By Abigail Caplovitz Field | June 28, 2012
Normally I’m a fan of Reuters, it has backed some terrific reporting on the banks’ fraudulent foreclosure documents and I respect many of its reporters. But this piece: “Insight: Evidence Surfaces Anti-Foreclosure Laws May Backfire” is pure banking industry and Federal Reserve propaganda. The goal of the propaganda campaign reflected the piece (and one in MortgageNewsDaily I debunked six weeks ago) is to eliminate barriers to the banks’ use of fraudulent documents to seize houses. [Note--this post earlier and wrongly identified that article as published by HousingWire. Sorry HousingWire.] That is, going after judicial foreclosures and efforts to defend private property rights and the rule of law.
The Housing Crisis Is NOT Caused By Helping Homeowners
The Reuters piece aggressively misrepresents the idea that huge “shadow inventory” and the problems it causes for the housing market as proof that benighted efforts to help homeowners are hurting the housing market. That’s total B.S. Worse, the laws and rules the piece critiques aren’t efforts to help homeowners, per se–they defend Due Process and try to stop banker fraud.
The first part of the article’s claim is true–having huge shadow inventory is horrible for the housing market and the broader economy. But the second part–the assertion that helping homeowners, aka judicial process and efforts to stop banker fraud, is causing the problem is completely false.
Bankers Are Responsible For the Housing Crisis
Let’s be clear: The banks are responsible for shadow inventory and the underwater crisis. Not homeowners, not Due Process, not judges, not law enforcement. The banks are responsible in multiple ways, as I detailed when debunking the HousingWire version of this b.s. Here’s a recap:
First, en route to committing mass securities fraud the banks dishonored their contracts and failed to document the mortgage loans as they promised investors they would. As a result, they’ve had to fabricate nonsensical, obviously fraudulent and often sworn statements to try to foreclose. It’s that swamp of fraud that’s causing the delays.
Second, banks are manipulating housing market inventory, letting properties they own rot, not listing them for sale, and when auctioning them, sometimes outbidding third parties. Third, bankers’ securities fraud broke the secondary market for non-government backed mortgages. As a result, there’s a lot less capital to lend wannabe homeowners. Fourth, lender-driven appraisal fraud led to such inflated prices that the underwater problem is directly attributable to them.
Rather than deal in the reality that our housing crisis is banker driven and dare push the meme that bankers must be held accountable, Reuters is helping bankers (and their government allies) push the idea that if only we made it easy for bankers to use their fraudulent documents, the housing market would heal quickly.
Spotting the Propaganda
To show the deep inaccuracy or dishonesty of the article (I don’t know Tim Reid, the author), I’m going to go through as much of it line by line as I can stomach. (The bold in quotes throughout is mine.)
The article opens with this sentence:
State and federal laws enacted to protect homeowners from eviction in the wake of the 2008 housing crash may be extending the slump, according to a growing number of economists and industry experts.
That is, preventing eviction = hurting the housing market.
Foreclosures have all but ground to a halt in Nevada, which passed one of the stiffest borrower-protection laws in the country last year.
Wow, what borrower-protection law are they talking about? I didn’t know Nevada tried to stop evictions. Sentence three doesn’t explain; we have to get much further into the article to find out.
Yet the housing market is further than ever from recovery, local real estate agents say, with a lack of inventory feeding a “mini-bubble” in prices that few believe is sustainable.
See that elision? Stopping evictions = hurting the housing market, Nevada passed a tough law (must be about stopping evictions), and the result is a lack of inventory that’s falsely inflating prices. Just on that last point, how sure is the author that the banks have liquidated the homes they’d seized before Nevada’s law took effect? Banks are holding properties off the market all over the place.
The Government Pushes Bankers’ Line
A recent U.S. Federal Reserve study found that in states requiring a judicial review for foreclosure, delays associated with the process had no measurable long-term benefits and often prolonged the problems with the housing market.
The bolded language is the message the sentence is pushing, right? But if you read carefully, the problem identified is “delays associated with the process.” So the real question is, what’s causing the delays? And the answer is, bank fraud.
A good example is New York. There, the Chief Judge ordered bank lawyers to verify that their papers were true before moving the foreclosure through. Lawyers have refused to do it en masse, leaving many foreclosures stuck. Is the problem that New York requires integrity in its Courts or that bankers papers are thoroughly fraudulent? I vote for banker fraud.
Data from housing market researchers points to similar conclusions.
What data? More important, what conclusions? That stopping evictions is bad? That Due Process and property rights protection are bad? That banker fraud is bad?
“Many state laws that stretch out the period for legitimate foreclosures result in no added benefit for the homeowner and produce harm to the housing finance system and to neighborhoods,” said Alfred Pollard, general counsel to the Federal Housing Finance Agency, at a House of Representatives oversight hearing in March.
Hmmm… What laws delay legitimate foreclosures? The New York rule doesn’t; only those supported by fraudulent documentation get stuck. I guess I should ask what “legitimate” means. Does it mean legal, protective of title and private property rights, and supported by accurate information as to amounts owed, etc.? Or does it mean that the bank says the homeowner’s in default, (which may or may not be true)?
Some people who have been able to stay in their homes despite failing to pay their mortgages may disagree, but it may be a different matter for the neighborhoods where they live.
Ah…”legitimate” means the bank says the homeowner’s in default. The old “irresponsible borrower”/”deadbeat” line. That’s what the government’s really trying to do with these “anti-eviction” laws, see–help deadbeats.
An overhang of properties that the banks want to foreclose, but have not dared to, not only can hold back a sustainable recovery in prices but also might encourage blight as the defaulting borrower has less incentive to keep the property in good condition.
There’s so much wrong with that sentence I could do a whole post on it. First, why don’t the banks “dare” foreclose? Is it because they can’t without fraudulent documents? Second, why would a flood of foreclosures lead to a sustainable recovery in prices? I mean, sure, eventually, after prices plummeted significantly further. Third, homes the banks have successfully evicted people from and haven’t yet sold have a far more blighting effect than people living in their homes and keeping them habitable. Sure, the homeowner might not buy a new roof, but no crackheads will find a vacant home to crash in either.
“Folks with negative equity can’t sell their home and are less likely to invest in improvements or repairs, or pay their property taxes,” said Sean O’Toole, chief executive officer of ForeclosureRadar.com, which tracks foreclosures.
I thought this article was about anti-eviction measures screwing up housing. That was the promise at the start right? What has that to do with underwater borrowers? Sure, they’re more likely to end up in foreclosure, but that sentence isn’t talking about people in default. Nor does the harms it’s talking about–reduced investment and taxes–stem from preventing evictions.
Sentences ten and eleven:
The increasing doubt about the impact of anti-foreclosure laws on the long-term health of the housing market calls into question a basic principle of the Obama Administration’s approach to the housing crisis.
Many Democrats, including Obama, say struggling homeowners should get more time to make good on their mortgage arrears, or have the breathing room to renegotiate their loans with lenders, especially in the wake of the “robo-signing” scandal in which banks were found to have falsified foreclosure paperwork.
How I wish the Obama Administration’s approach had really been about helping struggling homeowners. Instead it has been mostly theatrics with gifts to the banks thrown in. Most recent example–the latest refinancing program has become a fee/profit center for the big banks. Moreover, if homeowners did “make good”, that would be better for everyone involved, including the broader market, but in the era of maximally predatory servicing, it’s not easy. Ditto with mortgage mods that work–and when they include principal reduction that’s meaningful, they work.
Hey, look! In sentence 11 we get the first whiff of banker wrongdoing. And wow, he not only uses the misleading “robo-signing“, but he also says “falsified foreclosure paperwork.” Foreclosure “paperwork” doesn’t sound that serious, though, does it? How about “falsified documents affecting property title”? Or, “lied under oath about how much borrowers owed and to whom?”
I need to pick up the pace, so I’m going to skip sentences. I’m not going to do any Fox News-type editing. If you’re afraid I’m misrepresenting the article, here it is again so you can check up on me.
But conservative and free market economists have long been passionate in their belief that the foreclosure process should be allowed to work efficiently. Delays in clearing the huge backlog of distressed properties will only push back a meaningful recovery of the housing market, they say.
Again: The inefficiencies and delays are caused by bankers’ fraud, document and otherwise. There is zero evidence–zip, nada–that eliminating Due Process and embracing fraudulent banker paperwork would lead to housing market clearing. The bankers aren’t clearing the market to the extent they already can.
Anti-Fraud, Not Anti-Eviction
At sentence 16, we finally return to that pesky Nevada law. The one from the beginning, that was implicitly about stopping evictions, and which had single-handedly wrecked the Nevada housing market, remember? Here goes:
The Nevada law, passed in October, may be the most stringent: It imposes criminal penalties on lenders that try to foreclose without the proper paperwork. That has led to a dramatic drop in foreclosures in a state that was among the hardest-hit by the housing crash.
Whoa–the law that shut down Nevada’s housing market was about punishing banks for fraudulent documents? Well, let’s see how the Wall Street Journal Law Blog characterized the Nevada law:
“Among other steps, the Nevada law makes it a felony—and threatens to hold individuals criminally liable—for making false representations concerning real estate title.”
The WSJ also notes the law restores the Due Process protection that the trustee doing the non-judicial foreclosure sale is a truly independent party:
The Nevada law makes an important technical change to those rules by forbidding trustees from handling foreclosures if the trustee is a subsidiary of foreclosing bank. That change appears to strike a blow for Bank of America Corp., which uses a wholly owned subsidiary, ReconTrust, as its trustee for foreclosures in Nevada and other western states.
Doesn’t sound like an anti-eviction measure to me. Sounds like it’s about protecting private property rights and the rule of law. Housing Wire’s article on that Nevada law confirms that take.
Here’s sentences 19-22:
[The Nevada law's reduction of foreclosures] has triggered a “mini-bubble” in housing prices because the few properties available are receiving multiple bids. The only problem: No one thinks the gains are sustainable.
”The bill did nothing to solve the crisis – it’s just prolonged it,” Beach said. “Sooner or later the banks will work out how to deal with the law. And then foreclosures will hit the market, and prices will crash back down.”
Hey, way to emphasize a point through repetition–you told us in sentence three that Nevada’s law was creating a mini-bubble. And way to not tell us–again–if the banks were currently holding off any inventory. Are you so sure the banks will find a way around their fraud? It’s been 10 months now. Isn’t that timeline just an indictment of how illegally the bankers have been behaving? I agree about prices going down in the future–there’s no reason at the moment to see them going up.
Sentences 24-28 are another repeat of a sort–pushing how the problem is protecting deadbeats:
“Th[e Nevada anti-fraud] law has become a mockery,” [a foreclosure defense attorney] said. “I am now turning down clients every day who I know have no intention of ever trying to pay their mortgage. They just want to stay in their homes for free. And that is a bad situation for everyone, lenders and homeowners.”
So insisting the banks properly document their right to foreclose is creating deadbeats? Imagine if banks had kept good records all along, and honored those contracts back when they made securities–every loan would be in default!
Look, I can’t take any more of this, so I’m sure you can’t either. Shame on Reuters for running this piece. Shame on the Fed and FHFA for feeding into it. Shame on Tim Reid for being a tool or double shame for being an intentional propagandist.