has dropped 21 percent since 2007. Outstanding loans to small businesses dropped more than 6 percent over the past year, while lending to large businesses, measured in commercial loans of more than $1 million, fell nearly 9 percent.”
De Soto articulates where economics facts were “disappeared” by the players involved in six key areas:
1. Mortgage Bundling
2. Default Swaps
3. Exemptions to “mark-to-market” accounting standards.
4. Off-Balance-Sheet Accounting
5. Government Use of Swaps and Repo Markets
6. Rating Agencies
Astonishing. Go read the entire piece here.
Foreclosure Fraud Reveals Structural & Legal Crisis (October 5th, 2010)
Why Foreclosure Fraud Is So Dangerous to Property Rights (October 12th, 2010)
The Destruction of Economic Facts
Hernando de Soto
BusinessWeek April 28, 2011
I have been meaning to get to this since last week — the numbers are pretty fantastic. From LPS’ First Look/Mortgage Monitor: • Total U.S. loan delinquency rate: 8.8% • Total U.S. foreclosure inventory rate: 4.15% • Total U.S. non-current inventory: 6,856,000 • States with most non-current loans: Florida, Nevada, Mississippi, New Jersey, Georgia •…Read More
As more and more Americans face mortgage foreclosure, banks’ crucial ownership documents for the properties are often unclear and are sometimes even bogus, a condition that’s causing lawsuits and hampering an already weak housing market. Scott Pelley reports.
April 3, 2011 5:00 PM
Fascinating March 30 legal decision out of Alabama, in the case of Phyllis Horace vs. LaSalle Bank National Association et. el. The judge issued a summary judgment ruling (original motion is here), tossing out the foreclosure action due to lack of trustee standing: “The ruling prevents defendant LaSalle Bank – as the trustee holding the…Read More
Even 60 Minutes seems to be sugarcoating the motivation for fraudclosure: “Banks so poorly handled documentation on millions of mortgages that many today cannot prove that they own the homes they want to foreclose on. The resulting rash of lawsuits from people seeking to save their homes has one of the government’s top banking regulators…Read More
THE TIMING OF THIS IS PERFECT FOR REASONS THAT WILL BE MADE CLEAR IN A WEEK OR SO
As more and more Americans face mortgage foreclosure, banks’ crucial ownership documents for the properties are often unclear and are sometimes even bogus, a condition that’s causing lawsuits and hampering an already weak housing market.
Scott Pelley reports, Sunday, April 3, 7 p.m. ET/PT
The spate of Foreclosure Fraud that reared its head in late 2010 dated as far back as 2006, according to an internal Fannie Mae report that year. That is according to a WSJ article. The Journal notes that the GSE’s lawyers were suspicious that Bank counsel was cutting corners to save money and time in…Read More
A quick roundup of proposed Mortgage Mess settlement: • Pro Publica: By the Numbers: A Revealing Look at the Mortgage Mod Meltdown • FDL: NPA has been pressuring Tom Miller consistently • naked capitalism: BofA “Bad Bank” for Legacy Assets: Will This Eventually Be a First Use of Dodd Frank Resolution Powers? • TBP: Banks Like…Read More