That confidence in the U.S. dollar is at an all-time low is no surprise. But when countries start propping up currencies that are barely on the radar, you know that central bankers are thinking that the U.S. government is not doing enough to shore up the fundamentals of its economy. This translates to a lack of confidence that the dollar will recover. Like the price of oil headed inexorably toward $200 per barrel, the dollar is seen headed inexorably downward. This kind of thinking leads to self-fulfilling prophecy, so it needs to be taken seriously. 

The plain fact is that we have $500 trillion in derivative securities that are treated, for the most part, as cash equivalents. In the face of a half-gig behemoth of private sector money supply, central bankers understand that their impact on monetary policy, money supply, credit, and economic growth is virtually out of reach. Like it or not, economic policy is in the hands of the private sector now.

More pretense of regulation from a corrupt government will produce less rather than more instability in the financial sector. Government is providing cover for wrongdoers rather than relief for everyone. 

The dangers are obvious. The inevitable conclusion of this paradigm shift can already be seen: a massive shift in the distribution of wealth, with its attendant death grip on government policy and action.

The role of government — to be the referee in assuring a fair playing field — has been subverted beyond recognition.

The tangible results are that millions of homes are being foreclosed, tens of millions of people are being hit with economic losses, and despite even the calls of the conservative Economist magazine for a U.S. “Federal effort to streamline the states’ convoluted foreclosure laws” nothing has emerged thus far.

We are aware and I have assisted in the writing of emergency rules of civil procedure for foreclosures from initiation of proceedings through mediation and judgment. These rules have been submitted to Nevada, Florida and Arizona thus far. The Courts are warming to the idea, but it is likely that a uniform approach will not be adopted, leaving the country in a morass of hoops to jump through before borrowers and lenders and investors can be brought to the table to put a stop to the downward slide. 

Under normal conditions, we would be the first to scream for better regulation, more enforcement and criminal prosecution arising from the massive fraud that killed the residential housing market, and severely damaged the rest of the credit markets worldwide. But we are of the opinion that this is an emergency that transcends normal government response. It is akin to the emergency of war where we are fighting for our very survival. Amnesty for every participant on the investor-lender side and on the borrower loan origination side is essential even if it gives a break to “speculators” and criminal minds that irresponsibly launched this plan to nowhere.

Only then will we demonstrate to central bankers around the world that we are serious about this crisis. Only then will they lose momentum is distancing themselves from the dollar.

LONDON (MarketWatch) - It’s official — overseas central banks stepped in Friday to prop up a beleaguered currency that’s been weighed down by an out-of-control financial sector and an economy on the rocks.

Sounds like the U.S. dollar, but actually, it’s the Iceland krona. See related story.

The central banks of Norway, Sweden and Denmark will each provide up to 500 million euros that the Central Bank of Iceland can swap for krona.

Of course, any central bank intervention to prop up the dollar would have to be done on a far larger scale than chucking in a bit more than $2 billion.

So understandably, the Bank of Japan and the European Central Bank reportedly have kept their ammunition so far to words and arm twisting. See related story.

And U.S. interest rates are just a touch lower than what’s on offer in Iceland — 2.25% compared to 15.5%.

But it’s worth noting that the intervention has worked, on the day at least - the currency is up over 4% against the euro.

If nothing else, the move by the Scandinavian central banks is a game plan that can be dusted off if the dollar really goes into meltdown mode.

– Steve Goldstein 

COUNTRYWIDE SUED FOR IMPROPER LENDING PRACTICES BY ITS SHAREHOLDERS: GOOD MATERIAL HERE FOR BORROWERS TO ALLEGE IN THEIR LAWSUITS AND DEFENSIVE ACTIONS

In these posts I am trying to keep pace with the events unfolding on the investor side of the Mortgage Meltdown. That is because these lawsuits are more sophisticated than the usual fair you find with lawyers representing individual borrowers in foreclosure defense, bankruptcy or non-judicial sales.

Our theme is simply this: lender practices went astray because of lack of supervision, failure of regulation, improper oversight by stockholders and congress, and direct collusion with the even more sophisticated Wall Street firms offering “securitization” of risk products that removed the risk element from the loan underwriting process. The result was predictable — lending standards not only fell, they were smashed under a cloud of plausiable deniability. 

countrywide_class_action_defense_stay_ord

Note the article below and in particular, the bold sections which this editor has added.

Judge Says Countrywide Officers Must Face Suit by Shareholders

Anyone reading this site will not find it surprising that the number of foreclosures is rising by unprecedented numbers at unprecedented rates. At the same time, the FBI is getting involved claiming mortgage fraud is on the rise at well.

Let’s tell it like it is: Until this scam was perpetrated by Wall Street on the American Public, the cases where people overstated their income or the value fo the house was manipulated were rarely far out of range of reality. It is only now that the major fraud of inflating stated fair market value by 40% or more that the FBI and lenders are looking for ways they can deflect attention to the cases where the borrowers actual numbers don’t match up to the original loan documentation.

Lenders should be careful what they wish for however. And the FBI is only doing a small part of its job, if it does not investigate the “fraud” of both lender and borrower. In most cases, the fraud case against the lender is more complex but far more egregious than anything the borrower did, all of which was well known to the lender,the mortgage broker and everyone else at the closing who didn’t care about anything except getting the borrower’s signature on those papers. 

Nobody cared and the borrower was clueless as to what was really happening. The lender was “underwriting” the loan knowing they had no risk. The mortgage broker knew he had steered the borrower into the loan that would give him the greatest commission and fees — the yield spread premium payments jumped geometrically during this period. The real estate brokers wanted the closing over because the higher the price, the greater their commission, and they wanted “closure” before the inevitable happened — a correction to real fair market values. The appraiser knew that he had to come in a little higher than the contract amount or he wouldn’t be hired again. And so on.

LOS ANGELES - More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values, a research company said Tuesday.

Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 65 percent from 147,708 in the same month last year and up 4 percent since March, RealtyTrac Inc. said.

Nevada, Arizona, California and Florida were among the hardest hit states, with metropolitan areas in California and Florida accounting for nine of the top 10 areas with the highest rate of foreclosure, the company said.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions.

One in every 519 U.S. households received a foreclosure filing in April. Foreclosure filings increased from a year earlier in all but eight states.

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with fewer options to avoid foreclosure. Many can’t find buyers or owe more than their home is worth and can’t get refinanced into an affordable loan.

Efforts by government and the mortgage industry to stem the tide of foreclosures aren’t keeping up with the rising number of troubled homeowners.

The April data show nearly half of the properties received an initial notice of default, suggesting many homes were new entrants to the foreclosure process.

“We’re still sitting at roughly the same percentage of loans handled in any way successfully as we were a year ago, and the volume (of foreclosure filings) still keeps going up,” said Rick Sharga, RealtyTrac’s vice president of marketing. “It’s apparent that what they’ve tried so far isn’t working.”

The U.S. House passed a bill last week that would offer government insurance on $300 billion in new mortgages to refinance loans for an estimated half-million borrowers facing foreclosure, particularly those who now owe more than their houses are worth because of declining values.

House lawmakers also passed a bill that would send $15 billion to states to buy and fix foreclosed homes.

Still, should the homeowner aid package clear the Senate, it faces a potential hurdle in the White House, which has threatened to veto the plan, arguing it’s too risky and amounts to a lender bailout.

Even if a legislative compromise is reached, it could come too late for homeowners with adjustable-rate mortgages scheduled to reset to higher rates this month and the next.

More than 1 million home foreclosures are forecast for 2008.

“It doesn’t look like the volume is going to slow down any time soon,” Sharga said.

More than 54,500 properties were repossessed by lenders nationwide in April. In all, about 2 percent of U.S. households were in some stage of foreclosure during the month, RealtyTrac said.

Still, as foreclosed properties pile up, they add to the inventory of homes on the market and can drag down home prices. The impact is felt mostly in regions where foreclosures are concentrated, such as Southern California, the Las Vegas area, South Florida and parts of Arizona.

Nevada posted the worst foreclosure rate in the nation, with one in every 146 households receiving a foreclosure-related notice last month, nearly four times the national rate.

The number of properties with a filing jumped 95 percent versus April last year but declined 5 percent from March.

California had the most properties facing foreclosure at 64,683, an increase of 112 percent from April 2007. The number of properties declined less than 1 percent from March.

The state posted the second-highest foreclosure rate in the country, with one in every 204 households receiving a foreclosure-related notice.

California metro areas accounted for six of the 10 U.S. metropolitan areas with the highest foreclosure rates, led by Merced, with one in every 66 households receiving a foreclosure notice.

Arizona had the third-highest foreclosure rate, with one in every 224 households reporting a foreclosure filing in April. A total of 11,620 homes reported at least one filing, up nearly 181 percent from a year earlier and up 26 percent from the previous month.

Like Las Vegas and inland regions in California, areas of Arizona saw a sharp run-up in speculator-driven home prices and new home construction during the housing boom.

Florida had 35,264 homes reporting at least one foreclosure filing last month, a 146 percent jump from a year earlier and a 17 percent hike from March. That translates into a foreclosure rate of one in every 242 households, the fourth-highest in the nation.

The other states among the 10 with the highest foreclosure rates in April were Colorado, Maryland, Georgia, Ohio, Michigan and Massachusetts.

TIME TO WAKE UP. EVEN IF YOU ARE NOT IN DEFAULT THE MORTGAGE MELTDOWN IS GOING TO HURT YOU UNLESS YOU ACT NOW. GET INVOLVED! THERE IS NO “MIDDLE GROUND”

Most projections put the number at over 20 million homes, which means that over 95% of the people negatively impacted by the mortgage meltdown either didn’t purchase or refinance their homes or if they did are not in default and think this situation will pass them by — after all “I’M NOT BEHIND IN MY PAYMENTS. I’M FINE!” No you are not!!! 

If this mess is not cleared up by aggressive government intervention you will permanently lose equity in your house, see your real estate taxes soar, and watch as inflation eats up that comfortable margin you think you have in income. 

Bernanke is no give-away liberal. He wants this because it is absolutely necessary and at that only a partial step. 

Write your congressmen and senators. We cannot afford stick our heads in the sand on this one on some ideological grounds protecting taxpayer bailouts or whatever. It doesn’t matter whether or not the mortgage meltdown started with borrowers being stupid or Wall Street being greedy. It happened. And now it’s a train wreck headed your way.

Anatomy of a Fight

Over Mortgage Bill

By JOSEPH SCHUMAN

THE WALL STREET JOURNAL ONLINE

A surge of partisanship has placed in jeopardy a bill aimed at helping homeowners who are at risk of foreclosure. But the political resonance of the issue could prompt the measure’s Republican critics and Democratic backers to find middle ground.

The bill would try to lower risks for both the lender and the borrower, by offering government-backed insurance to lenders willing to reduce the principal for loans made to some people who owe more on the property than the home is now worth. It passed through the House Financial Services Committee with 10 Republicans joining Chairman Barney Frank and the panel’s other Democrats. But after President Bush yesterday came out and threatened to veto the bill, Republicans threw up legislative roadblocks to keep the measure from the House floor, as the New York Times reports. Mr. Bush says the bill would “reward speculators and lenders” without making a big dent in the country’s mortgage and housing-market crisis. Moreover, Republicans argue, it means taxpayers could be stuck with bad loans newly insured by the Federal Housing Administration. But the issue is more complicated than that.

Wall Street Journal columnist David Wessel boils down the debate to a question of whether Washington should push the lenders to help Americans whose home values sank below the size of their mortgages “even if it may cost taxpayers some money,” with the White House saying “No!” and Mr. Frank, quietly backed by Federal Reserve Chairman Ben Bernanke, saying “Yes!” Citing research from Economy.com, Mr. Wessel puts the number of families with such “underwater” mortgages at about four million, and notes that number is predicted to reach around 12 million by early next year. While many of those families will keep paying their mortgages, “many won’t, and are at risk of losing their homes,” he says. Since “no one in Washington wants to help the ’speculators’” who bought homes as investments, and most there agree people who bought houses they can’t afford are probably beyond aid, “the debate revolves around the ‘preventable foreclosures,’” he adds.

And no one, from the homeowners to the lenders to the politicians and economists like Mr. Bernanke, wants to let “preventable foreclosures” go unprevented. The bill, while crafted to exclude people who don’t need the help or wouldn’t benefit, “could allow some homeowners to get a deal they don’t deserve; that’s the unfortunate byproduct of any rescue,” Mr. Wessel notes. But the Treasury and Fed, he argues, “surrendered the let-the-market-work-it-out high ground when they agreed to risk nearly $30 billion of taxpayer money to shield Bear Stearns, its creditors and counterparties from losses.” Democratic legislators yesterday were mentioning the Bear Stearns bailout again and again.

The housing downturn is an economic problem with as much political resonance as gas prices, and if no relief is provided, it could be a poignant issue ahead of November’s elections. Even as Mr. Bush was threatening a veto yesterday, Keith Hennessey, director of the White House National Economic Council, was saying the differences between congressional Democrats and the administration aren’t “insurmountable,” the Journal reports, adding that this leaves the door open for an eventual deal.

Today we have a bill pending that stops the meltdown. It is a courageous and creative step that protects all parties. It requires YOUR input, so pass this along to as many other people as you can. This is much more than a step in the right direction. It would be nice to see support from the presidential contenders as well.

Write your congressmen and women and get this thing passed. The Senate and House are standing on the line between mayhem and an orderly society and have taken the right steps. The rest is up to you.

It isn’t perfect, but the bill would do more to stem the tide of foreclosures, evictions and declining home prices than anything else on the table. It will protect your home equity, it will stabilize the economy, and it will give the U.S. dollar just the shot of confidence it needs to slow the rising threat of hyper-inflation.

Call and write your congressman/woman, call and write your senators, flood them with emails.

This is not about the morality of or ideology of whether it was more the fault of one group over another. This is about the practicality of holding our society together. Nothing is more important to the your lifestyle than this bill no matter who you are.

Mortgage Aid Plan Advances in House

Mortgage Meltdown: Strategies for Defense and Settlement: Short Sales

Borrowers, whether they are in foreclosure or not, are advised to write letters to their lenders claiming violations of law and their closing documents. The various causes of action and the advice to get an “audit” done of your loan have been detailed here for several months and are available by scrolling, search, or find commands. 

I would add to the list a demand and potentially an offer for pre-approval of a short-sale based again on the lender’s participation to defraud you by collaborating in a plan wherein it abrogated its fiduciary responsibilities to you, actually acted against your interests and in so doing mislead you into thinking that the Fair market value of your home, your financial condition, or both were sufficient to justify the loan and loan terms.

Keep in mind that short-sales are coming into increasing favor with regulators even while the lenders and investors in CMOs/CDOs are balking. The dam will break in your favor.

A short sale is simply a sale of property that would carry a price less than the amount owed on the property. It is used mostly in cases where there was little or no down-payment, or where negative amortization was employed that resulted in a higher mortgage balance than the borrower started with.

However it can be used in other setting as well. The problem has been that real estate brokers now won’t touch short sales and neither will most buyers because of the ornate and and frustrating “approval” process from the lender, who has its own problem: the lenders have in nearly all cases, sold off the obligation to investment banks or in turn re-marketed them to government purchasers, pension funds etc., under the guise of AAA ratings that were procured by forming personal relationships with the people working for rating agencies and by providing financial incentives to the rating agencies coupled with economic duress of losing a “client” if the rating agency did not bend.

Thus the lender is frequently without leverage to or even authority to offer approval or permission regardless of its own assessment, because the true owner of the obligation is either not returning calls or is actually unknown to the lender. It is the fact that the true owner is unknown that is enabling borrowers to (a) challenge standing in foreclosures thus dismissing the foreclosure or stopping the judicial sale of the property and (b) sometimes getting the house for nothing. 

It is suggested that you demand pre-approval for a short sale that amounts to the cumulative total of the following list — and keep in mind that by combining this with allegations of TILA violations and the other claims we have suggested on livinglies.wordpress.com, you are threatening them with TOTAL loss of the loan and investment so you are more likely to get their attention:

1. Your down payment
2. Additional money you spent on the house as a result of taking ownership or re-financing
3. Points paid on the loan
4. All interest paid on the loan
5. The loss in fair market value measured by the the appraised value at the top, minus the current value on sale, after a 6% real estate commission and various other seller expenses.

Example: 

• You bought a house for $630,000 and you made a down payment of $130,000. (Fill in your own figures to figure this out for yourself). 
• The house was appraised at $650,000. 
• You took a loan for $500,000, paying 
• $15,000 in points and thus far you have paid 
• $35,000 in interest. 
• You also made improvements to the house that you can’t take with you of another $25,000. 
• If you sell the house now you can’t get more than $480,000, which after commissions and other costs will net $450,000 (loss of $200,000 from “benefit of the bargain”). 
• In your letter or pleading defending or foreclosure or challenging the lender without foreclosure pending, you will ask for pre-approval for a short sale discounting their loan to you to $95,000. 
• This will enable you to sell the house for a net of $450,000 if you choose to, give the lender $95,000, who will give the investing pool the $95,000 less servicing fees with a “sorry Charlie” letter. 
• You will net $355,000 on the deal, which pretty much makes you whole after the entire sorry affair.

The lender will do one of three things: They MUST answer you within 20 days under Truth in Lending laws. They will deny your request and offer you something else assuming you cite specific violations of the  truth in lending laws and make the allegations we have recommended here. They will agree to your proposal. Or they will negotiate with you. If they start negotiating, realize that you hit a nerve and you are sitting in the driver’s seat. You might be very pleasantly surprised by the outcome. 

Picked these up from foreclosureslam.com.

The first point that the lender might not have standing is correct.

The second point that the reason is that the person does not have a valid assignement is also correct but only half the story.

1. The other half of the story is that if your original lender is the Plaintiff in your foreclosure action or is otherwise taking the position that property can be sold (e.g. in Arizona where civil procedure more or less works in reverse) the same argument can be made. 
2. Unless the lender shows that they are STILL the owner, they have no standing. 
3. AND more likely than not, they are NOT the owner because most loans were sold into pools that were in turn sold to investment bankers who in turn bundled them and sold deriviative securities (Collateralized mortgage obligations). 
4. THE GREAT LIKELIHOOD IS THAT THE PAPERWORK WAS NEVER DONE PROPERLY ON THE LENDER-INVESTOR SIDE. A MOTION TO DISMISS SAYS SOMETHING LIKE THIS:

• COMES NOW the borrower and moves this court to dismiss the instant cause of action (or in other stages, to enjoin the sale of the subject property) on the grounds that the Court lacks subject Matter and in personnam jursidiction, to wit: the alleged lender is not the owner of the mortgage note and security agreement, has not alleged or attached documetnation supporting said fact and thus lacks standing to pursue foreclosure or sale of the subject property.
• Then you sign your name and send a copy of your motion to the lawyer on the other side, the original to the clerk of the court, and a copy to the Judge assigned to the case. Call the Judge and ask for a hearing date. 
• Make sure at the end of your pleading you say” I HEREBY CERTIFY that a true and correct copy of the foregoing Motion to Dismiss was sent to (fill in name of lawyer) at (fill in his/her address) this ___ day of (Fill in Month, 2008. And then sign it again. 
• Although probably unnecessary it might be wise to get your signature notarized.
• I guess at this point I’m supposed to say consult with an attorney in your area for local rules, procedures and laws. There, I said it.

Can You Contest Your Foreclosure?

Submitted by Harry on Mon, 03/03/2008 - 01:45.

   There is a recent trend, fueled by the unscrupulous practices of lenders, in which homeowners are contesting their foreclosures. How and why is this done?

    In many cases the party who wrote your loan is no longer the party who is now alleging ownership. This fact provides the first method for contesting a loan in foreclosure. Simply put, homeowners are forcing the lender to provide proof that they actually own the loan. Since many loans are sold in mortgage “pools” ”there is a tendency of many lenders to sell these pools without following formal legal requirements required for the sale of a mortgage and note. Basically, there must be executed by the lender selling the loan an “assignment” which indicates that ownership is being transferred. When they sell pools of hundreds or even larger pools of mortgages in the normal course of business, many sales forego this necessary legal step. In doing so, lenders who acquire the loans really don’t have what’s known as “legal standing” to bring the action for foreclosure in the first instance. As such, many courts are dismissing foreclosure actions after homeowners have hired sharp attorneys who are making the argument that without providing the court with a signed assignment the party suing has no standing. In the case of lenders who are selling these mortgage pools and then going defunct, it makes it virtually impossible for the party who bought your loan to acquire the necessary signed assignment after the fact. That means that there is no party who can actually foreclosure on your home. This has resulted in a windfall for many homeowners, whose debt is essentially reduced to nothing. Many Judges are in fact dismissing foreclosure actions when there is no valid assignment.

Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish 
By Bob Ivry

Feb. 22 (Bloomberg) – Joe Lents hasn’t made a payment on his $1.5 million mortgage since 2002.

That’s when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents’s mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

“If you’re going to take my house away from me, you better own the note,” said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven’t been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.

“I think it’s going to become pretty hairy,” said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. “Regulators appear to have ignored this, given the size and scope of the problem.”

More than $2.1 trillion, or 19 percent, of outstanding mortgages have been bundled into securities by private banks, according to Inside Mortgage Finance, a Bethesda, Maryland-based industry newsletter. Those loans may be sold several times before they land in a security. Mortgage servicers, who collect monthly payments and distribute them to securities investors, can buy and sell the home loans many times.

Housing Boom

Each time the mortgages change hands, the sellers are required to sign over the mortgage notes to the buyers. In the rush to originate more loans during the U.S. mortgage boom, from 2003 to 2006, that assignment of ownership wasn’t always properly completed, saidAlan White, assistant professor at Valparaiso University School of Law in Valparaiso, Indiana.

“Loans were mass produced and short cuts were taken,” White said. “A lot of the paperwork is done in the name of the original lender and a lot of the original lenders aren’t around anymore.”

More than 100 mortgage companies stopped making loans, closed or were sold last year, according to Bloomberg data.

The foreclosure rate, at 1.69 percent of all U.S. homeowners, is the highest since theMortgage Bankers Association began tracking it in 1993. The foreclosure rate for subprime borrowers, who have bad or incomplete credit and whose mortgages typically are securitized by private banks rather than government-sponsored entities Fannie Mae and Freddie Mac, is at a four-year high, according to the mortgage bankers.

750,000 Homeowners

More than 1.5 million homeowners will enter the foreclosure process this year, said Rick Sharga, executive vice president for marketing at RealtyTrac Inc., the Irvine, California-based seller of foreclosure information. About half of them, 750,000, will have their homes repossessed, Sharga said.

Borrower advocates, including Ohio Attorney General Marc Dann, have seized upon the issue of missing mortgage notes as a way to stem foreclosures.

“The best thing to do is to keep people in their homes and for everybody to take steps necessary to make that happen,” said Chris Geidner, an attorney in Dann’s office. “These trusts are purchasing these notes, and before they even get the paperwork, they foreclose on people. They become foreclosure machines.”

Lost-Note Affidavits

When the mortgage servicers and securitizing banks that act as trustees of the securities fail to present proof that they own a mortgage, they sometimes file what’s called a lost-note affidavit, said April Charney, a lawyer at Jacksonville Area Legal Aid in Florida.

Nobody knows how widespread the use of lost-note affidavits are, Charney said. She’s had foreclosure proceedings for 300 clients dismissed or postponed in the past year, with about 80 percent of them involving lost-note affidavits, she said.

“They raise the issue of whether the trusts own the loans at all,” Charney said. “Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule.”

State laws generally make it difficult to foreclose because they favor the homeowner, saidStuart Saft, a real estate lawyer and partner at the New York firm Dewey & LeBoeuf LLP.

“All these loan documents are being sent to the inside of a mountain in the middle of America and not being checked very carefully,” Saft said. “The lenders can’t find the paper. We’re dealing with a lot of paper produced in a mortgage closing.”

`Waste of Time’

Requiring banks to produce the paperwork at a foreclosure hearing is a nuisance, saidJeffrey Naimon, a partner in the Washington office of Buckley Kolar LLP.

“It’s a gigantic waste of time,” Naimon said. “The mortgage may have transferred five, six, eight times. It’s possible that you don’t have all the pieces of paper, but it was enough to convince the next guy in the chain. There’s no true controversy over whether the owner owns the loan.”

Judges are becoming increasingly impatient with plaintiffs who produce no more proof of ownership than a lost-note affidavit or a copy of the note, said Michael Doan, an attorney atDoan Law Firm LLP in Carlsbad, California.

“Things are heating up,” Doan said.

In Ohio, where RealtyTrac reported an 88 percent jump in foreclosures last year, Dann, the attorney general, is now arguing 40 foreclosure cases that challenge ownership of mortgage notes, according to his office.

`Cavalier Approach’

U.S. District Judge David D. Dowd Jr. in Ohio’s northern district chastised Deutsche Bank National Trust Co. and Argent Mortgage Securities Inc. in October for what he called their “cavalier approach” and “take my word for it” attitude toward proving ownership of the mortgage note in a foreclosure case.

John Gallagher, a spokesman for Frankfurt-based Deutsche Bank AG, said the bank had no comment.

Federal District Judge Christopher Boyko dismissed 14 foreclosure cases in Cleveland in November due to the inability of the trustee and the servicer to prove ownership of the mortgages.

Similar cases were dismissed during the past year by judges in California, Massachusetts, Kansas and New York.

“Judges are human beings,” said Kenneth M. Lapine, a partner at the Cleveland law firmRoetzel & Andress LPA. “They no doubt feel the little guy needs all the help he can get against the impersonal, out of town, mega-investment banking company.”

Warning Plaintiffs

U.S. Bankruptcy Judge Samuel L. Bufford in Los Angeles issued a notice last month warning plaintiffs in foreclosure cases to bring the mortgage notes to court and not submit copies.

“This requirement will apply because developments in the secondary market for mortgages and other security interests cause the court to lack confidence that presenting a copy of a promissory note is sufficient to show that movant has a right to enforce the note or that it qualifies as a real party in interest,” the notice said.

Quick foreclosures benefit communities because properties in default lose value and homeowners in financial distress don’t maintain their houses or pay real estate taxes, said Saft of Dewey & Leboeuf.

Painted as the Enemy

“When banks originally made the loans they used people’s money from pension funds and savings accounts and they should be allowed to foreclose the loan as quickly as possible before the property depreciates in value any more,” Saft said. “The mortgage industry has been painted as the enemy when all they did was make loans to enable people to buy homes. Now there’s less money available for new borrowers to buy homes and that’s what’s causing the value of homes to go down.”

Lents is former CEO of Investco Inc., a Boca Raton, Florida-based developer of voice recognition software. In 2002, the U.S. Securities and Exchange Commission sanctionedLents and others for stock manipulation, according to the SEC Web site. He lost his job, was fined and his assets were frozen. That’s the reason he couldn’t pay his mortgage, he said.

“If the homeowner doesn’t object to the lost-note affidavit, the judge rubber-stamps it,” Lents said. “Is it oversight, or are they trying to get around the law?”

Washington Mutual spokeswoman Geri Ann Baptista said the bank had no comment.

Looking for Loopholes

“I can’t believe the handling of notes is worse than it was five years ago,” said Guy Cecala, publisher of Inside Mortgage Finance. “What we didn’t have back then were armies of attorneys out there looking for loopholes. People are challenging foreclosures and courts are paying a lot more attention to foreclosures than they ever did before.”

American Home Mortgage Investment Corp., the Melville, New York-based lender that filed for bankruptcy last August, said it was paying $45,000 a month to store loan paperwork and petitioned U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware, for the right to toss it all. Sontchi ruled last week that American Home Mortgage could charge banks from $3 to $13 a file to retrieve documents.

The home-loan industry has had a central electronic database since 1997 to track mortgages as they are bought and sold. It’s run by Mortgage Electronic Registration System, or MERS, a subsidiary of Vienna, Virginia-based MERSCORP Inc., which is owned by mortgage companies.

No Tracking Mechanism

MERS has 3,246 member companies and about half of outstanding mortgages are registered with the company, including loans purchased by government-sponsored entities Fannie Mae, Freddie Mac and Ginnie Mae, said R.K. Arnold, the company’s CEO.

For about half of U.S. mortgages, there is no tracking mechanism.

MERS rules don’t allow members to submit lost-note affidavits in place of mortgage notes, Arnold said.

“A lot of companies say the note is lost when it’s highly unlikely the note is lost,” Arnold said. “Saying a note is lost when it’s not really lost is wrong.”

Lents’s attorney, Jane Raskin of Raskin & Raskin in Miami, said she has no idea who owns Lents’s mortgage note.

“Something is wrong if you start from what I think is the reasonable assumption that these banks are not losing all of these notes,” Raskin said. “As an officer of the court, I find it troubling that they’ve been going in and saying we lost the note, and because nobody is challenging it, the foreclosures are pushed through the system.”

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: February 22, 2008 00:03 EST 

DO NOT Walk Away From Your Home

Whether Krugman is right in today’s New York Times, predicting a massive bailout between $450 billion and $3 trillion at taxpayer expenses, or the “free marketers” have their way and let everyone collapse, or some people finally get it and move toward a consensus of policy that forgives everyone their transgressions but keeps them in the game as we have suggested repeatedly in these posts, it is clear that perception of risk, trust, confidence and integrity has been changed. This change will be reflected in world and domestic financial markets rights down to a car loan, credit card, home equity loan or business loan. 

• The recent rise of ankle biting between home equity lenders (many of whom have frozen home equity loan accounts making the credit limit unavailable to borrowers), borrowers and fist mortgage lien holders on short and long sales and refinancing, shows what has happened: Nobody trusts anybody anymore and credit is going to decline not only because of availability of money, not only because of viability of short-term credit instruments and the auction markets that drive them, but because rising borrower distrust of all lenders for all reasons is going to lower demand for credit.
• Just as there isn’t enough money in the world to bailout everyone in this mess, there isn’t enough equity, income or assets to cover the credit that exists, much less putting on more. But more is what we are getting in the form of inflation fueled by the Fed churning out money supply like it was candy from a machine.
• Borrowers seem to have learned that what lenders tell them can’t be trusted. It is a valuable lesson. They are realizing that lenders have a vested interest in keeping borrowers in debt and to maximize the debt of every man, woman and child in the United States. 
• The number of homes going upside down either because of overvaluation of the home for purposes of the purchase money mortgage or over valuation for purposes of home equity loans is increasing daily. Sorry to hit a sore point but the chickens are coming home to roost. The motivation of change lifestyle from home owner to renter has never been greater. It seems likely that people will do just that.
• This might be a paradigm change that could forever change the landscape of the American economy. retail buying sprees of things that nobody needs, and that nobody wants after they make their purchase, are on the decline. They might be on their way out as a way of life. That accounts for 70% of the U.S. economy.
• This new perception of risk and the new distrust, have taken on the same dynamics as the politics of division which was bound to be reflected in the marketplace eventually. Basic assumptions and formulas currently used in economics are now cast under a cloud of doubt, as are the policies based on current assumptions and current measurements of things that might not matter as much in the future as they did in the past.
• Doubt and uncertainty create bad environments for doing business, investing and living. We might be in for some hard times, but it is probably high time for the AMerican economy to “get real.”

Perusing Credit Suisse’s latest proposal on Capital Hill, which expands Federal guarantees on mortgages, there is good news and bad news. Good that the severity of the problem is becoming more apparent to those with their fingers on the levers of power. Good also that Credit Suisse, while obviously seeking to protect itself, has at least addressed the issue of turning back the decline in the housing market. Good also that their assumption is that it is possible to turn back the decline. Bad that the assumption is still that foreclosures are going to proceed at a rapid clip.

Foreclosures on primary residences should not proceed, period. Political questions of who should qualify and who shouldn’t based upon political ideology should be put aside for the moment. There is no time to carve out language that satisfies a political consitutency. The housing market is in dire trouble and the threat to to the security of the nation is clear and present.

At this point the extremity of the situation makes the analysis increasingly simple and separate from politics: The cost of foreclosure and evictions to the economy and the taxpayers (and incidentally Credit Suisse), vastly exceeds the cost of keeping people in their homes, for the time being, at all costs. This obvious number crunching fact is evading the geniuses at Credit Suisse and all the other players.

They are assuming they can’t actually stop the foreclosures. Yes they can. They are factoring in a vast number of evictions becasue they are “inevitable.” Wrong again. Of course these points elude the geniuses who came up with the scheme that got us into this mess. The reason is that they are (1) crunching the wrong numbers and (2) not taking a broad enough view of the marketplace.

It is in the interest of every party effected to stop the foreclosures and evictions. The details of the workout are practically irrelevant except to say that the borrower must be convinced to stay put. At this point, any successful plan must include incentives for borrowers to reaffirm, modify or negotiate their payments and stay in the house they purchased. It might even apply to homes purchased speculatively at this point, although I admit that is a push too far for most people to accept. If you look at the economy as a whole and ask “what would be the best result if we had total control?” the answer is obvious — no defaults.

Remove defaults and the entire problem goes away. There is no time for political debate. Either this premise is accepted and acted upon right now or the worst case scenario IS inevitable. remove de faults and there are no write-offs. In fact, some of the write-offs can be recovered. Put a plan in place that contains incentives for EVERYONE (including government) to share the burden, and you have a working plan. The basic flaw of every plan proposed so far by anyone is that it focuses on one group or sector. That is no plan. It is an escape hatch that will allow the proponents to jump from the frying pan into the fire.

The ONLY plan is one which provides adequate incentives to all players —- borrowers, lenders, closing agents, mortgage brokers, lawyers, accountants, investment bankers, securities brokers, investors, fund managers, rating agencies and bond insurors. The plan does not need to be perfect to work. In order for it to START working it must first keep people in their homes.