Spotting the Bankers’ Latest Propaganda Campaignin HPN Blog
Perhaps you’ve heard the line about not wasting a crisis. It means seize the opportunity to make big changes.
Well, the banks are doing just that: they are using their self-created foreclosure crisis to build pressure to dismantle judicial foreclosures. The bankers want it to be much cheaper and easier to take collateral with fraudulent documents. Which it is, in non-judicial foreclosure states.
Before I dissect an example from today’s news, I want to explain why I think the banker campaign to end judicial foreclosures is about easing fraudulent foreclosure, rather than, say, liquidating collateral quickly. It’s simply really– the banks aren’t swiftly liquidating the collateral they’ve already taken title to. The banks are letting the properties rot.
More than that: the banks are slowing foreclosures all on their own. Florida attorney Matt Weidner saw banks voluntarily dismiss some 50 foreclosure cases he defended in 2010. A year later, not a single one has been refiled, even though his clients remain in default. Or consider this anecdote from Michael Olenick of Seeing Through Data:
The last time I went to [Florida] foreclosure court with a reporter there was a borrower who thought the bank lawyer was his own lawyer because, he said, “she really goes all out, even when the judge gets cranky, to keep me in my house.” The judge was cranky the bank attorney wasn’t advancing her case and kept arguing for sale delays (cranky’s an understatement; red in the face yelling at her) but she kept her ground.
I tried to explain to the defendant that she works for the bank and is supposed to be trying to take his house but he wasn’t having any of it. After a few minutes of that the bank lawyer came out of court and he said “hey – I have to go – I have to ask my lawyer what to do now.”
Let’s be clear: the banks aren’t bitching about the Due Process accorded homeowners in court because the banks need to speed up foreclosures. No, the bankers want what they always want: to cut costs and reduce potential liability. And that’s easiest if they can manufacture fraudulent docs, as needed, and foreclose using them without hassle.
Spotting the Bankers ‘End Due Process’ Campaign
So here’s an example of what I’m talking about, a Mortgage News Daily article from today, May 16, titled: “Judicial States Continue to Skew Foreclosure Statistics”. Take a look at the article’s opening sentence:
There were substantial improvements in delinquency rates during the first quarter of 2012 according to the National Delinquency Survey for the period released this morning by the Mortgage Bankers Association.
and then this one later in the article:
“The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states,” [Mike Fratantoni MBA's Vice President of Research and Economics] said.
Here’s the funny thing; the bold is in the original, and it’s the only bold in the original, other than the headline. The bold aren’t links, nor is it subheds; in both cases it’s just emphasizing part of a sentence. The bold’s only purpose is highlighting banker/government talking points.
The Foreclosure Crisis Is Nowhere Near Over Yet
The first talking point, the decreased delinquencies, is a misleading fact. Sure, it’s true, but what does it mean? Does it mean that the foreclosure crisis is ending or winding down? No, it doesn’t, because the crisis isn’t. But when your brain picks up on the bolded language, that’s the implicit message: delinquencies are down, so the foreclosure crisis is easing.
Beyond all the foreclosures in limbo, and all the excess inventory, socially destructive foreclosures are still rising; the National Mortgage Daily article itself says:
Nationally the percentage of loans in foreclosure rose slightly but …the top-line figure covers up a couple of trends. “First, the percentage of loans in foreclosure is up for prime and FHA loans. The percentage of subprime loans in foreclosure continues to fall as the subprime loans age and the problems [sic] loans are resolved one way or the other. However, the percentage of loans in foreclosure for both FHA loans and prime fixed-rate loans are climbing and are just below all -time records.”
To see how the “substantial improvements in delinquency rates” feeds the banks’ the courts-are-the-problem meme, read it in conjunction with: “The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states,” Franantoni said.”
Implied conclusion: things are getting better and would be much better if it weren’t for those dang courts!
Targeting the Courts
The key sentence couldn’t be clearer: “The problem continues to be [the courts]…”, but the whole push on the point needs deconstructing:
“The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states,” Franantoni said. While the rate of foreclosure starts is essentially the same in judicial and non-judicial foreclosure states, the percent of loans in the foreclosure process has reached another all-time high in the judicial states, 6.9 percent. In contrast that rate has fallen to 2.8 percent in non-judicial state, the lowest since early 2009.”
Ok, note: foreclosures are starting at the same speed in both places, so the problem of delinquent loans that the banks want to seize the collateral on is evenly distributed. But once started, the foreclosures can’t get done quickly in judicial states. Hmmm… let’s see what we can learn about why that is from the article:
The difference in the rates is even more disturbing in certain states. In Florida the percent of loans in foreclosure is now 14.31 percent.
Ok, Florida. I opened by mentioning that banks are driving lots of the delays in that state. How is that the court system’s fault? One reason for the chaos in Florida is the banks’ heavy use of foreclosure mills like David Stern. When Stern spectacularly flamed out, he created chaos by just dumping files. Again, how is that the court’s fault? No one told the bankers (or Fannie/Freddie) to use Stern or any other mill. The Florida delays are caused by the banks’ fraudulent documents and their attempts to foreclose on the cheap through the mill model.
Back to the article:
New Jersey and Illinois are trailing Florida substantially but still have rates of 8.37 percent and 7.46 percent and, Brinkmann said, their rates are increasing.
New Jersey and Illinois. Hmmm… I know New Jersey has been taking a close look at the banks’ fraudulent documents. I haven’t followed Illinois, but banks have been walking away from homes in the foreclosure crisis. New Jersey courts are only “the problem” if rejecting fabricated “evidence” is a problem, and the Illinois issue may not even be court related.
More from the article:
Ten judicial states have rates above the national average of 4.39 percent. On the other hand, among the 29 states using a non-judicial process, only Nevada has a higher rate of loans in foreclosure (6.47 percent) than the national average.
What’s up with Nevada? Oh right: the Attorney General indicted “robosigners” and the legislature further criminalized the banks’ document fraud. The Nevada foreclosure rate has spiked for the same reason the judicial states’ has: banker document fraud. Still, the article pushes the idea that the problem is the courts:
Five state [sic] now account for over 52.4 percent of all foreclosures in the country while accounting for only 32.1 percent of the loans services They are Florida, California, Illinois, New York, and New Jersey.
New York is easy to explain: the Court system required bank attorneys to swear their documents were true. The lawyers refuse to do this, so the cases languish. California is nonjudicial, and lacks a Nevada style law, so I imagine its high rate is a combination of CA’s size and its bubble size, and banker unwillingness to complete the process (as is visible in Florida).
The article then goes on to say FHA loans are starting to experience the same pattern of delays in states where courts and legislatures care about the rule of law (well, the article puts it a little differently) and then says:
“You have to ask yourself, …who is going to bear the costs of this differential foreclosure rate? They are being passed on to all FHA borrowers in the form of higher across-the-board increases in insurance premiums, and ultimately to the taxpayers if the FHA insurance fund develops a shortage.”
Those darn courts, wrecking the housing market by slowing foreclosures and costing all of us more money.
Due Process is the Solution, Not the Problem
See where all this is going? Enough messaging like this and some states may change foreclosure laws more to the bankers’ liking. Short of that, people will target the courts as the problem instead of the bankers.
Whenever you read banker talking points embedded in news like this, remember: our Constitution guarantees Due Process for a reason. Due Process is essential to the rule of law and a fundamental check against the abuse of power. Don’t let the bankers sell you or your representatives into taking it away.