Friday, October 28, 2011


Lawyer accused of mortgage-related fraud sues attorney general

Jeff Turner/Flickr
Los Angeles-area attorney Mitchell J. Stein refers to himself as "The Doberman" and his website advertises, "You Hold The Leash."
In August, California Attorney General Kamala Harris raided Stein's offices and accused him and other lawyers of fraudulently misleading thousands of struggling homeowners into paying to be part of mass lawsuits against mortgage lenders like Bank of America.
But Stein sued back, after warning on his Twitteraccount that "The Doberman is about to take a large bite out of Kamala Harris." Stein has accused the attorney general of being "the pawn of America’s most powerful banks,” claiming that Bank of America "corruptly funneled money" to Harris, according to one of his lawsuits.
As the legal sparring continues, the alleged fraud victims are running out of time.
Virginia Hosking received a notice last week directing her to vacate her foreclosed Whittier house within three days.
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"Now I’m sitting here freaking out, afraid to walk out my front door in case they come lock me out," Hosking said.
Hosking said her husband had just passed away and she was facing foreclosure last year when she paid $4,000 to another law firm targeted in Harris' fraud suit.
Hosking said she was told that joining the lawsuit against her mortgage lender, Bank of America, would help save her house. At some point, Stein's firm, which has been suing Bank of America since 2009, took charge of Hosking's case.
The attorney general accused the lawyers of deceiving homeowners into thinking that the lawsuits would stop foreclosures or reduce their mortgage payments. In a press conference announcing the action, Harris called it "work that will bring justice to many homeowners in California who were targeted by predators who happened to have a law license."
Stein, who signs e-mails with a picture of a Doberman pinscher, claims that he is "Bank of America’s biggest nightmare" and that Harris' suit puts struggling homeowners at risk.
He points out that Harris received four donations in February, totaling $1,500, from attorneys with the law firm representing Bank of America.
Stein's recent lawsuit accuses Harris of doing the bidding of Bank of America by removing "the superstar who had been beating the bank to a pulp for two and a half years."
Shum Preston, a spokesman for Harris, called the suit frivolous.
"We respectfully decline to address the very strange claims made in this lawsuit," he said in a statement. "It is, sadly, another example of what we uncovered during our investigations: false promises designed to lure already distressed homeowners into paying money to lawyers who refuse to properly represent them."
A Bank of America spokeswoman declined to comment.
Stein's office sent e-mails to clients like Hosking asking them to show up at a court hearing to support Stein "in the fight against bank and government corruption."
His firm sent out a press release that said hundreds of homeowners would gather in solidarity with the Occupy Wall Street movement and "against Ms. Harris' support of the 1%."
Meanwhile, the State Bar of California obtained a court order stating that Stein "has become incapable of devoting the time and attention to ... his law practice" and authorizing the bar to seize his files and freeze his bank accounts.
Stein, however, maintains the order doesn't apply because it names Mitchell J. Stein and Associates and not his newer partnership, Mitchell J. Stein & Associates LLP. For the same reason, Stein's website states, "this law Firm has never been sued by the State of California."
Stein is also trying to stop seizure of his assets through his Florida bankruptcy proceeding.
The state bar notified Hosking that she could pick up the confiscated files relating to her, but she would have to find another lawyer.
Hosking keeps getting solicitations promising to save her house if she pays a fee.
"There are all kinds of preying people out there. I don’t know who to trust anymore," she said.
The state bar will work to return money to alleged victims from Stein's frozen funds, said Suzan Anderson, an attorney for the bar. Authorities also are encouraging banks to give a break to people like Hosking.
"Right now, the attorney general and the state bar are discussing with the lenders how they might be able to put a hold on any foreclosures because of these actions and maybe work with the people and give them time," Anderson said.

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Saturday, October 15, 2011


Official seal of County of San Mateo

Foreclosures rise in San Mateo County;
local officials try to help

By Stephanie Soderborg | 15 Oct 2011
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Like an obnoxious neighbor, housing problems did not wait for Rose Jacobs Gibson to settle in to her position on the San Mateo County Board of Supervisors before they came calling. Her first two days in office, she remembers, the phone lines were flooded by elderly and low-income constituents who feared they would lose their homes because of changes to the federal Section 8 subsidy program.

Crowds wait in line to check in to the Oct. 1 San Mateo Count Foreclosure Resource Fair. (Photo: Stephanie Soderborg/Peninsula Press)
People did not understand how the changes would affect their lives, and the government was not doing enough to inform them, Jacobs Gibson decided.  She resolved to help get the necessary information to the public.
Twelve years later, her cause remains the same – only now her work focuses largely on the thousands of home foreclosures in the county.
Early this month, her office hosted a Foreclosure Resource Fair, bringing together bank lenders, housing counselors and legal advisers to provide free advice to the nearly 200 people who crowded into a community center in Menlo Park. At the fair, the supervisor’s office began to distribute a 28-page guide for homeowners and renters, titled “Foreclosure Prevention.”
The guide provides answers to frequently asked questions, offers tips for avoiding foreclosure, suggests when not to keep a home and lists more than 60 local foreclosure assistance resources. Those resources include counseling agencies, alternative housing resources, legal aid and nonprofits that provide related services such as mental health counseling and food programs.
“One of the challenges is that people have such pride, and when it comes to their home it is just so difficult to have to admit that you are faced with whatever the problem is,” Jacobs Gibson said.

Supervisor Rose Jacobs Gibson addresses the attendants of the 2011 Foreclosure Resource Fair. (Photo: Stephanie Soderborg/Peninsula Press)
As measured by per capita figures, San Mateo County has weathered the nation’s foreclosure crisis better than many areas of California. Of late, though, the trend is more ominous. In September, 788 properties were under notice of default, forced auction or bank repossession in the county, up from 498 in August, according to, which tracks foreclosures. Counties in the rest of the Bay Area saw a decrease over the same month.
Foreclosures can have a widespread effect on a community by depressing property values.
Encouraging homeowners to seek help is an important step, Jacobs Gibson said. Residents who work with housing counselors are 60 percent more likely to keep their homes and significantly modify their loans than those who do not seek help, according to an Urban Institute study.
“A lot of homeowners feel that they have to come up with money to seek help, which they don’t. Some feel that they can resolve the problem themselves, when they cannot,” said Bob Kane, a lawyer who volunteers at the free Community Legal Service in East Palo Alto. “For a lot of them it is just that they are not aware of the resources out there.”
Many people who attended the Oct. 1 resource fair agreed to be interviewed under the condition that they be identified by first name only, explaining that the forced loss of a home is a highly personal matter.
A homeowner named Jeff said he drove 90 minutes one way to attend the fair. Due to lack of counseling, he said, he did not recognize the severity of his situation until too late.  Now he is facing foreclosure. “I thought we had a minor bump in the road,” he said.
The fair and resource guide also help governments and community service agencies because, in some cases, not everyone is aware of where to refer clients, according to Jacobs Gibson.
Martin Eichner, the director of Project Sentinel, a HUD counseling center, said large agencies coordinate with each other already. But until now, Jacobs Gibson said, it was hard to find a single resource listing all the available services. “There will be a little more assistance now that people can provide with out having to try and think, ‘who do I call and where do I go,’” she said.
Laura Fanucchi, the associate director of Human Investment Project Housing, a nonprofit dedicated to home sharing and self-sufficiency, explained another benefit of the resource guide: “We cannot focus our time on creating this type of resource, yet it is so valuable in case management.”
Agencies that provide assistance to the best of their abilities bring peace of mind to many struggling clients. For Jeff, the counseling advice he received at the resource fair provided a sense of relief.
“We came in scared to death… at the potential of loosing our house at some unknown date in some unknown process,” he said. “We are able to come out today… and we’re pleased. We are coming out happy.”

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Animated flag of Nevada.Image via Wikipedia

Foreclosure fraud law
takes effect on Saturday

A new law that imposes stricter recording requirements on mortgage servicers takes effect this Saturday, providing homeowners with an extra layer of protection.

Assembly Bill 284, also known as the "Foreclosure Fraud Reform" law, requires mortgage servicers to show clear and complete documentation of a mortgage note's ownership before foreclosing on a property and selling it. The law was passed during the last session of the Nevada Legislature.

The law also requires parties seeking to foreclose in the state to file a notarized affidavit with the appropriate county so residents can access information about their mortgages. The required information includes the owner of the mortgage note. Finding out such information can be difficult for owners of distressed properties seeking a loan modification, especially for notes that have been securitized and resold several times.

"Nevada homeowners ... now must be told who really owns their house and whether they even have the power to sell it," said Greg Jensen, a Reno homeowner lawyer and owner of Jensen Law Group. "These changes -- coupled with the 2009 law allowing Nevada homeowners to elect foreclosure mediation -- provide greater transparency in foreclosures, prohibits trustees and banks from cheeky foreclosure arrangements, and now gives homeowners a new lawsuit remedy."

The question now is whether the law can be used to identify which parties have the authority to negotiate loan modifications on behalf of the mortgage note owner, said Keith Tierney, a Reno lawyer.

Tierney, a former mediator for the Nevada Foreclosure Mediation Program, says servicers who take part in mediation sessions despite a lack of negotiating authority have been a problem.

The law also could increase the court system's workload, Tierney added. Nevada is a non-judicial foreclosure state, which means foreclosures are addressed via state statute instead of going through the court system.

"The law will take Nevada closer to becoming a judicial foreclosure state, potentially clogging our district courts," Tierney said.

Nevada Assembly Majority Leader Marcus Conklin, AB 284's primary sponsor, says the law provides much-needed accountability in the state's foreclosure process.

Nevada led the nation for the 56th straight month in August with a foreclosure-related activity rate of one in 118 housing units, according to foreclosure tracker RealtyTrac.

"There have been widespread instances of foreclosures based on false, improper or incomplete documents throughout the nation over the past few years," Conklin said in a statement. "This new law is part of our ongoing commitment to prevent foreclosure fraud in our state and to ensure that the Attorney General has the tools necessary to prosecute those who defraud homeowners."

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“Thus a decision awaits us which is more a matter of timing than substance. The system is going to collapse in its current form because it is and always was a pyramid scheme. They all fail every time. The question is when. So the only question that remains is whether we will assert ourselves now and start building from within, or pass the opportunity and try to arise from the rubble of what remains when this pyramid collapses under its own weight. Or, put another way, do we want to be the Phoenix that rises out of its own ashes, or the falcon that does what is practical to stay alive and bring home dinner? It seems that the Occupyers have that answer — do it now!”
EDITOR’S NOTE: The simple fact is that they don’t have any collateral in most instances and their assets are accordingly grossly overstated on their balance sheet. And the fact remains, no matter how they try to spin it, that Wall Street simply dipped into the pockets of people’s savings, pensions and taxes, pretended the money was their own, and then convinced people to borrow their own retirement money in ways that could never be paid.Now they claim to be creditors to whom the debt is owed even though the money came from the very person they claiming owes them still more money. And they are getting paid very well to assume this position while the average person of even substantial means is being ordered to “assume the position” to take it again.
With credit card interest at 20%-30%, private student loans going to 18%, and home equity being an irresistible target for Wall Street game players, people are now left without any meaningful amount of savings, a decrease in the amount of their pension plans, and a nearly permanent block to ever getting out of debt. And Wall Street is still successfully positioning itself as the injured party to whom the debt is owed. According to them, the Occupyers just lack the sophistication to understand why the Banks are not at fault for anything.
In truth our reliance on self-governance by Wall Street was misplaced the moment we allowed them to go public and transfer the risk to the public. In the end the people always get the shaft no matter which way they turn and no matter which “class”they think they are in. Each person is getting shafted by the Banks under the current infrastructure regardless of whether they think of themselves as an investor, a consumer, a creditor or a debtor.
The collateral claimed by banks is irretrievably broken by their own intervention in the chain of title. But the really pernicious quality of this mess is that people are under the gun by virtue of debt that was forced upon them using their own money. The cost of servicing that debt that steadily increased just as wages stagnated. But by “giving” people the money to buy things, the banks created the appearance of real commerce. In reality most of the commerce was built on debt — but the other side of the equation is never mentioned. The debt arose not just because someone borrowed money but because someone loaned the money. And the parties who loaned the money were and remain the people themselves.
If you as the average 401k person whether he would have taken money out to purchase something, their answer is almost always negative. Yet placed in the hands of money managers who were institutional investors, these same people in fact did borrow the money indirectly without any knowledge of what place they held in the securitization hierarchy. They were dead last. As the source of the funds, they had a sure loss coming eventually whether it was a mortgage, credit card, or student loan debt. Then, encouraged by promises of never-ending replacement loans, they accepted loan products that were unworkable. The result is that they have no money to pay their debt because their own money was used to create the debt and now of course that money is gone — into the pockets of Bankers as fees and profits — they are guaranteed to have diminished capacity to pay off the debt.
Bankers always resist regulation. And “free market” believers are drawn into the narrative by ideology and the mistaken factual belief that the lenders, as a class and the borrowers, as a class, are one and the same. Ask one of these bankers or “free market” enthusiasts whether Wall Street should be allowed unlimited access into the pension funds and taxpayer funds to lend people their own money, raking off absurd profits, and they would probably not be able to sustain any argument against regulation. To be sure, in the interest of financial liquidity, the function of Wall Street has a value and they should be paid for their services — a real amount based upon real service.  
The problem arose when through deregulation the goal of liquidity became the only goal. That is why, in the absence of regulation, courtesy of legislation passed in 1998, Wall Street was the only one at the table who could  pursue self-interest. Everyone else had to go through their gate if they wanted to do anything. And so they were allowed to issue private currency in a very public way, drawing upon funds from hardworking people who had earned the pensions that awaited them and then, in pursing their interests for ever increasing profits and fees, produced a stupid amount of liquidity that exceeded real money issued by all the governments around the world. They didn’t jsut exceed it. They issued 12 times the amount of real money in the world.
Now in order to make the profits they intended, they are demanding that taxpayer money be used to cover the profits and fees they think they earned. Every time we do that the taxpayer is paying another dollar toward pornographic profits, salaries and bonuses on Wall Street, while our lives, our infrastructure and our prospects crumble under the weight of a financial infrastructure that must collapse at some point because there literally is not enough money in the world to cover the paper issued by Wall Street.
Thus a decision awaits us which is more a matter of timing than substance. The system is going to collapse in its current form because it is and always was a pyramid scheme. They all fail every time. The question is when. So the only question that remains is whether we will assert ourselves now and start building from within, or pass the opportunity and try to arise from the rubble of what remains when this pyramid collapses under its own weight. Or, put another way, do we want to be the Phoenix that rises out of its own ashes, or the falcon that does what is practical to stay alive and bring home dinner? It seems that the Occupyers have that answer — do it now!

Behold the dangers of contaminated collateral [updated]

Posted by John McDermotton Oct 10 22:06.
Yale University’s Gary Gorton and Guillermo Ordoñez have a new working paper out on the role of collateral in financial crises. This may not pass for exciting news in some places but FT Alphaville is not like other places. Gorton is renowned for his work on shadow banking and wrote an excellent short primer on the recent crisis.
(Update: He’s also, as our commenters point out, the man behind some of the AIG’s risk-management models. Take that as you will, we still think there are some interesting insights in the paper.)
The paper, “Collateral Crises”, uses complicated mathematics we don’t 
want to discuss at this point. But don’t let that put you off: it has some important insights for those interested in the role of information and collateral in the financial system.
First, a very important caveat: the below refers to a model. The empirical evidence presented in the paper is labelled “Very Preliminary and Incomplete” so consider the ideas below as educated musings rather than empirical statements.
The hypothesis is a neat one and although the authors readily admit it’s just one way of looking at recent troubles, it’s an interesting way of thinking about how the crisis hit when it hit.
The argument runs something like this: short-term private funding markets such as money markets or interbank markets work by dealing in “information-insensitive debt”. In other words, there’s buying and selling without anyone worried about adverse selection. Collateral is put down and — assuming it’s AAA — no questions are asked. These ideas have been suggested before (such as here) but this paper is the first to look at its macroeconomic implications.
In particular, it uses this micro model to explain how small shocks can translate into big events. To understand the professors’ logic it’s useful to grasp their version of financial crisis events (our emphasis):
Financial crises are hard to explain without resorting to large shocks. But, the recent crisis, for example, was not the result of a large shock. The Financial Crisis Inquiry Commission (FCIC) Report (2011) noted that with respect to subprime mortgages: ”Overall, for 2005 to 2007 vintage tranches of mortgage-backed securities originally rated triple-A, despite the mass downgrades, only about 10% of Alt-A and 4% of subprime securities had been ’materially impaired’-meaning that losses were imminent or had already been suffered-by the end of 2009” (p. 228-29). Park (2011) calculates the realized principal losses on the $1.9 trillion of AAA/Aaa-rated subprime bonds issued between 2004 and 2007 to be 17 basis points as of February 2011.  The subprime shock was not large. But, the crisis was large…
The authors hypothesise that when these types of collateral markets exist, no useful information is created because it’s too costly (at least for market participants in the short-term) to do so. Thus there’s no information that can help one distinguish between good and bad collateral — between Scandinavian government bonds, say, and AAA-rated sub-prime mortgage bonds.
Indeed, there’s more consumption and lending when there are no questions asked. The longer the boom continues, the more ignorance percolates and bad collateral gets into the system.
When information is not produced and the perceived quality of collateral is high enough, firms with good collateral can borrow, but in addition some firms with bad collateral can borrow. In fact, consumption is highest if there is never information production, because then all firms can borrow, regardless of their true collateral quality. The credit boom increases consumption because more and more firms receive 3financing and produce output. In our setting opacity can dominate transparency and the economy can enjoy a blissful ignorance.

Here’s the problem. The bigger the lie, the harder the fall:

In this setting we introduce aggregate shocks that may decrease the perceived value of collateral in the economy. It is not the leverage per se that allows a small negative shock to have a large effect. The problem is that after a credit boom, in which more and more firms borrow with debt backed by collateral of unknown type (but with high perceived quality), a negative aggregate shock affects more collateral than the same aggregate shock would affect when the credit boom was shorter or if the value of collateral was known. Hence, the size of the downturn depends on how long debt has been information-insensitive in the past.
Gorton and Ordoñez are not rubbishing the importance of leverage — indeed they’re sort of talking about leveraged opacity. But their original argument is that the sub-prime shock was not large and not in itself the cause of the subsequent fall-out. It was the overall reduction in perceived quality of collateral.
A negative aggregate shock reduces the perceived quality of all collateral. This may or may not trigger information production. If, given the shock, households have an incentive to learn the true quality of the collateral, firms may prefer to cut back on the amount borrowed to avoid costly information production, a credit constraint. Alternatively, information may be produced, in which case only firms with good collateral can borrow. In either case, output declines because the short-term debt is not as effective as before the shock in providing funds to firms.
There’s a fair bit to critique here and not just to state the obvious point that credit rating agencies are supposed to provide the sort of information found useful by market participants. Leverage also probably does matter “per se”: it affects the pace in which margin calls come in and funding crises hit. Moreover any notion of intent is missing here — opacity serves some interests more than others.
Still, there are some interesting ideas here and we’ll be cockahoop to see some empirical evidence about the importance of not being able to separate good and bad collateral.
The big sort, rather than the big short.
Update II: Not for the first time, the comments section on an FT Alphaville post are more enlightening than the main text. Scroll down for more, and do contact rob2.7 if you can speak complex mathematics.

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