Robosigning and gutter service
Matt Taibbi is succinct on the reported but not final agreement among state AG’s on the mortgage settlement:
I think the best summation of the settlement is probably Yves Smith’s, which can be found here. The piece lists the 12 things that suck the most about the settlement. The most painful is probably #12:
12. We’ll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won’t ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.
My mistake in looking at this deal a few weeks ago, when details of it first leaked out, was in focusing on how much worse it could have been, instead of thinking about how bad it still is. The only acceptable foreclosure deal had to bring about a complete end to robosigning and the other similar corrupt practices that grew up around it (like for instance gutter service, the practice of process servers simply signing affidavits saying they delivered summonses, instead of really doing it).
But this deal not only doesn’t end robosigning, it officially makes getting caught for it inexpensive. Shame on me for ever thinking that might be a good thing.
Classic – a bitter factless attack on an agreement that was not actually signed. And there is “Smith”, explaining that the poor MBS market investors – and the MBS market is only for the rich – have been sadly oppressed despite the easily acertainable fact that the market is totally healthy.
A large part of the problem is that the business model of servicing did not contemplate the level of delinquent mortgages we have. The execs likley said get the job done for $x, and to do it right would have required more that $2x. Actually the story has similarities to the Macando well spill, there they did not have enough spacers to get the job done, but went ahead anyway. Robosigning is in many respects equivalent to using just 6 spacers on the casing at that well. Both were expediencies to get the job done within the budget allowed. The bosses said you have this much budget and the underlings cut corners to meet the expectations, just like in many cases safety in industry is undercut by budget concerns.
Anyway I agree that RMBS are likley toast for 20 or so years. But then who in their right mind would loan money at 30 year fixed rates, with no prepayment penalty involved?
RMBS are yielding 2%. So apparently “toast” doesn’t mean that there is a lack of market interest.
As noted rootless, the final agreement probably will not be released until it is in federal court with a minimum time to review. Secondly, please address the fact that government life support is not central to the health of the markets you defend.
I’m not defending any markets. I’m critiquing the counter-factual basis of Taibbi and Smith’s arguments. The MBS investors are wealthy people who are not owed risk free ROI by society. The MBS market is quite healthy – not abandoned as Smith claims – and she certainly knows that she’s not telling the truth. Smith may not know, and Taibbi certainly does not know, about the Econ&Law movement in the judiciary, but I’m sure that Federal prosecutors were worried about it.
As for your theory, the entire FIRE sector depends on huge government subsidies and has since the 1950s. A court settlement is not going to change the fundamental structure of the submerged state, only prolonged political efforts will. And nothing is more fatal to a serious political reform than the incessant peal of the “we’re fucked, it’s all kabuki” allies of the corporate elites.
Hmmmm….not so much. Are you in this market?
roootless…not so healthy actually. Lyle has the right of it. I fail to see any counterfactual that you present.
Hi Dan:
Lets go back to the beginning of all of this. Remember when Greenspan announced to the world investment market sometime around 2003, the Fed would not be increasing interest rates (in so many words)? What happened next was a rush of money to Wall Street looking for safe investments such as MBS. The funds from overseas coupled with the ability to withdrawn housing equity painlessly and the high value of homes led to a tsunami of money looking for safe haven in the US. Lots of money translates into low rates and lots of takers.
When the market ran out of legit borrowers, the terms for borrowing were eased to make way for the less qualifiable borrowers with ARMS (which typically would have 2%/year increases locked into them) good for 1 or 2 years were the sky was the limit on interest increases. Private originators led the way in making these less than protected loans to borrowers who entered the market with housing equity to back themselves and/or less than adequate income. Anyone and everyone could get a loan with little income and less backing them.
The market was again flooded and these riskier loans were blended in with safer loans with in “tranched MBS/CDO.” The originators walked away after 1 month and the investors within these MBS never knew what the entire MBS was made up of when they bought (remember back to LTCM were the FED said the leveraging was 100 to 1?). These were insured by CDS (AIG for example) after being created by the GS of the world and rated by Moodys. Once sold, GS turned around an took out a CDS on the same MBS betting they would fail. The best of both worlds.
MERS was a methodology to speed the process up beyond the manual registration of the deed and signatures. While it is an issue for borrowers, the gov “still” has not touched what happened well before this point in time which is the root cause of why this all collapsed. rootless_e does have a point. Also 2% is a far better return on money than the 1/3 to 1/2% received on savings accounts.
My $.02
So mortgages with a face interest rate of 4-8% are selling for 2% yield because they are in such strong demand that prices go up (and yields go down). Yet you and Lyle and Smith claim that people have fled the market. So who is buying these things? Aliens?
Do you understand how bond prices work? If there was little demand, prices would drop and yields would be high. If you want to claim that the MBS market is broken, then you need to make and argument that is better than just insisting on it despite all the evidence to the contrary.
What new issue private label market has there been this last year except for a few jumbos?
Buyers were institutional as in GSEs, pension fund and insurers, 401ks. Wealthy investors….no.
http://www.newdeal20.org/2012/02/10/the-mortgage-settlements-missing-piece-will-banks-now-follow-the-law-71753/
And important point of robosigning was bypassed.
Shifting goal posts. There are buyers. Investors have NOT left the market. Let’s just deal with that before we consider the salt of the earth status of PIMCO management.
If you claim that there have been no new issues, you are making an assertion about SELLERS, not BUYERS. Plenty of people want to buy existing and even new MBS issues.
http://www.reuters.com/article/2010/01/29/us-lloyds-rmbs-idUSTRE60S4J720100129