Matt Taibbi has a long and interesting piece on the mortgage foreclosure process. There is a lot of stuff packed in there, but one interesting take away from me was that the mortgage industry’s chronic problem with producing proper paperwork in foreclosure actions isn’t just a matter of being fast and sloppy. Rather, the sloppiness is sometimes a product of covering their asses on the back end of the transactions.
Apparently it was not uncommon for a bundled security product to promise underlying mortgages that the seller did not, strict speaking, own yet. Proper documentation of the underlying mortgage is evidence of wrongdoing in this respect and exposes the seller to liability.
Beyond that, it’s a nice encapsulation of some of the stuff I already knew. The incentives were not structured in a way that made too many people inclined to make sure that a home loan was a sound investment. The people providing information and analysis about the original loan got their money up front and were long gone by the time the loan went sour. Banks bundled up the loans into securities. Rating agencies sprinkled fairy dust over the heap and called it “AAA.” The piles were insured by organizations that couldn’t cover the bet. And all of it was sold off to unsuspecting pension funds and the like. Once the loan goes south, the incentives are all on the side of foreclosing on the property; and the legal system is not structured in a way that is very friendly to debtors or even people merely alleged to be debtors who don’t have resources to hire an attorney.
And yet, if I understand the republicant response to all of this, nothing has been changed to penalize the banking/mortgage/stockbroker industries from doing this all again. Corruption sure pays well.