Lawsuit Reveals Wall Street Banks Lied Because They Couldn’t Prove Ownership
The unsealing of a lawsuit has let a big cat out of the bag vis-à-vis the housing crisis. Many wondered why the banks were engaging in fraudclosure or the creation of fraudulent documents to foreclose on homeowners. There were various speculations but thanks to FDL alum David Dayen one of the theories just got a lot more weight – the banks made up documents because they could not establish legitimate ownership.
If you know about foreclosure fraud, the mass fabrication of mortgage documents in state courts by banks attempting to foreclose on homeowners, you may have one nagging question: Why did banks have to resort to this illegal scheme? Was it just cheaper to mock up the documents than to provide the real ones? Did banks figure they simply had enough power over regulators, politicians and the courts to get away with it? (They were probably right about that one.)
A newly unsealed lawsuit, which banks settled in 2012 for $95 million, actually offers a different reason, providing a key answer to one of the persistent riddles of the financial crisis and its aftermath. The lawsuit states that banks resorted to fake documents because they could not legally establish true ownership of the loans when trying to foreclose.
So much for property rights. Was not the entire point of free market capitalism to establish clear lines of ownership? In other words, if a person claimed to own something, then that person should be able go to court and prove it. Otherwise the entire system doesn’t work, right?
It is an amazing and tragic admission of the asymmetries of power in America that Wall Street has been able to snatch millions of homes from middle class and poor Americans despite not being able to establish legitimate ownership. The system is against them.
Most of official Washington, including President Obama, wants to wind down mortgage giants Fannie Mae and Freddie Mac, and return to a system where private lenders create securitization trusts, packaging pools of loans and selling them to investors. Government would provide a limited guarantee to investors against catastrophic losses, but the private banks would make the securities, to generate more capital for home loans and expand homeownership.
That’s despite the evidence we now have that, the last time banks tried this, they ignored the law, failed to convey the mortgages and notes to the trusts, and ripped off investors trying to cover their tracks, to say nothing of how they violated the due process rights of homeowners and stole their homes with fake documents. The very same banks that created this criminal enterprise and legal quagmire would be in control again.
Obama’s plan is to run the exact same program again and hope for different results. It would be insane if he actually cared about fixing the housing market, but the reality is the Obama Administration has always seen its real constituents as the banksters, not the public at large, which is an unsurprising result of stacking the government with Wall Street bootlickers.
The truth is, this has nothing to do with the law. Wall Street is well above it. This is a struggle for power and whether Wall Street will continue to call the shots while suffocating the country into debt slavery. Power is a zero sum game, for the public to win, the banks must lose.
Photo from Nick Anfinsen under Creative Commons license.