New Republic contributor David Dayen’s book Chain of Title focuses on three individuals in South Florida—cancer nurse Lisa Epstein, car dealership worker Michael Redman, and Lynn Szymoniak, a lawyer specializing in insurance fraud—who stumbled upon the biggest consumer fraud in American history. They did so after they fell into foreclosure, and realized that all the documents they were sent by their mortgage companies—the evidence being used to kick them out of their homes—were fake. It turned out that the industry broke the chain of title—the chain of ownership, really—on millions of securitized mortgages, and were using false documents to cover it up.
As they researched this, they discovered that they were not alone. In fact, perhaps the first person to identify, fight, and broadcast his struggle against the mortgage industry and its various crimes was a guy named Nye Lavalle—nearly 20 years before the housing bubble and the financial crisis that resulted from its collapse. Lisa, Michael, and Lynn eventually sought out and worked with Lavalle as they tried to expose the epidemic they called foreclosure fraud. In 2010, Lavalle played a major role in getting JPMorgan Chase to admit that they were delivering documents with improper signatures into courtrooms across the country. But prior to any of that, Lavalle was just a guy who bought a house, and became conscripted into a fight he didn’t want over crimes he never knew possible.
Nye Lavalle’s story follows a trail that many other citizen activists walked after suffering the sting of foreclosure. The difference was that he had the perseverance to keep going—for more than a quarter-century. If people in power had listened to Lavalle, we could have had a different outcome from the crisis than millions of people losing their homes and no accountability for those who facilitated it. This excerpt tells how he uncovered the workings of the Great Foreclosure Machine—and tried to warn the world before the Great Recession hit.
It was 1989—before the housing bubble, even before the savings and loan industry blew up. Nye Lavalle was the great-grandson of an Argentinian president (Teatro Colon, one of the world’s finest opera houses, sits on a Buenos Aires square named Plaza Lavalle, after his ancestor) who successfully managed professional tennis players in the 1970s. Nye’s father, Ramon, was a diplomat, tight with the Kennedys and Ernest Hemingway. Ramon left Argentina to work in the Office of War Information during World War II, eventually becoming an executive vice president at the pharmaceutical firm Parke-Davis. Nye grew up in the tony suburb of Grosse Pointe, Michigan, and his dad liked to take him to inner-city slums in Detroit and New York City, telling him that people born into privilege had a duty to look out for those less fortunate.
In the 1980s Nye founded a consultancy and research firm called the Sports Marketing Group (SMG), which published groundbreaking studies into the popularity and viewing audiences of American sports. For many years he was a go-to analyst on sports trends and predictions, quoted in papers across the country. He called the rise of figure skating and NASCAR in the 1990s, and advertisers salivated over his detailed analysis. Nye’s business successes accompanied a flamboyant style. He dressed sharply, laughed big, and was never at a loss for dates, as he would tell you. One friend quipped that, with his monogrammed blazers, he looked like the captain of a ship, minus the hat.
At that point he would never have imagined that he would become a driving force in a grassroots movement to expose Wall Street malfeasance.
In 1989 Nye was building his business, running part of it out of a home in Dallas purchased for his parents, Anthony and Matilde Pew (his father, Ramon, died young, and his mother remarried). Savings of America (SOA), predecessor to the crisis-era lender Washington Mutual and the nation’s largest S&L, owned and serviced the loan. Though the Pews instructed SOA to send monthly statements to their primary home in Michigan, the company would either send them to Dallas or not at all. Nye paid the mortgage directly at an SOA branch. But SOA would mail the check to a servicing center, and by the time it got delivered to the proper division, the payment would be late. Nye protested that he held the check receipt, showing delivery well before the due date, but SOA would tack on a late fee anyway.
Nye started talking to banker clients—he represented Barclays and Visa in his consulting firm—about these nickel-and-dime schemes. Loan servicers were mostly automated, with software programs tracking payments and ringing up fees. They were paid through a small percentage of the principal balance on the loans they serviced; they also earned “float,” from investments made in the time between receiving monthly payments and sending them to investors. Most important, they kept all fees generated through servicing. Fees represented the only real variable, creating a big incentive to make customers delinquent. And the software could be dialed to increase fees and maximize profits.
Savings of America’s next attempted cash grab on the Pew home would become a commonplace scam in the bubble years, known as force-placed insurance. Homeowners are required to hold property insurance, so whenever that lapsed, servicers automatically enrolled them in an overpriced replacement policy, taking a kickback from the insurer in exchange. Homeowners suddenly got a giant charge for junk insurance automatically deducted from their mortgage payment. Force-placed insurance served a dual function: It racked up profits for the insurer while making homeowners late on their full payment, leading to more fees. In this case, SOA’s software program force-placed the Pew house into homeowner’s insurance whenever the policy came within 30 days of expiration. This happened three times on the same loan, with SOA force-placing additional policies on top of the old ones, charging for each by deducting from the monthly payment. All the insurers who imposed new policies on the residence were actually owned by the same parent company as SOA.