WEBVTT - 32: The Amateur Activists Who Took On The Foreclosure Machine 0:00:06.080 --> 0:00:09.920 Hello, and welcome to another edition of the Odd LODs podcast. 0:00:10.039 --> 0:00:13.840 I'm Joseph Wisenthal, Managing editor at Bloomberg Markets, and I'm 0:00:13.880 --> 0:00:18.320 Tracy Halloway, Executive editor at Bloomberg Markets. So, Tracy, we're 0:00:18.320 --> 0:00:21.840 going to talk about the financial crisis and the aftermath 0:00:21.920 --> 0:00:24.919 of the crisis to in today's edition. And it's a 0:00:24.960 --> 0:00:27.680 story that I think a lot of people know because 0:00:27.720 --> 0:00:30.920 they've read books like The Big Short or they've seen 0:00:30.960 --> 0:00:34.560 the movie, and so they know all of the troubles 0:00:34.600 --> 0:00:38.120 that happened on Wall Street and everything, all the money 0:00:38.200 --> 0:00:41.120 that was lost. But today we're gonna talk about the 0:00:41.159 --> 0:00:45.159 same story from literally, I would say, the exact opposite angle. 0:00:45.360 --> 0:00:49.639 The opposite angle. What do you mean. Well, so we know, 0:00:50.080 --> 0:00:52.760 of course what happened with all the major banks and 0:00:52.800 --> 0:00:55.440 how much money they lost and everything. But what we 0:00:55.520 --> 0:00:59.160 don't have from many of these stories is the human 0:00:59.240 --> 0:01:02.200 angle on the own. So we know that housing crashed, 0:01:02.760 --> 0:01:06.160 and we know that all these people lost their homes 0:01:06.160 --> 0:01:11.720 and these foreclosures rippled through all these securities that Wall 0:01:11.720 --> 0:01:14.280 Street had made a fortune on, But we don't really 0:01:14.400 --> 0:01:18.520 know about these same securities from the perspective of the homeowner. 0:01:19.120 --> 0:01:22.679 Ah So this is like the epilogue to the housing crash, right, 0:01:22.720 --> 0:01:25.640 this is what happened afterwards. Yeah, I think that's that's 0:01:25.680 --> 0:01:29.920 exactly right. And um, there's also, um, in addition to 0:01:30.200 --> 0:01:32.280 the fact that we're going to talk about the story 0:01:32.319 --> 0:01:35.479 from a totally different angle, Uh, there's also a really 0:01:35.520 --> 0:01:40.720 interesting tech angle to this story. Because as these foreclosures 0:01:40.760 --> 0:01:44.000 and the housing collapse rolled on, it was, you know, 0:01:44.040 --> 0:01:46.280 this was totally new territory for a lot of people. 0:01:46.319 --> 0:01:49.320 People didn't know how it was going to work, losing 0:01:49.320 --> 0:01:52.120 their homes. And so the fact that this happened at 0:01:52.120 --> 0:01:55.720 a time of blogging in the Internet allowed people to 0:01:56.280 --> 0:01:58.800 learn about what was going on around them in a 0:01:58.840 --> 0:02:01.600 way that they probably could and have in any other era. 0:02:02.760 --> 0:02:05.560 So I remember actually writing a little bit about this 0:02:05.680 --> 0:02:08.120 in two thousand and ten. I think it was the 0:02:08.160 --> 0:02:10.760 idea that all these people who had their homes foreclosed 0:02:10.800 --> 0:02:14.640 on were sort of gathering together online to figure out 0:02:14.680 --> 0:02:17.799 how best to fight the banks or whoever they sort 0:02:17.840 --> 0:02:20.200 of owed money too. It was a really big deal 0:02:20.240 --> 0:02:23.240 at the time. Absolutely. And so today we're joined by 0:02:23.360 --> 0:02:27.480 David Diane. He's the author of Chain of Title. It's 0:02:27.480 --> 0:02:31.000 a book all about how these amateurs who had no 0:02:31.400 --> 0:02:36.480 prior knowledge of the legal system, the housing law, foreclosure rules, 0:02:36.880 --> 0:02:41.839 housing finance, basically educated themselves and learned that all these 0:02:41.880 --> 0:02:45.800 foreclosures that were going on were essentially being done illegitimately 0:02:45.960 --> 0:02:50.240 with false paperwork or people who were foreclosing without proper 0:02:50.400 --> 0:02:53.840 standing to foreclose. And it's about how they banded together 0:02:54.440 --> 0:02:57.080 and use the internet to find each other to teach 0:02:57.200 --> 0:03:01.359 themselves how this super complicated stuff were to fight against 0:03:01.600 --> 0:03:04.480 what they saw as these illegitimate foreclosures. And it's a 0:03:04.919 --> 0:03:08.520 fascinating book. I'm really excited for this one. Let's get started, 0:03:20.360 --> 0:03:22.799 all right, David, thank you very much for joining us 0:03:22.800 --> 0:03:25.000 here in studio. Thanks for having me. I think you 0:03:25.040 --> 0:03:27.200 summed it up. I think I'm at home, all right. Well, 0:03:27.240 --> 0:03:29.640 thanks very all right. Well that was this week's edition 0:03:29.639 --> 0:03:32.400 of Online. You know, you tell her you could probably 0:03:32.400 --> 0:03:34.680 summarize it better than me. But what what is the 0:03:34.840 --> 0:03:37.840 essence of your book and why were you moved to 0:03:37.880 --> 0:03:40.680 write this book? Well, this is true. I did a story. 0:03:41.160 --> 0:03:44.120 I wanted to write this story from the perspective of 0:03:44.160 --> 0:03:47.120 those most powerfully affected by the financial crisis. There's been 0:03:47.240 --> 0:03:50.000 over four hundred books. There's actually a website out there 0:03:50.040 --> 0:03:51.920 that shows how many books there have been about the 0:03:51.960 --> 0:03:55.400 financial crisis, and it's over four hundred. I think I 0:03:55.400 --> 0:03:57.160 would have been able to name about four or five. 0:03:57.200 --> 0:04:00.360 I didn't realize just quite definite. So I did want 0:04:00.400 --> 0:04:02.920 to attack it from a different angle. And and look 0:04:02.960 --> 0:04:06.920 at these people who, as you said, had no institutional 0:04:06.960 --> 0:04:13.160 knowledge resources. We're fighting their own foreclosures and suddenly stumbled 0:04:13.240 --> 0:04:16.600 upon this big secret and uh, and it was really 0:04:16.680 --> 0:04:19.279 kind of a revolutionary act that they did. They read 0:04:19.360 --> 0:04:23.000 their own mortgage documents and they found these discrepancies in them, 0:04:23.440 --> 0:04:26.360 and then they instead of just using that to fight 0:04:26.400 --> 0:04:29.160 their own cases, they decided to look in the public 0:04:29.200 --> 0:04:32.880 records and become citizen journalists in a way. And uh, 0:04:32.920 --> 0:04:36.520 they found each other and then decided really to build 0:04:36.560 --> 0:04:39.400 a movement around this that to to to get this 0:04:39.480 --> 0:04:42.120 into the hands of people who could maybe do something 0:04:42.200 --> 0:04:45.560 about it. David, can you give us a sort of 0:04:45.680 --> 0:04:50.640 quick description of the way mortgages are typically well, how 0:04:50.640 --> 0:04:53.120 they typically work and are assigned in the sort of 0:04:53.279 --> 0:04:56.520 mortgage framework in the US, because that's a big part 0:04:56.520 --> 0:05:00.080 of the story, right, absolutely, So during the how thing 0:05:00.120 --> 0:05:02.680 about what we saw is this tremendous amount of private 0:05:02.760 --> 0:05:08.160 label securitization. So a usually non bank issuer would issue 0:05:08.160 --> 0:05:10.840 you a mortgage. That mortgage would immediately be sold to 0:05:10.880 --> 0:05:14.680 an investment bank, thrown through a few other intermediaries, and 0:05:14.680 --> 0:05:18.240 then put into a trust administered by a trustee UH. 0:05:18.279 --> 0:05:21.480 That trust, out of which the pass through certificates and 0:05:21.520 --> 0:05:24.400 mortgage backed securities would then be sold all over the 0:05:24.440 --> 0:05:28.080 world to UH you know, a Norwegian sovereign wealth funder 0:05:28.120 --> 0:05:32.880 in Indiana, public pension funder, whoever. UM. And there are 0:05:33.160 --> 0:05:37.400 very precise steps both in public law and in the 0:05:37.880 --> 0:05:41.800 governing documents. The pooling and Servicing agreement is what it's 0:05:41.839 --> 0:05:46.360 known as UH. Behind how trusts are created and how 0:05:46.400 --> 0:05:50.679 you transfer property. It's very deliberate. It. The first property 0:05:50.680 --> 0:05:54.080 records law in the United States is predates the Constitution 0:05:54.160 --> 0:05:57.719 by a hundred and fifty years. UH. Sixteen thirties was 0:05:57.760 --> 0:06:00.760 the first property recording office in the country. UH. And 0:06:00.800 --> 0:06:03.440 you're supposed to go be able to go to your 0:06:03.480 --> 0:06:06.680 county recording office and see the chain of title from 0:06:07.160 --> 0:06:10.200 the initial construction of the property all the way to 0:06:10.240 --> 0:06:15.000 the present day. And banks did not take those steps 0:06:15.080 --> 0:06:18.880 very intentionally, did not take those steps they they found 0:06:18.880 --> 0:06:23.520 them either inconvenient or too costly or for whatever reason. Uh, 0:06:23.640 --> 0:06:27.520 these very precise steps of how to transfer a mortgage, 0:06:27.920 --> 0:06:30.560 and particularly how to transfer a mortgage into a trust 0:06:30.960 --> 0:06:32.960 which is tax advantaged, and you have to do it 0:06:33.000 --> 0:06:37.680 in a specific way to maintain and receive those tax advantages. Uh. 0:06:37.720 --> 0:06:40.560 That was what was not done, and that that causes 0:06:40.560 --> 0:06:43.400 a rupture in the chain of title. And in order 0:06:43.440 --> 0:06:46.760 to paper over that, uh, they literally papered over it 0:06:46.839 --> 0:06:50.280 with bad paper, with with bad false documents. Yeah, go 0:06:50.360 --> 0:06:53.360 into that. So we had this, We had this massive 0:06:53.400 --> 0:06:59.120 economic downturn. We saw a unprecedented national downturn in home prices. 0:06:59.640 --> 0:07:03.040 Lots of people lost their jobs. Obviously a lot of 0:07:03.080 --> 0:07:06.200 people stopped paying their mortgage. But what did people discover 0:07:06.320 --> 0:07:09.920 when they started looking into these documents? What specifically did 0:07:10.000 --> 0:07:13.240 they discover that their view was being done wrong and 0:07:13.320 --> 0:07:16.320 made a lot of these foreclosures illegitimate. Right, Well, this 0:07:16.400 --> 0:07:19.960 is all about standing in illegal context. So, uh, if 0:07:20.040 --> 0:07:23.640 I said that Joe, you you stole my car, I 0:07:23.640 --> 0:07:25.360 would have to come up with a piece of paper 0:07:25.840 --> 0:07:28.360 in a court in order to sue you that that 0:07:28.480 --> 0:07:31.240 says I owned the car. And this was the documentation 0:07:31.280 --> 0:07:35.000 that was really missing, uh, and that was confused, and 0:07:35.160 --> 0:07:39.480 so in order to rectify that, the industry UH basically 0:07:39.520 --> 0:07:42.480 mocked up the documents after the fact. And so you know, 0:07:42.560 --> 0:07:46.360 for example, Lisa Epstein gets her mortgage assigns someone in 0:07:46.360 --> 0:07:48.320 your book, Lisa Epstein is a cancer nurse who was 0:07:48.320 --> 0:07:51.440 a foreclosure victim. Uh. She kind of kicks off the 0:07:51.480 --> 0:07:55.440 book and she gets this mortgage assignment and it's Uh, 0:07:55.840 --> 0:07:58.200 US Bank is the entity foreclosing on her. She didn't 0:07:58.240 --> 0:07:59.680 know who U S Bank was. She thought it was 0:07:59.720 --> 0:08:01.680 a fi fational name from a movie, because there's no 0:08:01.800 --> 0:08:05.280 US Bank in Florida. Uh, and they were the trustee 0:08:05.840 --> 0:08:12.040 uh that that somehow got her mortgage through these this process. Uh. 0:08:12.120 --> 0:08:14.800 The assignment was made to US Bank and was dated 0:08:15.360 --> 0:08:19.320 as of May May two thousand nine. She was foreclosed 0:08:19.320 --> 0:08:22.000 on in February two thousand nine. So by the evidence 0:08:22.040 --> 0:08:25.120 that US Bank gave that they owned this loan, they 0:08:25.160 --> 0:08:27.800 didn't own it at the time that they foreclosed on her. 0:08:28.320 --> 0:08:31.360 And that's just one example of many, not just in 0:08:31.400 --> 0:08:34.360 her case, but in millions of cases, UH, in in 0:08:35.160 --> 0:08:38.439 situations where because not everywhere in America do you actually 0:08:38.480 --> 0:08:40.920 need to go through a court to foreclose, but in 0:08:41.000 --> 0:08:43.400 Florida you did, and that's why the this was sort 0:08:43.440 --> 0:08:46.560 of the epicenter. But I remember at the time there 0:08:46.640 --> 0:08:49.760 was a lot of talk about judicial versus non judicial 0:08:50.040 --> 0:08:52.040 core and so a lot of your book centers around 0:08:52.040 --> 0:08:55.080 what happened in Florida, which is a judicial state, which 0:08:55.160 --> 0:08:58.320 means that to do a foreclosure you actually have to 0:08:58.320 --> 0:09:00.480 go see aud right, you need judicial sign off. And 0:09:00.520 --> 0:09:02.559 in fact of one thing the industry did is try 0:09:02.640 --> 0:09:06.479 to make Florida a non judicial state. And uh my, 0:09:06.480 --> 0:09:10.160 my activists they went up to Tallahassee and through a 0:09:10.280 --> 0:09:13.599 rally and did a lobby day. They haltered it for 0:09:13.640 --> 0:09:16.920 about three years, and uh even what ended up getting 0:09:16.920 --> 0:09:21.320 done was not completely you know, eliminating the judicial part 0:09:21.320 --> 0:09:24.200 of the system. So they were successful in that event. 0:09:24.440 --> 0:09:26.920 So how we're I mean, we are talking about very 0:09:27.040 --> 0:09:31.120 very technical mortgage law here, assigning notes what needs to 0:09:31.160 --> 0:09:33.280 be done, going down to the county courthouse. How did 0:09:33.280 --> 0:09:36.520 people actually figure out how to mount these sorts of 0:09:36.600 --> 0:09:40.480 legal battles? They were really self taught. Uh, you know, 0:09:40.760 --> 0:09:45.360 foreclosure law wasn't a booming industry prior to two thousand seven, 0:09:45.400 --> 0:09:50.400 two thousand eight. Uh. There was not a lot of understanding, 0:09:50.679 --> 0:09:54.520 both from the perspective of homeowners defense attorneys who were 0:09:54.520 --> 0:09:57.599 mostly closing attorneys who then you know when now the 0:09:57.640 --> 0:10:00.200 bubbles going down, so let's get into foreclosure law uh 0:10:00.559 --> 0:10:03.800 uh and judges even uh. There just wasn't a lot 0:10:03.800 --> 0:10:07.000 of understanding of it. And so what Lisa and Michael 0:10:07.200 --> 0:10:10.320 Redman who was a car salesman, and Lynn Simoniac who 0:10:10.520 --> 0:10:14.000 was a lawyer but mainly involved in in a different 0:10:14.040 --> 0:10:17.480 kind of white collar crime, insurance fraud. Mainly, what they 0:10:17.480 --> 0:10:21.000 did is they really self taught themselves. They they they 0:10:21.080 --> 0:10:24.480 went through pooling and servicing agreements, They went through the 0:10:24.520 --> 0:10:29.120 public records, looked at assignments, found all these patterns. Uh. 0:10:29.559 --> 0:10:32.600 Michael built a guide to look through the public records. 0:10:32.600 --> 0:10:35.319 They got very popular online. People started looking through the 0:10:35.360 --> 0:10:37.800 public records with them, and it really was that era 0:10:37.880 --> 0:10:39.880 of the blog is sphere, where you could have this 0:10:40.000 --> 0:10:46.119 sort of networked community that could distribute information, collaborate on information, 0:10:46.400 --> 0:10:50.560 and amplify each other's work. And they would find things 0:10:50.800 --> 0:10:53.760 in the paperwork that were so stunning that when they 0:10:53.800 --> 0:10:57.720 brought it to legal professionals, the professionals first reaction was 0:10:57.800 --> 0:10:59.880 we don't this cannot be right. They didn't believe what 0:11:00.080 --> 0:11:02.760 some examples, I mean, it just really blew people's mind 0:11:02.760 --> 0:11:05.400 when they were discovered. Well, these third party companies that 0:11:05.480 --> 0:11:09.120 were hired to mock up these documents, these were low 0:11:09.240 --> 0:11:14.360 margin businesses. They were not very sophisticated operations, and so 0:11:14.400 --> 0:11:17.959 they did all kinds of things wrong. One example that's great. 0:11:18.360 --> 0:11:21.439 Lyn Simmoniac finds this document. It's a mortgage assignment and 0:11:21.559 --> 0:11:24.240 that's a transfer from one entity to the other, and 0:11:24.280 --> 0:11:27.760 it says on the mortgage document that they basically forgot 0:11:27.800 --> 0:11:31.080 to remove the placeholder for the mortgage was assigned to. 0:11:31.480 --> 0:11:34.640 And it literally said we grant and assigned this mortgage 0:11:34.679 --> 0:11:39.120 to bogus assigny. And this was a filing that was 0:11:39.160 --> 0:11:42.440 with the court in the court and used successfully to 0:11:42.440 --> 0:11:45.360 to foreclose on something. There was a summary judgment on that. 0:11:45.480 --> 0:11:49.079 So I mean, in a sense, this mortgage was actually, 0:11:49.200 --> 0:11:53.320 you know, the foreclosure was granted to the bogus assigny. Uh. 0:11:53.360 --> 0:11:56.559 And they found it. Michael Lisa didn't believe this when 0:11:56.559 --> 0:12:00.640 they saw it, even and then they heard of another one. 0:12:00.720 --> 0:12:03.080 And Michael's watchword and this whole thing was if you 0:12:03.080 --> 0:12:06.080 can find too. There are thousands. And they did this 0:12:06.120 --> 0:12:09.040 thing called Project Bogus, where they spent the weekend looking 0:12:09.080 --> 0:12:12.679 through every state's public records looking for bogus documents, and 0:12:12.720 --> 0:12:15.560 they found dozens of them. Uh and and I believe 0:12:15.600 --> 0:12:19.440 a spokesman for the company said, uh that was that 0:12:19.520 --> 0:12:22.800 was just a placeholder. That was a mistake. So what 0:12:22.880 --> 0:12:25.559 was the success rate on these sorts of legal challenges? 0:12:26.440 --> 0:12:31.360 Pretty low? You know. Um, there was definitely some ice 0:12:31.400 --> 0:12:33.800 to break through with judges and maybe even with the 0:12:33.840 --> 0:12:37.439 general public. The idea that this was a technicality, This 0:12:37.640 --> 0:12:41.720 was individuals trying to get a quote unquote free home, 0:12:41.760 --> 0:12:44.440 which is never really what Michael, Lisa and Lynn said 0:12:44.440 --> 0:12:48.400 they wanted. They wanted an equitable solution. Uh And And 0:12:48.480 --> 0:12:51.080 this was a situation of false evidence. In any other 0:12:51.160 --> 0:12:55.040 legal context, whether the defendant is guilty or innocent, if 0:12:55.080 --> 0:12:58.920 you're using false evidence to convict that defendant, it gets 0:12:58.920 --> 0:13:02.280 thrown out immediately. It seems only in foreclosure law is 0:13:02.320 --> 0:13:05.120 this judgment made on the part of the judicial system 0:13:05.200 --> 0:13:08.520 that we can't give this guy a break, this defendant. 0:13:08.920 --> 0:13:12.040 Let's talk about that a little further, because it does 0:13:12.559 --> 0:13:14.720 in reading your book, it does seem like that was 0:13:14.760 --> 0:13:17.600 a big hurdle for judges to get over because even 0:13:17.640 --> 0:13:20.640 if you could establish that the person bringing the foreclosure 0:13:20.640 --> 0:13:23.960 it didn't really have standing or the document or mocked 0:13:24.280 --> 0:13:27.240 mocked up. You still had situations where people weren't paying 0:13:27.240 --> 0:13:29.840 their mortgage, they lost their job or whatever it is. 0:13:30.240 --> 0:13:34.000 And so a lot of people and when at the 0:13:34.080 --> 0:13:37.160 time and probably even now looking back, they're like, well, yeah, 0:13:37.200 --> 0:13:39.440 maybe that wasn't done right, but doesn't mean the person 0:13:39.480 --> 0:13:41.920 should be able to stay in their homes because they're 0:13:41.960 --> 0:13:44.040 not paying for it. So how do you what is 0:13:44.080 --> 0:13:46.880 the response to sort of philosophically that is right? One 0:13:46.920 --> 0:13:49.960 thing I would say is that you know, no homeowner 0:13:50.080 --> 0:13:53.840 asked for their documentation and to be lost and the 0:13:53.960 --> 0:13:56.640 standing to be to be confused on this in the 0:13:56.720 --> 0:14:00.000 chain of title to be broken, it's really not their responsibility. 0:14:00.000 --> 0:14:02.760 It's responsibility to the lender. And if we're talking about 0:14:02.760 --> 0:14:05.920 personal responsibility, it works both ways. That's number one. Number 0:14:05.920 --> 0:14:11.200 two is this particular angle of of fraud is just 0:14:11.240 --> 0:14:14.320 sort of a layer from a whole mess of other 0:14:14.440 --> 0:14:17.600 fraud that went on in the housing market during this time, 0:14:17.600 --> 0:14:22.040 whether it was origination or loan modification fraud. With UH 0:14:22.960 --> 0:14:28.120 servicers pushing people into default or securitization. Obviously there's a 0:14:28.120 --> 0:14:31.440 lot of securities fraud that went on. UH. So this 0:14:31.680 --> 0:14:35.160 was a moment of opportunity we had. This situation was 0:14:35.240 --> 0:14:38.760 six point two million people UH since September two thousand 0:14:38.840 --> 0:14:42.640 eight who lost their homes, and UH public policy and 0:14:42.680 --> 0:14:46.480 even even the interests of the investors in these loans 0:14:46.520 --> 0:14:49.240 dictate that you really didn't want that you wanted a 0:14:49.280 --> 0:14:53.160 better solution and and this was a moment of exposure 0:14:53.200 --> 0:14:56.480 where we could have got UH some sort of more 0:14:56.600 --> 0:15:01.000 equitable outcome so that the losses weren't allocated entirely on 0:15:01.080 --> 0:15:04.560 the homeowner, which is what they were during the housing bubble. Yeah. 0:15:04.560 --> 0:15:07.320 One thing that early on your book, and this really 0:15:07.360 --> 0:15:10.440 struck me, is that one of the main characters, I 0:15:10.440 --> 0:15:15.000 think it was Lisa, she tried to renegotiate her mortgage 0:15:15.160 --> 0:15:18.640 long before she went into default. It's her closure, and 0:15:18.960 --> 0:15:22.160 it seems and ultimately she couldn't get the bank to 0:15:22.440 --> 0:15:26.040 even return her calls, and they hinted to her that 0:15:26.120 --> 0:15:29.440 if she stopped paying her bills that then she would 0:15:29.520 --> 0:15:31.600 jump to the top of the queue. And so it 0:15:31.720 --> 0:15:37.000 seems as though perhaps that this incredibly complicated, disorganized web 0:15:37.560 --> 0:15:41.240 prevented an actual meaningful negotiation to keep people in their 0:15:41.240 --> 0:15:44.040 own There's no question. I mean mortgage servicing, which is 0:15:44.080 --> 0:15:47.400 this business that's basically who you pay your your mortgage to. 0:15:47.560 --> 0:15:50.640 It's it's the the person who services the loan on 0:15:50.760 --> 0:15:55.520 behalf of the investors. Uh. That business is first of 0:15:55.520 --> 0:16:00.200 all rotten business. Um it's uh. They are all sort 0:16:00.200 --> 0:16:05.000 of financial incentives in mortgage servicing to default instead of 0:16:05.040 --> 0:16:09.240 to modify, uh, mostly around the compensation model. Uh. And 0:16:09.280 --> 0:16:12.000 so this was done routinely. What happened to Lisa ends 0:16:12.080 --> 0:16:14.520 up happening later in the book to an assistant Attorney 0:16:14.520 --> 0:16:16.640 General of the state of Nevada. I mean this happened 0:16:16.680 --> 0:16:20.840 all the time, where they would imply, miss a few 0:16:20.840 --> 0:16:23.520 mortgage payments and then will help you, and then when 0:16:23.560 --> 0:16:26.080 you miss a few mortgage payments, they put you into foreclosure. 0:16:26.120 --> 0:16:30.160 And this idea of service or driven defaults was far 0:16:30.240 --> 0:16:33.840 more routine than people realize. So, you know, the moral 0:16:33.960 --> 0:16:36.400 argument of hey, they missed their mortgage payment, they got 0:16:36.400 --> 0:16:38.640 to pay the piper doesn't really account for the fact 0:16:38.720 --> 0:16:41.920 that they were induced to miss their mortgage payment. But 0:16:42.040 --> 0:16:44.800 even if we saw a fairly low success rate when 0:16:44.840 --> 0:16:48.400 it came to individual legal challenges. There was a little 0:16:48.400 --> 0:16:50.880 bit of wider success in the sense that there was 0:16:51.000 --> 0:16:55.000 eventually a foreclosure settlement with some of the biggest services. 0:16:55.160 --> 0:16:57.880 Right did that help us all? Well? I I write 0:16:57.920 --> 0:17:02.280 about that at length in the last third of the book. Um. 0:17:02.320 --> 0:17:05.760 You know, the settlement was really designed to you know, 0:17:05.840 --> 0:17:07.960 get people in front of a podium and creating a 0:17:08.000 --> 0:17:10.240 big headline number that they could talk about that we 0:17:10.480 --> 0:17:13.360 stuck it to the banks. The headline number was not 0:17:13.560 --> 0:17:16.439 really as much as advertised. Sean Donovan, who was the 0:17:16.440 --> 0:17:18.720 head of the Housing and Urban Development Department at the 0:17:18.760 --> 0:17:21.520 time now he's at O m b UH, promised that 0:17:21.560 --> 0:17:24.200 there would be a million principal reductions, that we would 0:17:24.240 --> 0:17:27.000 cut principle in a million homes as a result of 0:17:27.040 --> 0:17:30.520 the biggest settlement, which was the National Mortgage Settlement. I 0:17:30.560 --> 0:17:32.720 went through the numbers and in the book I say 0:17:32.760 --> 0:17:35.720 that in the end, eighty three thousand people got a 0:17:35.800 --> 0:17:40.040 principle was over less than the initial advertising of how 0:17:40.080 --> 0:17:42.840 good this would be. Um, and you know it's twofold. 0:17:42.960 --> 0:17:46.240 Number one. What was granted the homeowners at that time 0:17:46.320 --> 0:17:49.119 was far less than what was needed and far left 0:17:49.280 --> 0:17:52.800 than even what was promised. And number two, the idea 0:17:52.840 --> 0:17:56.080 behind a settlement is that the settlement, the activity you're 0:17:56.080 --> 0:17:59.399 settling stops And the fact is that every day in 0:17:59.440 --> 0:18:03.439 America continues to this day, somebody is thrown out of 0:18:03.480 --> 0:18:05.879 their homes based on a false document. Yeah, I just 0:18:05.920 --> 0:18:09.240 wanted to bring it forward to today. Has anything improved? 0:18:10.520 --> 0:18:13.960 Not a whole lot. I mean, you know, the state 0:18:14.000 --> 0:18:16.439 and federal government has sort of walked off the field, 0:18:16.480 --> 0:18:18.720 and there are still active cases and they're just sort 0:18:18.720 --> 0:18:21.199 of fought out one by one by one. But this 0:18:21.280 --> 0:18:24.560 is something that obviously, uh, there aren't a lot of 0:18:24.720 --> 0:18:26.960 people out there who are in foreclosure with the kind 0:18:26.960 --> 0:18:30.640 of resources to really maintain those cases. There's some good 0:18:30.720 --> 0:18:33.440 rulings here and there, but this is something we're gonna 0:18:33.440 --> 0:18:36.840 be untangling for a long time. I wanna go back 0:18:36.880 --> 0:18:39.560 big picture. I mean, you mentioned that the very first 0:18:39.680 --> 0:18:43.639 laws regarding property have been around since longer than the Constitution, 0:18:44.320 --> 0:18:47.719 and it's very specific how you have to you know, 0:18:47.880 --> 0:18:51.119 at every stage, there's all kinds of laws. In your mind, 0:18:51.760 --> 0:18:53.919 is there any doubt that if all these laws had 0:18:53.960 --> 0:18:56.480 been followed properly from the beginning, that we wouldn't have 0:18:56.520 --> 0:19:00.119 had this huge bubble and crash and housing. I you 0:19:00.200 --> 0:19:04.119 think that that if the property records laws were adhered to, 0:19:04.359 --> 0:19:08.160 that you would have seen less uh securitized and subprime 0:19:08.200 --> 0:19:11.920 mortgages for a variety of reasons. Obviously, when they created 0:19:11.920 --> 0:19:14.879 property records laws, they didn't see over the horizon to 0:19:15.000 --> 0:19:19.480 a securitization machine. But it did, you know, not adhering 0:19:19.520 --> 0:19:23.360 to them certainly facilitated the financialization that we saw of 0:19:23.400 --> 0:19:26.760 this this very pen and ink market. Um it was, 0:19:26.840 --> 0:19:29.439 it would have been a wet blanket. And and you know, 0:19:29.760 --> 0:19:32.199 the one thing just in particular, as an example, the 0:19:32.320 --> 0:19:35.280 REMIX tax laws. You know, these trusts were created as 0:19:35.600 --> 0:19:39.720 real estate mortgage investment conduits or remix and those are 0:19:39.800 --> 0:19:43.760 not supposed to take badly performing loans. You're you're not 0:19:43.800 --> 0:19:46.879 supposed to put in badly under written loans and quality 0:19:46.920 --> 0:19:49.520 you can't qualify for the tax benefits. And to do that, 0:19:49.800 --> 0:19:52.560 and one theory or postule is the reason they didn't 0:19:52.600 --> 0:19:55.680 write the paper is that it would have been obvious 0:19:55.720 --> 0:19:57.880 that it was bad they would have gotten a tax benefits. 0:19:57.880 --> 0:19:59.800 So you know, I mean, there are a variety of 0:19:59.800 --> 0:20:04.760 way days in which if there was actual adherence to 0:20:05.160 --> 0:20:08.240 this very deliberate system, I think you would have seen 0:20:08.359 --> 0:20:12.320 less of a crash. David, are there any efforts underway 0:20:12.359 --> 0:20:16.639 today to sort of modernize the way mortgage laws and 0:20:16.720 --> 0:20:20.119 foreclosures are done? Because it does seem in a sense 0:20:20.240 --> 0:20:22.280 quite quaint, this idea that I have to go down 0:20:22.280 --> 0:20:25.800 to the courthouse and actually physically assign a mortgage note 0:20:25.920 --> 0:20:28.200 with you know, a pen and a piece of paper. 0:20:28.359 --> 0:20:32.800 It doesn't necessarily sit quite well with the current century, 0:20:32.920 --> 0:20:36.640 right right, I mean it is antiquated, and uh, you know, 0:20:36.840 --> 0:20:39.679 there there are steps around paperless mortgages, there are some 0:20:39.720 --> 0:20:43.520 steps around electronic notorizations, and we can have that argument 0:20:43.520 --> 0:20:46.600 and legislated out. What we can't do is the industry 0:20:46.680 --> 0:20:49.040 just saying all right, we're not going to follow them anymore. 0:20:49.200 --> 0:20:52.280 That's that's gonna be the decision that we make. Uh 0:20:52.320 --> 0:20:55.080 that that that leads to bad public policy, and it 0:20:55.200 --> 0:20:58.680 certainly did in this case. Um So you know, I 0:20:59.119 --> 0:21:01.800 think that even the people profiled in this book would say, 0:21:02.000 --> 0:21:03.760 if you want to make an argument that we can 0:21:03.800 --> 0:21:06.479 do this in a more efficient fashion, then let's have 0:21:06.560 --> 0:21:10.560 that argument. Let's legislate it out. But basically, uh. You know, 0:21:10.600 --> 0:21:14.960 the pro the public system of recording was privatized during 0:21:15.000 --> 0:21:19.240 this this uh this era, and it did not perform 0:21:19.359 --> 0:21:22.760 very well. One thing that you say in your book 0:21:22.800 --> 0:21:26.919 that really struck me is that this bird, this explosion 0:21:27.000 --> 0:21:31.200 that we had of securitization and the financialization of home ownership, 0:21:31.600 --> 0:21:34.400 in your view, didn't even do a very good job 0:21:34.440 --> 0:21:37.560 of expanding the homeownership rate. And the fact that the 0:21:37.600 --> 0:21:41.480 traditional way that people always got loans from their local 0:21:41.520 --> 0:21:44.960 savings and loan did a perfectly good job expanding home 0:21:44.960 --> 0:21:47.960 ownership in America, and that all of this new speculative 0:21:47.960 --> 0:21:51.600 money didn't really have much even even before the crash, 0:21:51.680 --> 0:21:54.840 which public benefit. When Fanny May was a public agency 0:21:55.000 --> 0:21:58.320 from the nineteen thirties to the nineteen sixties, homeownership rose 0:21:58.320 --> 0:22:02.040 twenty points uh and it went uh and and even 0:22:02.160 --> 0:22:05.760 in the this this bubble era, this era when when 0:22:05.840 --> 0:22:09.600 the mortgage market was kind of taken over by Wall 0:22:09.640 --> 0:22:11.480 Street or they at least pulled a lot of market 0:22:11.520 --> 0:22:14.439 share from the government sponsored entities, it only went up 0:22:14.480 --> 0:22:17.440 three or four points UM. And you know, it went 0:22:17.520 --> 0:22:20.040 up a decent clip during the bubble, but that was 0:22:20.080 --> 0:22:23.320 an unsustainable uh scenario. Now we've seen it go back 0:22:23.359 --> 0:22:25.359 down to sort of the level it was really in 0:22:25.400 --> 0:22:29.760 the nineteen sixties. Uh, there was the biggest thing about 0:22:29.840 --> 0:22:32.560 the mortgage market as it was, is that everybody had 0:22:32.640 --> 0:22:36.240 a stake in everyone else's success. You know, Savings and 0:22:36.320 --> 0:22:38.919 loans got their deposits from people in the neighborhood who 0:22:38.960 --> 0:22:42.560 they gave loans to. And and that symbiosis meant that 0:22:42.680 --> 0:22:44.560 was if someone got into trouble, they would want to 0:22:44.560 --> 0:22:47.840 help them out, because you do better on a modification 0:22:47.920 --> 0:22:51.760 and a foreclosure sale. Uh. When you sort of passed 0:22:51.800 --> 0:22:54.640 the risk around and it goes into somebody in Norway 0:22:54.680 --> 0:22:57.840