By Andrea Riquier
Imagine the immense stack of papers that accompanies a home purchase closing.
Excited home buyers sign, sign, and sign some more. They sign even more now since the 2015 introduction of new regulations required by Dodd-Frank known as “know before you owe,” or TRID.
But does anyone actually read the documents being signed?
One woman did. In 2007, Lisa Epstein was closing on a mortgage with her husband for a new house. One problem was that she was pregnant. She could only read about five pages of the closing documents before having to excuse herself to run to the bathroom, wrote David Dayen in his book “Chain of Title.”
But another, bigger problem, Dayen noted, was that Epstein, a nurse, had no clue what she was reading. She wanted to appear responsible and she wanted to understand the process, but it was beyond her.
Besides, Lisa had a fallback in mind if there was ever a problem with the house: she already owned a condo. It was early 2007 in Florida. If she needed to, she should have no problem selling the condo for lots of money, right?
In many ways, the closing documents symbolize the structure and authority that the housing finance market creates, Dayen told MarketWatch in an interview. “I think the closing process is like the psychological way in which you’re taught that this is a very deliberate process that you can trust,” Dayen said.
But in the housing bubble of the mid-aughts, he said, “The fact that you couldn’t is the heart of the problem.”
The book describes how Epstein, who had a 803 credit score, was funneled into a subprime mortgage without realizing it. The loan was interest-only for 10 years, at which point principal payments would begin and the interest rate would increase.
And as Epstein would soon find out, no one wanted a condo in Florida in mid-2007.
Epstein wasn’t the only victim of dubious lending practices in the bubble, of course. But “Chain of Title” makes a broader point. The entire housing finance system was built on faulty, if not fraudulent, documentation, Dayen argues. Lenders cut corners, ignored regulations, and faked signatures to get as much fodder for the securitization machine as they could when the bubble was inflating. When it burst and the foreclosure crisis began, they repeated the process on the way back down…………………………
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