Dylan Ratigan had on the lady whose house was broken into by banksters the other day, and he quoted Alan Grayson with the key statement: “Breaking and entering does not become legal just because a big bank does it.” The lady had no warning on this, is not in foreclosure, and is working on a loan modification. Alan Grayson’s full statement, from yesterday:

“First we see systemic fraud in the foreclosure process. Now we’re literally seeing banks breaking into people’s homes and terrifying homeowners. The big banks claim these confrontations are a result of innocent errors. Come on! How many times are we going to force a woman to cower in her bathroom for fifteen minutes and dial 911 while a man breaks into a home, before we do something about it?

Breaking and entering does not become legal just because a big bank does it. The rule of law must apply equally to everyone. It’s long past time to halt this blatantly illegal activity. We need investigation and law enforcement, not coddling of failed institutions. We need justice for all.”

More here. Now, I’m searching to figure out how e-signatures and out-of-state notaries impacts this in any way.

I grant that foreclosure lawyers could potentially, if this statute gets signed into law and interpreted broadly, lose a tool to pry open the fraud, or have an additional burden of proof. And the bigger problem is what we’re seeing throughout the legal profession, where defendants cannot find the means to keep these cases going. But what we’re dealing with in relation to foreclosure fraud, with confusion of title ownership and the terrible electronic securitization processes and breaking and entering and all of these other issues, is so big, and the evidence so widespread, that I don’t know if it can be slowed down.

What needs to be done is clear. Yes, there needs to be better financial regulation, and this is an instance where Elizabeth Warren needs to pick up the white courtesy phone. If the CFPB is really the first real agency of the 21st century, then it needs to be equipped to deal with the still-unfolding crisis of the 21st century, the fraud at the heart of Wall Street. Whether the agency is fully stood up or not, if Warren has the ear of both the Treasury Department and the President, she has the ability to ameliorate this process. Which could start immediately with the issue of HR 3808.

But more than that, I think Atrios hits the nail on the head:

While it doesn’t address the specific legal issues surrounding the foreclosure mess, you could reduce the foreclosure mess by… reducing foreclosures… and you could do so in a fair way which hits both lender investor and borrower by allowing bankruptcy judges to deal with all of this. Won’t help the servicers, but they’re just predators at this point.

It was a good idea four years ago. If it was implemented the magnitude of this mess would have been greatly diminished. It’s still a good idea now.

Whether HR 3808 does the job that some fear is its intent or not, there are enough questions in enough courts to tie up the foreclosure process for years. And so moving to affordable modifications instead of losing money month after month on the property may be seen by the servicers as a better deal. As I mentioned earlier, Wells Fargo just today agreed to modify at least 4,000 loans to settle a deceptive loan claim:

Wells Fargo Bank has agreed to a settlement with attorneys general in Florida and seven other states after an investigation into deceptive marketing practices of loans made by its Wachovia Bank subsidiary.

That settlement includes a loan modification plan for about 4,000 Florida borrowers and a $10.2 million payment to Florida to help with foreclosure relief.

Payment option adjustable-rate mortgages, marketed by Wachovia as “pick-a-pay loans,” were one of the most toxic mortgage designs of the financial meltdown. They allowed borrowers to pay less than the monthly interest payments and let the balance of the mortgage increase until, finally, the loan resets and the borrower must make full interest and principal payments. This often causes a huge jump monthly payments and results in a mortgage that is severely underwater.

Think of the foreclosure fraud crisis as this little lawsuit magnified to the nth degree. Banks like Wells may take the same way out. Cramdown would help, but just staring the endless lawsuits in the face could cause the banks to blink.

David Dayen

David Dayen