Foreclosure Fraud For Dummies, 3: Why Are Servicers So Bad At Their Job?
(This is a series giving a basic explanation of the current foreclosure fraud crisis: Here is Part One, Part Two,, and this is Part Three.)
Whenever I hear about how there wouldn’t be a problem with foreclosures if people just paid their mortgages on time, I’m reminded of Alan Grayson’s paraphrase of the Republican Health Care Plan: “Don’t Get Sick. If You Get Sick, Die Quickly.” Yes, the world would be an easier place if people never got sick, or credit risk didn’t exist, and people made payments perfectly all the time. But they don’t, and we need a system of rules and a process for collecting and presenting evidence in order to kick a family out of their home. And we need a system where this process sets the ground rules that in turn allow for lenders and borrowers coming together and negotiating a situation that is best for both of them.
Because the first rule of mortgage lending is that you don’t foreclose. And the second rule of mortgage lending is that you don’t foreclose. I’ll let Lewis Ranieri, who created the mortgage-backed security in the 1980s, tell you: “The cardinal principle in the mortgage crisis is a very old one. You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure. In the past that was never at issue because the loan was always in the hands of someone acting as a fudiciary. The bank, or someone like a bank owned them, and they always exercised their best judgement and their interest. The problem now with the size of securitization and so many loans are not in the hands of a portfolio lender but in a security where structurally nobody is acting as the fiduciary.”
In the past you had Jimmy Stewart banks. The mortgages were kept on the books of the bank. You had someone who you could go to and renegotiate your mortgage. With mortgage-backed securities, the handling of payments and working-out of troubles moved to servicers. If you are learning about this crisis for the first time, understanding what is broken here is very important.
This is Not a New Problem With Servicing
Let’s get some quotes from bankruptcy judges in here:
“Fairbanks, in a shocking display of corporate irresponsibility, repeatedly fabricated the amount of the Debtor’s obligation to it out of thin air.” 53 Maxwell v. Fairbanks Capital Corp. (In re Maxwell), 281 B.R. 101, 114 (Bankr. D
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Tags: alan grayson, Debtor, Foreclosure, Fraud, lewis ranieri, mortgage backed securities
Related Articles:
- Foreclosure Fraud For Dummies, 2: What is a Note, and Why is it So Important?
- 40 State Attorneys General to Investigate Mortgage Fraud; Bank of America Halts Evictions Nationwide; Senator Reid Calls for More Suspensions
- Foreclosure Fraud For Dummies, 1: The Chains and the Stakes
- 100-Year-OId Woman Faces Foreclosure, Latest Victim of the Foreclosure Crisis
- Merrill Lynch Accused of Same Fraud as Goldman Sachs; Tip of the Iceberg of Fraud Charges
