Skip to main content

View Diary: Closely-Watched Court Decision Breaks Bad for Wall St. Has A Day of Reckoning Arrived? (154 comments)

Comment Preferences

  •  It is very difficult to win money... (15+ / 0-)

    ...when you were the one that received the loan, as is the case with most consumers. The risk of housing price collapses, unemployment, etc is supposed to be borne by the borrower (who also makes all the gain from price appreciation).

    In all of the banking fiascos, most of the fraud was committed by a bank against other banks, investors, or pension funds. Certainly I'm sure there may have been fraud against some borrowers, but I would argue a very small amount compared to the other kind.

    Certainly the price declines and unemployment are not helping homeowners who bought during the bubble, but that's the way the game is played. They could have rented. Buying a home is a business decision.

    (-5.50,-6.67): Left Libertarian
    Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

    by Sparhawk on Wed Feb 06, 2013 at 05:28:46 AM PST

    [ Parent ]

    •  I never thought about it but (38+ / 0-)

      If I am 30. I make 22,000/year. No college degree. Have a family. It is 2004. And I want a reasonable house. I am told by my parents 20% down is the standard. I get sold on some rediculously expensive houses and have a bunch of promises made so that the bank, knowing that they can bet against me paying can just put another shit mortgage out there:

      I would Assert:

      1. Negligent Misrepresentation
      2. Fraudulent Misrepresentation
      3. Fraud in the Inducement
      4. Breach of Contract
      5. Promissory Estoppel
      6. Unjust Enrichment
      7. (Maybe some Abuse of Process suit if they got my house and got their money)
      8. Civil Conspiracy
      9. RICO?

      IDK. Never had cross my desk. I am working for bigger people, but well first thing I wrote including for work today, so leave it at that. I just think if someone tells you you can afford a 200k house and don't pay anything down, your reliance is reasonable and there is simply no way, AND they are going to gain either way just by signing you up, you probably have something.

      •  Individuals are never going to be made whole (14+ / 0-)

        This lawsuit was about purchasers of mortgage securities. They were sold something much riskier than an individual mortgage, namely, a bundle of mortgages often with payments dependent on how some other bundle of mortgages would perform (i.e. a junior tranche). And because these securities are complex and opaque, the possibility for misrepresentation is much higher. (Fraud and conspiracy probably occurred too but the track record for prosecuting those is not good).

      •  You're touching on something that I believe was (38+ / 0-)

        the situation - that there actually was a subterranean market for "bad mortgages".

        I don't think it consciously started that way, but at the height of the housing and flipping frenzy, everyone who could legitimately buy did, but there were still more houses to sell and mortgages to make and bonds to create. TPTB didn't let a little thing like integrity in underwriting or common sense ( a person with no job, no income and no assets should NOT be given a mortgage) stand in the way of all that pent up demand all along the chain so they threw all the rules out and literally anyone could and did buy a house.

        Was it the buyer's fault when a banking professional announced that even on their McDonald's salary they could afford a 300K house with no money down and don't worry about it if you can't afford the payment because in 3 months you can sell for more than you bought? I think there was actual inducement although of course the buyers bear responsibility as well. But, no one forced the banks to make any irresponsible loans despite the mythology about Barney Frank and the Community Re-Investment Act.

        The banks and mortgage companies of their own free will wrote almost all the bad paper. At that point it certainly wasn't a secret that a large portions of these loans would go belly in the near future if the music stopped in the game of musical chairs which it finally did. I think the only reason it stopped is that finally even the pool of unqualified buyers dried up. Then some of the first time flippers were just starting to lose their shirts when their renovations were longer, harder and more expensive and then no buyer appeared to save them from their Flip This House Dreams. At the height of the boom 25-33% of the transactions involved investment real estate.

        At a certain point the bad mortgages being thrown into the bonds HAD to be an open secret in all the related industries. And at this point I believe they were welcomed by the smartest people in the room who realized there was money to made betting AGAINST some of the securities. I think this theory was proven by the case of the guy who was allowed to select the mortgages for a bond that he subsequently bet against, unbeknownst to the unwitting investors who bought it in good faith.

        The fraud was so huge, so systemic, so pervasive, so accepted as Business as Usual that in my opinion the Regulators, the Fed, the Justice Department, the State AGs, the President and anyone and everyone else  threw up their hands and walked away from any duties of investigation, prosecution and punishment. The only exception is a few very brave and intrepid foreclosure attorneys who actually believed in Due Process and The Rule of Law for their clients.

        “Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough.” FDR

        by Phoebe Loosinhouse on Wed Feb 06, 2013 at 08:25:48 AM PST

        [ Parent ]

        •  Excellent Post- (22+ / 0-)

          I think it was even more pervasive. I have dealt with now suing a number of banks for COMMERCIAL borrowers and what they do/did was simply unconscionable.

          Was it the buyer's fault when a banking professional announced that even on their McDonald's salary they could afford a 300K house with no money down and don't worry about it if you can't afford the payment because in 3 months you can sell for more than you bought? I think there was actual inducement although of course the buyers bear responsibility as well. But, no one forced the banks to make any irresponsible loans despite the mythology about Barney Frank and the Community Re-Investment Act.
          In my opinion, in the hypo I have in mind, it is completely the bank's and I would not be worried about violating Rule 11 (non-lawyers, you cannot sign something not based in law, etc.).

          If I have an un-sophisticated Client in terms of buying homes. Works at McDonalds. Say 12/hr= 22,000/yr. They have never owned a home. They want to apply for a mortgage for something very very cheap. They go in believing every Bank (used to be) requires 20% down, so have say 10,000 expecting to be getting something for $50,000.  In that case they probably would've been able to make the payments.

          But, when their Banking "advisor" tells them, it's time to get out of that neighborhood, and they may qualify for a 0% down loan for a much nicer residence at 300K.

          a. The bank employee knows that's bullshit.
          b. The un-sophisticated client probably asks how it's possible and they explain
          c. If the Bank doesn't care if they fail, that is at best Negligent Misrepresentation, and I would say Fraudulent.

          Fraud- A promise or Omission/ Made with the purpose of inducing action/ Knowing that the promise will not be kept/ Reasonably relied upon/ that does induce said action or forbearance/ Proximate Cause of Damages

          That is off the top of my head but about right. I would say the bank Employee would've had to convince someone who knows they make 12 dollars an hour that they can afford something that would take them the rest of their life and every penny they make before tax to pay. The bank employee would have had to explain most likely how it would be possible, assure of gov't programs, generally confuse. They know they are doing it. They convince the unsophisticated Borrower. They know they are unsophisticated. They know they don't think they'll pay but they are making money. The person puts some equity in and defaults.

          If it had not been for inducement they would've had an affordable house. I would say this sounds extreme but I have little to no doubt that it happens. The people I help Pro Bono, absolutely cannot afford their homes. It will damage them in the long run.

          If another Company is in on it, making money- Civil Conspiracy, if you think that fraud it certainly is Negligent Misrepresentation. If they used the Mail probably RICO. Otherwise I imagine RESPA was probably trampled on.

          I will be excited when those suits start occuring/winning.

          The reason I am not hedging on who's responsible is one is a Bank, they are sophisticated and in what I am envisioning they take advantage of that fact.

          If someone came to my office with circumstances like that I would help them sue the bank (hell I did for foreclosing after reading through contracts for who I work for for 10 hrs for 100 million dollars).

          If that is not going to fly in most states as a Common Law Tort, or COA, then I don't think it's without merit. The FDCA already goes based on the least sophisticated consumer. I don't think it's a stretch to say that should be the standard, and sue for "Fraudulent Servicing" and extend the law.

          My .02

          •  Fish for selling -- that's different. (5+ / 0-)
            Recommended by:
            cotterperson, Sychotic1, BYw, Lujane, DocGonzo

            If I offered to sell you a widdget for $100 payble in a year by representing to you that the market price would double in that year, and 5 years of widget market history corroborates this, why wouldn't you take the deal?  It doesn't matter if you have a job.  You can't lose.  And you have the use of a widget for a year.  I find it very hard to make a case against buyers based on their knowlege that they "can't afford" it.  The argument that the buyer is somehow "responsible" for the widget market collapse woud be utter silliness.  

            Oh, and add to the facts that your state law limits the lender's remedy on default to repossession of the widget.

            A right answer to the wrong question is a wrong answer.

            by legalarray on Wed Feb 06, 2013 at 10:44:01 AM PST

            [ Parent ]

            •  Who Didn't Try to Sell? (0+ / 0-)

              I agree with you, but to a point. Lots of people who held mortgages they truly couldn't afford didn't sell when the market showed sustained signs it wasn't going to "double", but was decreasing. Indeed there was something over a year, from late 2006 through late 2008, that the market decreased while ARM interest rates increased on schedule. While people who bought an interest they couldn't afford on the assumption they'd sell soon enough for a profit that would cover the costs just held on. People held on to multiple investment properties while the market pushed them further under water, but never sold.

              If you buy on the premise the appreciation will cover the cost, then you have a year to see it isn't, but don't at least cut your losses, then that's your fault.

              Yes, more people selling when the bubble popped would have accelerated the market depreciation. But it was an option that plenty of people didn't take. I bought my own house in 2009 after a 2008 foreclosure. I know several people who kept properties rather than sell them, clinging to the dream of a market increase that was proven wrong by 2007-2012. They should have taken what they could get, and paid their other debts with any proceeds (reaping a return equal to the interest they were stopping). But they didn't.

              What I describe wasn't necessarily an option for some people. Some markets left properties unpurchased even at fire sale prices for more than a year. But as I shopped for homes 2008-2009, and continue to monitor the market both locally and elsewhere in the US, I saw lots of people insisting on a market that didn't exist, without accepting a lower payment from the real one that was at least higher than what they'd get in a few months. I blame them for that, not the lender who got them into it. They're the ones who didn't use their chances, however diminished, to get out.

              "When the going gets weird, the weird turn pro." - HST

              by DocGonzo on Thu Feb 07, 2013 at 05:57:27 AM PST

              [ Parent ]

        •  Wrong (0+ / 0-)

          We didn't buy a house and we certainly could have. I know many people who also could have, but didn't.

          Don't spin this as "everyone was doing it" to somehow justify (presumably) your own (and others) lack of critical thinking skills. Get this straight: No, everyone who could did NOT buy a house during the bubble.

          Were some/many bamboozled by scheming banks and brokers? Absolutely. Does that absolve all borrowers from their responsibility to use common sense and evaluate whether or not a deal that seemed to good to be true was, in fact, too good to be true? No, fuck that.

          •  Wrong what? (6+ / 0-)

            Your own critical thinking and not to mention reading skills are lacking. Did you see the sentence:

            I think there was actual inducement although of course the buyers bear responsibility as well.
            As to me "spinning" the rampant, obvious corruption of several industries in order to "justify" my own "lack of critical thinking skills", I personally was completely untouched in the housing and mortgage crisis, but thanks for your sanctimonious and judgmental preconceptions delivered while congratulating your own prudence.

            There were people involved in these transactions who were professional, licensed people who were deemed to have the ability, training and responsibility to determine who in the general public was worthy of giving both public and private dollars to and who could make these determinations so accurately that actual bonds could be issued based on their judgements. Hint - these  people were NOT the buyers, they were the bankers.

            “Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough.” FDR

            by Phoebe Loosinhouse on Wed Feb 06, 2013 at 05:49:13 PM PST

            [ Parent ]

    •  Risk-Recourse Loans (14+ / 0-)

      Gotta love the Golden Rule, eh?  Banks own the gold, thus, they get to make the rules.  

      For instance, recourse loans:

      Recourse loans get their name from the fact that lenders have power. They are allowed to go after you for amounts that you owe - even after they’ve taken collateral. If you default on a recourse loan, the lender can bring legal cases against you, garnish your wages, levy bank accounts, and try to collect the amount you owe.
      So where is the risk for the banks?  Where are the consequences for their business decisions.  

      This may be the way the game is played, but that doesn't make it right and not something we should just accept.

      Poor man wants to be rich. Rich man wants to king. And the king ain't satisifed until he rules everything. B.Springsteen

      by howd on Wed Feb 06, 2013 at 07:23:44 AM PST

      [ Parent ]

      •  No risk for banks (12+ / 0-)

        My bank kept themselves above the sub-prime market. They were proud of that. A friend of mine who worked in the bank told me a story in 2009: some younger MBA guys (including this friend) from the commercial side went into the execs and pitched them to run an 'agency' operation--instead of only accepting the 'quality' loan apps, offer loans to everyone, skim off the 'quality' loans for the bank to underwrite, while giving the young-gun team the crap to act as agents for Countrywide and Wells. The execs agreed, gave them a little office across the street, some phones, a few computers, and let them run.
        In one year during their operation, the profits for acting as sub-prime agents was fully half the bank's net earnings. It was a goldmine, and best of all (my friend explained to me with a huge smile) the bank held no risk; all the risk was sold by Countrywide and Wells down the pipe as bundled investments.
        It's a weird world we live in.

    •  When underwriters signed off (9+ / 0-)

      on sketchy subprime loan products that they knew were not even close to "best practice", I'd say the "blame the borrower" CONSERVATIVE meme is fallacious on its face.

      As is your commentary. Again.

      The "extreme wing" of the Democratic Party is the wing that is hell-bent on protecting the banks and credit card companies. ~ Kos

      by ozsea1 on Wed Feb 06, 2013 at 08:19:46 AM PST

      [ Parent ]

      •  I think Blame the Borrower is rediculous (7+ / 0-)

        in most circumstances (sub-prime). It would have to be.

        I too have a serious problem with that meme:

        1. The borrower got foreclosed on. The Lender? Rewarded.

        2. They did not have to foreclose on the borrowers. (see laws that kept the country afloat, banks can do HAMP mods on their own, they saw it coming- could have done a mod, Deed in Lieu etc).

        3. Lenders are not but should be Fiduciaries

        4. I don't think any borrower would enter a loan expecting to be foreclosed on so it is safe to say they were taken advantage of. Most people want to live in a house they can afford so they can keep it.

        •  Re (4+ / 0-)
          Recommended by:
          Keninoakland, FG, Paper Cup, soros
          1. The borrower got foreclosed on. The Lender? Rewarded.
          BS. Who rewarded them and how? Where did the money to 'reward' them come from (other than possibly bank bailouts that I oppose). The borrower who was supposed to repay them now won't.
          2. They did not have to foreclose on the borrowers. (see laws that kept the country afloat, banks can do HAMP mods on their own, they saw it coming- could have done a mod, Deed in Lieu etc).
          So? The bank has a legal right to foreclose. That's all that matters.
          3. Lenders are not but should be Fiduciaries
          Fiduciary to who? The borrower? The banks weren't even fiduciaries to themselves given the massive losses involved. How do you expect banks that threw away massive amounts of money to defend the interests of their borrowers? Also, I generally am not sure I agree with the paternalistic attitude here.
          4. I don't think any borrower would enter a loan expecting to be foreclosed on so it is safe to say they were taken advantage of
          "I don't think any business goes into business to lose money, so it's safe to say they were taken advantage of."

          Sometimes things just go south. It sucks, but it happens.

          Homeowners who bought in 1995 and sold in 2005 made massive profits. Were they crying in their beer about how awful the bubble was?

          (-5.50,-6.67): Left Libertarian
          Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

          by Sparhawk on Wed Feb 06, 2013 at 09:36:26 AM PST

          [ Parent ]

          •  Seriously? OK (0+ / 0-)

            1. Who rewarded the Lenders?
            The system was stacked. I am sure they made gobs of money. I am not talking about your average good borrower, I am talking about when banks started looking for the guy who holds a cup on wall-street to package a junk asset and win either way. Yes they got bailed out. No they didn't go to jail. If you sold junk bonds like that the FBI would be on your ass. At worst it was a zero gain at the end for the Lender but during they made hand over fist and probably still do.

            2. They didn't have to foreclose- you say it's a legal right. True- would you prefer that if that were to happen again they do and sink AIG? I wouldn't I'd rather they in-house modify and take care of their stuff instead of assume they will make money now betting they lost in the what 60 billion dollar collection industry? My point is yes you may have a legal right- but I don't tell every client to sue because someone broke a promise- better to work it out, especially when you are going to crash the economy. Seriously? That's like saying everyone signed a note due tomrrow for 1 million dollars. Every American. None of us can come up with it. The past 20 years they extend it. They decide not to. They bet against us paying. They call Every American's note in. Do they have the legal right? Sure if we breached. Should they HELL NO?

            3.) Borrowers even before this mess have argued this and I see no reason why they should not be. I am a fiduciary to my client, an accountant is. If Lenders had a Fiduciary duty this would not have happened because they would have breached that duty and each been absolutely burned and continue burning. The Frank-Dodd act already gives some uncertainty as to brokers, I think it safe to say experts guiding how you pay for your (for many) biggest asset should owe you a duty of the utmost good faith. Why shouldn't they? They'd still make money? Do you work for a bank? I am a fiduciary someone comes in and shows me two loans I am in a position where I have to tell them or advise them of the truth. Why the hell wouldn't a lender be? What happened exemplifies exactly why they should . . . because it wouldn't happen.

            4.) My point was implicitly I don't think someone on unemployment goes to a bank thinking "I am going to get a 300k house today". So I am not looking at him, if he is a banker maybe, but most are UNSOPHISTICATED, enter fiduciary duties that SHOULD apply and I hope are pressed as extensions of law.

        •  Borrowers sign contracts with lenders. Why (2+ / 0-)
          Recommended by:
          Sparhawk, Paper Cup

          shouldn't they be responsible? Or do you think that everyone is such an idiot that they can't possibly understand what they are signing?

          •  They have gotten so good at writing contracts (4+ / 0-)
            Recommended by:
            cotterperson, BYw, Woody, lostinamerica

            that not even a team of the best lawyers in the country can understand them in many cases.

            You have watched Faux News, now lose 2d10 SAN.

            by Throw The Bums Out on Wed Feb 06, 2013 at 01:19:40 PM PST

            [ Parent ]

            •  Then people shouldn't sign them. (2+ / 0-)
              Recommended by:
              Paper Cup, soros
              •  The problem is that the contract will appear (5+ / 0-)

                to say one thing but thanks to clever wording actually end up meaning something completely different.  That used to be considered theft by fraud, scheme, or device to deliberately make a deceptive contract but I guess that is just the way it is nowadays.

                You have watched Faux News, now lose 2d10 SAN.

                by Throw The Bums Out on Wed Feb 06, 2013 at 04:43:06 PM PST

                [ Parent ]

                •  Sorry I was the ONE attorney in (1+ / 0-)
                  Recommended by:
                  FG

                  a Commercial loan to spend 10 hours going through about 1000 pages to figure out that someone should not have been foreclosed on.

                  Back in the day you had an argument. We inherited that idea. That you had equal bargaining power. You don't like the terms, you go elsewhere. Today? Not so much. They are what the law calls Adhesive. You are stuck with it because nomatter what you'll get the same. . . .

                  Even if you're taking out a 20 million dollar loan you have no bargaining power.

                  You think anyone actually reads everything they sign? Another fallacy the law should do away with.

                  Bargaining power is flat out not what we have from English Common Law.

                  Can you go into Macy's even and say "I think this shirt is worth 1/2" I'll take it? That's the idea those contract principles are based on. And that they'll listen not laugh. Maybe in 1812, not in 2013.

                •  It does happen. But most of the time the contract (0+ / 0-)

                  terms are fairly clear. If you have a balloon loan, you can see it. People just thought they would flip a house a few years later.

            •  Then don't sign it (2+ / 0-)
              Recommended by:
              Sparhawk, soros

              It's as simple as that. You want to absolve people for being too stupid to understand what they're signing, and foist the blame onto someone else? Seriously?

              •  So only the rich and (9+ / 0-)

                those who are capable of reading legal documents designed to be confusing to the layperson are allowed to buy homes? How very American of you.

                "Lone catch of the moon, the roots of the sigh of an idea there will be the outcome may be why?"--from a spam diary entitled "The Vast World."

                by bryduck on Wed Feb 06, 2013 at 03:23:21 PM PST

                [ Parent ]

                •  You don't get it (0+ / 0-)

                  If you don't understand what's written in a document, ask for clarification. That's why people hire lawyers. And if some of these people didn't have the good sense to engage an attorney for advice on the "confusing" words.... well I won't go so far as to say they got what they deserved, but yeah, it's a possibility.

                  •  Ok, so only the rich. (0+ / 0-)

                    I don't know anybody of less-than-serious wealth that can afford to hire a lawyer unless they are faced with prison, and even then, most people get a PD. And how very presumptuous of you to think that people didn't/don't "ask for clarification--most likely from "their" agent, who has not one iota of incentive to dissuade anyone from paying their commission.
                    Buying a house/piece of land is the central facet to "The American Dream", and restricting it in any way other than the cost of the house/land itself runs counter to our nation's entire history.  You don't get it, I'm afraid.

                    "Lone catch of the moon, the roots of the sigh of an idea there will be the outcome may be why?"--from a spam diary entitled "The Vast World."

                    by bryduck on Thu Feb 07, 2013 at 09:12:00 AM PST

                    [ Parent ]

              •  You appear to have no problem with contracts (4+ / 0-)

                written in such a way to appear to say one thing but mean something entirely else then.  I don't know about you but I consider that fraud when you deliberately design a contract just so you can twist the wording later.

                You have watched Faux News, now lose 2d10 SAN.

                by Throw The Bums Out on Wed Feb 06, 2013 at 04:42:09 PM PST

                [ Parent ]

                •  Not at all (0+ / 0-)

                  The contract means exactly what it says. If there are hidden traps in there then the responsibility to recognize that fact rests CLEARLY with whoever is asked to sign it. Blindly accepting the other party's explanation of terms and the fine print is a recipe for disaster in ALL contracts.

                  People who don't hire a lawyer to scrutinize these binding multi-year obligation contracts are just asking for trouble. It appears many of them found it.

                  Nobody put a gun to anyone's head and said, "Sign it." I'm sorry, I have little sympathy for people who don't have the common sense they were allegedly born with.

                  •  You don't get it. It is entirely possible to bury (0+ / 0-)

                    traps so well that even the best lawyers won't be able to find it even if they are looking for them.  Oh, and don't forget things like invisible ink or the digital equivalent using Javascript code and such to change a contract (as a PDF file) based on pre-calculated md5 collisions so that it can be "edited" later without invalidating the digital signature.

                    You have watched Faux News, now lose 2d10 SAN.

                    by Throw The Bums Out on Thu Feb 07, 2013 at 05:50:47 AM PST

                    [ Parent ]

    •  Telling People They Can Afford the Loan (0+ / 0-)

      Lots of people who borrowed were told by the lender they could afford to pay back the loan. Usually they were told they wouldn't have to pay the adjustable rate when it jacked up, because they'd flip the property long before then. Especially people who bought multiple properties, which was the case especially in the worst states: Florida, Nevada, California.

      I don't know why you're so certain that fraud was so insiginifcant in frequency. And it's surely a far worse fraud to defraud a nonprofessional, inexperienced, uneducated (who are less able to afford interest), unorganized borrower than to defraud another bank that is dedicated to measuring risk and evaluating all the costs surrounding the business.

      "When the going gets weird, the weird turn pro." - HST

      by DocGonzo on Thu Feb 07, 2013 at 05:47:12 AM PST

      [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site