Tuesday, November 16, 2010

The Congressional Oversight Panel and the Mortgage Documentation Mess
Show Me the Note

The Congressional Oversight Panel, convened in 2008 to review the Treasury Department's response to the financial crisis just released a 125 page report on the scope of the mortgage documentation controversy. Of course, I haven't read the 125 page report, after all, there are videos of cats staring down alligators to watch, but CNN Money says the following: (Nested quotes are left in just to show how lazy all layers of reporting are in this day and age.)

While the report acknowledged that the scope and the consequences of controversy remain unknown, the panel warned that the financial system could be at risk if the allegations of "robo-signing" are proven to be true.

"If documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages, the consequences could be severe," the report said.

The panel suggested that stress tests would be in order for certain institutions with large exposure to high risk loans. Yes, Bank of America, we're looking at you. (See William K. Black and L. Randall Wray's October 22, 2010 essay in the Huffington Post, Foreclose the Fraudsters, Part 1: Put Bank of America in Receivership.)

Let me just say this about the Congressional Oversight Panel. It may seem like they did a deep and thorough analysis of the problem, but when you give it even a cursory glance, you can see they just punted and didn't really issue a usable opinion at all. Imagine that you had a bunch of money that you didn't need, and you decided that you would hire an oversight panel to look at a particular problem and write a report, let's say, a concise 125 page summary. So you give a bunch of experts a bunch of money, and two years later they write a report that says this problem could either be something that will crash the entire US financial system, and maybe the world's, or it could be no big deal. If you paid the money, wouldn't you think you were a bit cheated? Guess what, you did pay the money. You were cheated.

The strange thing is with all this talk about robosigning of documents related to the mortgage, very little is being said about the promissory notes that comprise the actual promises to pay. Without the notes, the mortgages are useless. The geniuses behind the MERS system for putting mortgages in the hands of nominees omitted the duty to track and properly assign the promissory notes.

One of the highlights of the NCLC conference last week was the speech by negotiable instruments expert, Professor Douglas Whaley. His speech focused on what he calls "The Sexy Promissory Note". I don't have to summarize it because he has published a somewhat shorter version of it in his blog, linked here. The bottom line to Professor Whaley's speech is that a lawyer representing a consumer defending a foreclosure, and in some cases, even a consumer acting pro se, should demand presentment of the original promissory note as a precondition of foreclosure. That promissory note should show a clear chain of endorsement from the originating mortgagor to the current claimed assignee. Absent such evidence, the court should not allow foreclosure to occur. When a note is claimed lost, there is no presumption of validity, and the claimed owner must show evidence for each transaction in the chain of title, and in some cases must post a bond to protect the mortgagor from multiple claims of ownership.

Now it's time for the segue into our marginally relevant video of the day. In 1970, 20 year-old Stevie Wonder had a huge #1 hit with the song Signed, Sealed Delivered (I'm Yours), a song he wrote with his wife, his mother and his regular songwriting partner, Lee Garrett. If a blind singer barely out of his teens could figure out the concept of signed, sealed and delivered, why couldn't the professionals that were being paid big money to set up mortgage securitizations? Now I could post one of half a dozen Stevie Wonder versions of this song, or one of several that he does as duets with other artists. I could post Peter Frampton's #18 hit. Perhaps the #11 British chart hit by Blue. Nope, too easy. Here's a version of the song done in 1970 by a then-unknown singer named Elton John. In those days, while he was waiting for his first crack at solo success, Elton paid the bills by recording "sound alike" versions of current hits. Some of them are complied in an album called Legendary Covers including this version of Signed, Sealed, Delivered. You should be glad I didn't post Elton's version of Young, Gifted and Black.

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