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

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  •  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

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    •  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

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        •  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

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    •  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

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