Friday, January 7, 2011

The Law

Here at Financial Jenga we have hoped, even prayed for the law to be enforced for the last couple of years. Yet the fraud has raged unchecked and if anything grown worse. Banks have mass filed false affidavits to fraudulently seize houses through the foreclosure process and then said "oopps, we made a technical paperwork error" when caught. At first they got away with it. They HAVE seized houses through this procedure when there was no mortgage and no lien at all.

The Fed has gone and done things far beyond the scope of authority given to it by Congress - like using our money to prop up the investment banks and the stock fraud they are running. They are given the power to buy exactly two thing - bonds carrying the full guarantee of the US government and short-term loans for planting of crops. Buying junk bonds containing mortgages violates both the letter and the spirit of their charter. Buying stocks is so far beyond their legal powers that someone should be in prison and probably a lot of someones.

No one has shown much sign of really stopping the Fed yet but the Massachusetts Supreme Judicial Court landed a major blow for the law today by confirming a lower court ruling that nullified two foreclosures because they plaintiffs couldn't show they owned the property. In both cases, "robosigned" affidavits were introduced as proof of ownership and later shown to be without merit.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts. As reported by
Bloomberg:


“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote.

While there have been many similar rulings across the country, this is the first such decision by a state supreme court. And since property law is still properly the jurisdiction of the states, this decision is final as far as Massachusetts is concerned. Hopefully they will follow up with prosecutions for the mass of fraud represented by those false affidavits.

And this entire financial crisis is bound up with a struggle to centralize political power in Washington. One of the key enablers of the late-bubble madness was the effective nullification of state lending regulations. This was done in 2004 when the Office of Comptroller of the Currency used
federal preemption to overrule state laws against predatory lending. It was one of the worst moments of the Bush Administration:

The Office of the Comptroller of the Currency Feb. 21 published for comment a ruling that Georgia's predatory lending law, the Georgia Fair Lending Act (GFLA), is preempted for national banks.

At the same time, it issued two advisory letters to national banks to clarify its expectations for banks to avoid involvement with "predatory" lending practices.

So basically, the OCC's action wiped out state legal protections against predatory lending. And they substituted a finger wagging "don't do it" with a nudge and a wink to just go ahead. And of course the very worst mortgage paper was written over the next three years after the change. We have documented the results of those no-doc, alt-A and option ARM loans here from the very beginning. But those abusive mortgages would not have been possible without Washington stepping in to remove the legal shield that states provided their citizens.