The Ultimate Question of the “Who”?

(And this is Not About the Band)

This is a guest post by G. Alex Morfesis and edited by Max.

The current trend in the mortgage business in dealing with the foreclosure mess and the plague of bogus affidavits and other legal documents is to shout out as loudly as humanly possible that “we should not give the borrowers a free home” because they signed the mortgage notes and received the funds to buy their homes so they must owe the money!  How can they deny they owe the money?   And yes, it is certainly true that the funds are owed to someone; that the mortgage notes are somewhere; and that someone in some place actually and lawfully owns the notes. The real question is WHO are these parties?  WHO lawfully owns and holds the mortgage notes?  WHO will actually lose money if the $400,000 home is sold at foreclosure for $150,000?  WHO has some real skin in this game that will be scrapped to the bone in a forced foreclosure sale?

It is ironic that the people advancing these “free home” arguments are the same folks on Maiden Lane in downtown New York City who did not scream or shout when Wall Street stopped making a market in auction rate securities and the Treasury came to rescue with billions and billions of dollars to save their collective asses.  After all, it was all just a “big oops” by the smartest guys in the room.  These were the guys who failed to take into account that a lot of these multi-option payment adjustable rate mortgages (the so-called MOARMS or MORONS) might not perform once they “adjusted.”  These were also the same people who assumed that the value of residential real estate would continue to appreciate from now on at the annual rate of at least 15% per year.  Talk about falling asleep at the wheel; these guys were not even in the car!

The average American home borrower pays much more in interest rates than most OECD nation borrowers. This is by design and not by chance.  And, that additional thrown off capital from the American homeowner was originally designed to allow a cushion so that the flattening out of risks would be possible and the disruptive nature of recessions would not create problems in the housing markets. In sum, these loan pools were designed to be self correcting and modifying, that was why the distribution of risk formulas were put in place.

So, what happened?  In short, a little instrument called derivatives got in the way, something not disclosed (by the way) in the original prospectuses of the depositors and sponsors upon the registration of these securitized loan pools with the SEC.  Not that registration would have made any difference—Exhibit One being the Bernie Madoff case.  And then we had the collateral debt obligations, the collateral debt obligations squared and cubed, the credit default swaps and the rest the ponzi-inspired investment schemes.  We all know the rest of the story (which, by the way, is on-going and never ending at this point).

So what about the HOPE NOW and HAMP programs? What about all of the participation agreements the mortgage servicers signed with the Treasury?  The agreements the servicers never intended to honor and who drafted them with as many outs as a great piece of Swiss cheese.  Well, the truth of the matter is that at least seventy plus billions of taxpayer dollars sit fallow since the servicers are much happier gaming the system than allowing the average borrower a modicum of financial and emotional stability. The economy is being held back by the disruptive nature of the servicers trying to pick the pockets of MBIA and AMBAC and MGIC and RADIAN in the same way they clipped AIG.

Are there borrowers who want to play “Wall Street Banksters” and live off the hard work of the American taxpayer? Yes, but in truth probably less than ten percent.  The fact is that most borrowers do not abandon their responsibilities just because their homes cannot be sold for a profit. The so-called structured defaults and “bail and buy” are the products of a propaganda campaign by the mortgage industry.  If there was any logic to these lies, then most new car buyers would abandon their cars thirty seconds after driving off the dealer’s lot.  Or, they would buy a new Chrysler under the 60 day free trial plan and then turn that baby back in and test drive another new vehicle for another 60 days and so on.  And, by the way, don’t get me started on the federally funded Chapter 11 bankruptcy cases of Chrysler and GM!  The Government spent billions to save several thousand jobs for these two corporations but will not spend any real money to save millions of homeowners.

The fact that an extremely small percentage of borrowers might be able to enjoy the life of a Wall Street baron by getting a loan they do not have to pay for currently does not justify wholesale short-cutting, and in most states there is a difference between the “timing out” of a case and getting a “free” home.  Most of those who hire counsel who know how the mill attorneys use the short cuts taken by the foreclosure industry and then use this information against that same industry will at most end up with a borrower that will get a major loan modification that will be paid off/refinanced by them long before they get to the many years needed to quiet title in many states.

I understand that Max Gardner, who leads a consumer army of “trained soldiers” and is called the “go to guy for consumer bankruptcy cases” by Business Week, stresses that his Boot Camp trained-lawyers should use the “maximum amount of legal leverage” in order to secure the “maximum modification of the mortgage loan.”  There is certainly power in fully understanding how the other side really does business.  I think Gardner knows more than anybody on the consumer side of isle about how the mortgage business really operates and he has made a lot of money with that knowledge.  He knows where all the bodies are buried and where the plan to plant the fresh ones.

And as for the free-home advocates, who exactly suggested that Florida or any other state for that matter is a pro borrower jurisdiction?  The facts are that about 95% of the Florida foreclosure cases get slam dunked without so much as a whimper from anyone. The foreclosure mills don’t even come into court to get their summary judgments, they just call them in. Actually, they get the judges to call them. You see these mill lawyers are very busy beavers and court and due process and proper evidence are just nuisances that should be avoided at all cost.  So the most time a “mill” lawyer has to spend on a foreclosure case is about 90 seconds on a call in to the judge’s chambers…yup, not even in open court. Today, in America, a consumer can lose a home over the phone.  This reminds me of the old TV show called “Dialing for Dollars” but this time in reverse.  Now the mills are still dialing in for dollars but also securing an order of foreclosure at the same time.  And, by the way, I could possibly agree to own a foreclosure or bankruptcy mill if the firm made $2,500.00 for 90 seconds of “real lawyer” work.  It is not bad money if you can get away with and still sleep at night.  I have trouble sleeping anyway so this would never work for me.

Either way, this author would really much rather be working on using his human capital on helping small companies grow. You see we really and truly need jobs.  And a lot of jobs.  How can consumers make their mortgage payments without jobs?  You see one must stop the bleeding before one can treat the patient.

But for those who act as if the borrower is their spoiled kid asking for some more money to spend at their university, what good would come from pushing through foreclosures faster? Is there some mystery money out there floating around available for the average investor to buy these properties? I am sure the readers of Scotsman’s Guide would love to hear about it, this rush to “punish” people for having had the audacity to get laid off from their jobs. How does that help create stability in this economy?  Does anybody think millions of Americans just walked off the job like the Jet Blue flight attendant did by jumping down the emergency exit ramp with two Miller High Life beers?  Let’s get real for once!

So that brings us back to the WHO. The parties in the securitized loan pools who are the ones being told to take the losses would NEVER say no to a mortgage modification as it would preserve their capital position. So it is not the so-called “owner of the note” who is saying “foreclose.” The parties who own the impacted bonds in a CUSIP based tranches in the REMIC Trusts who would take the losses are being precluded from making that choice.  The truth of the matter is that the mortgage servicers and their legion of “out-source vendors” are the “real parties in interest” in terms of making these decisions because they are the only ones making money in the “foreclosure business.” And they are making a ton of money in this depression. Just check out the current 10-K filed by Lender Processing Services LLC as the proof is in the filing as they say.

The proposition that the borrower should be negotiating with the mortgage servicers is akin to the old adage about the man making a deal with the devil—the devil always gets the best end of the deal and the other party ends up with a hell of an eternity.  As a result, the borrower must know who the “real party in interest” is in all of these securitized deals because the homeowner and this party are the two players who have major bucks to lose if we let the servicers and their vendors continue on with their rape and plunder tactics.  The Trustee and the Master Servicer in all of these RMBS trusts have fiduciary duties to the bond holders (the so-called “investors”) to do everything possible to protect the value of the bonds—which means they need to engage in mass mortgage modifications in order to preserve as much bond value as possible for all tranches in the structure.

Conversely, the borrower has the absolute right to know who these “real parties” are so that the negotiations can be with those who have “skin in the game” as opposed to those who are simply taking as much skin out of the game as they can scam.  This is especially important since the American taxpayer is footing the bill for all the scamsters.

It is way past time to bring some sanity to this madness.  The future on America is at risk along with the integrity of our system of just.  The fierce urgency of now to quote a once famous leader.