November 25, 2007

Judge Asks Deutsche Bank: Where's the Mortgage?

Let's hear it for Cleveland, Ohio.

No?

Okay, let's at least hear it for Judge C.A. Boyko of the Federal District Court in Cleveland and for Cleveland blogger Bill Callahan.

Before the current sub-prime mortgage meltdown, Cleveland had the highest foreclosure rate in the country. I don't know if it's hung on to this dubious honor, but the foreclosure overhang is getting worse all over the US, as the adjustable rates on sub-prime mortgages soar and the economy threatens to tip into recession.

Which brings us to Boyko. In a recent case in Cleveland, Deutsche Bank National Trust Company was moving to evict 14 families and seize their homes. Boyko asked a simple question: Okay, where are the mortgages?

The Judge asked DB to show documents proving legal title to the 14 homes. DB could not. All DB attorneys could show was a document showing only an “intent to convey the rights in the mortgages.” They could not produce the actual mortgage, the heart of Western property rights since the Magna Charta if not longer.

Again why could Deutsche Bank not show the 14 mortgages on the 14 homes? Because they live in the exotic new world of “global securitization”, where banks like DB or Citigroup buy tens of thousands of mortgages from small local lending banks, “bundle” them into Jumbo new securities which then are rated by Moody’s or Standard & Poors or Fitch, and sell them as bonds to pension funds or other banks or private investors who naively believed they were buying bonds rated AAA, the highest, and never realized that their “bundle” of say 1,000 different home mortgages, contained maybe 20% or 200 mortgages rated “sub-prime,” i.e. of dubious credit quality.

DB's panicky lawyers argued that no one had ever made them do this in all the foreclosures they have pushed through in recent years. Boyko was, to say the least, unimpressed:
The Judge then declared that the banks “seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test,” the Judge concluded, “their weak legal arguments compel the court to stop them at the gate.” Deutsche Bank has refused comment.
Now these documents are someplace, and eventually either the banks will bring pressure to bear to overturn Boyko's decision in a higher court, or Deutsche Bank's US subsidiary will lay hands on 'em and proceed with turfing out the poor folk who went for the okey-doke when the mortgage brokers came knocking.

In the meantime, though, this precedent will be raised not only in Cleveland, but in foreclosure cases in Federal District Courts around the country. If upheld, it will slow both the flow of broke folk out of their homes and the shedding of bad paper by banks which are desperate to put the whole mess behind them and reverse their cratering stock prices.

Even if Boyko's decision is overturned, it has already intensified the spotlight being shone on the criminal greed of the big banks whose massive, and still incalculable, losses have made a joke of their every effort to bury their role in this mess. The mechanisms of this massive scam have been explained in detail in the press of late, but the one of the clearest I've seen is by Bill Callahan in his blog Callahan's Cleveland Diary. In an article titled "What’s this Boyko / Deutsche Bank thing all about, anyway?", he takes a case study, this house, four blocks from his, and shows what has happened to it since the couple who owned it made the mistake of refinancing in 2003. Read it and weep.

[In a future FotM post, I hope to dig into the question of what this sub-prime meltdown means for the Black community and other communities of color in this country and tie it in to the "sundown town" posts that appeared here earlier this year.]

5 comments:

Anonymous said...

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Clearing Way For Impeachment Investigation

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Rahim said...

Thought FotM readers might be interested to note that an anti-forclosure resolution was unanimously passed by the City Council of Newark, New Jersey on November 27:

Resolution of the City of Newark, NJ

Resolution by the Newark Municipal Council urging that the United States Congress institute a Moratorium on home mortgage foreclosures and requesting that Congress enact homeowners and bank protection legislation.

Whereas, a financial crisis involving home mortgages, debt instruments and the United States banking system threatens economic stability both within the Untied States as a whole and the city of Newark in particular, and

Whereas, the financial crisis has been fueled by aggressive mortgage brokers, unscrupulous agents and developers who provided easy access "sub-prime" adjustable rate mortgages with no money down to unqualified, high-risk borrowers, and

Whereas, historically during a national financial crisis, the federal government has intervened to protect financial institutions and home ownership and to provide guarantees of housing and economic stability, and Whereas, hundreds, if not thousands of Newark homeowners could be facing foreclosures on their homes in the near future, which would negatively impact on the economic vitality of the city and seriously jeopardize its revitalization and economic rebirth.

Now, therefore, be it resolved by the municipal council of the city of Newark, New Jersey that it does strongly urge the United States Congress to enact legislation that will provide a moratorium on existing home mortgage foreclosures by freezing mortgages for a period of time, adjusting mortgage values to fair prices, restructuring existing mortgages to appropriate interest rates and writing off speculative debt obligations of mortgage backed securities and financial derivatives.

Be it further resolved that a certified copy of this resolution be forwarded to Newark's Congressional delegation for their review and appropriate action.

Ju said...

Nice post. On foreclosure: I like the produce-the-note strategy. I live in Tampa and know one person he helped, and it actually worked. They did not get the entire home paid for, but they got terms adjusted to be favorable and they were able to avoid foreclosure. It really varries by situation and probably the laws of your state on how far this goes. This site has all the videos they have done. Watch all the videos here:

http://tinyurl.com/producenotevideo

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