As advertised, this is the story of how a nurse, a car salesman and a sixties-activist-turned-lawyer took on the Great Foreclosure Machine and lost, but not before landing a good few punches.
I consider myself knowledgeable on both the causes of the recent financial crisis and on the particulars of the mortgage debacle. I’ve read both “House of Debt” by Mian and Sufi (which Larry Summers himself called “book of the year” when it came out, despite the fact that it condemns his policies) and “Bailout” by Neil Barofsky. The former is quite possibly the best explanation of how wrong we got policy around the time of the most recent crash and of how the public interest would have been protected by less concern for “sanctity of contract” and by more leniency for homeowners. The latter is an insider’s view on how the system was rigged against the homeowner and in favor of “foaming the runway” for the banks.
Regardless, this book taught me stuff I could not possibly have imagined.
In particular, “Chain of Title” takes you through the detail of the manner in which the mortgage industry trampled all over American law:
(i) first it faked most of the paperwork for the sake of expediting the creation of mortgage-backed bonds and keeping down the costs involved
(ii) second, as soon as the market went into reverse and it was time to foreclose, it fostered systematic forgery of the chain of title between the original mortgage originators and the trustees of the pools out of which the mortgage bonds were issued.
Also author David Dayen leaves you in no doubt of the fact that there are two standards in the American justice system, and in particular in the way it treats participants in the mortgage market: one for the powerful, who get a second chance and one for the poor, who lose everything.
Here’s the main discovery: the vast majority of foreclosures that occurred during the crash of 2008 and its aftermath were technically illegal. The way the author puts it, if we had applied to foreclosure the legal standard of burden of proof that we apply to crimes or misdemeanors, judges ought to have laughed out of court at least 90% of claims on people’s homes, regardless of whether their payments were current. The industry had taken zero care to transfer the titles of the mortgages and was not entitle to foreclose.
Where the book does not do as good a job is in disentangling the many different issues:
1. Predatory lending, whereby people who cannot afford a loan are given one anyway, either on fraudulent premises or on an unaffordable structure that is designed to eventually turn toxic and relies heavily on house price appreciation before the usurious bits of the loan are triggered.
2. Predatory servicing, whereby people who miss out on a few cents or miss a payment by mistake get slapped with fines and fees that are designed to lead them to the edge of foreclosure (and who cares if they end up beyond).
3. Fraudulent lending, whereby citizens who qualify for a low-interest loan are given an unaffordable sub-prime loan, all in the interest of generating higher fees for the mortgage broker.
4. The fact that the mortgage pools were put together so haphazardly that all due process was skipped in the interest of saving time and money for the issuers of the bonds, with the end result that the chain of title was habitually broken.
5. Industrial-scale after-the-fact forgery of the necessary paperwork to re-establish the broken chain of title.
6. A whole list of unethical practices, such as pretending to consider a modification all while never intending to go through with it, ransacking properties, delivering paperwork to strangers etc.
Instead, you discover all these layers of the systematic fraud and abuse alongside the book’s heroes, Lisa, Michael and Lynn. It is an amazing way to learn about it all, but it’s equally quite easy to get confused. One could argue that there is no better way to experience what homeowners went through than to get confused alongside the heroes in this book. Equally, there is a lingering suspicion on my part that the author made a conscious decision to let this read more like a novel or a biography than like the result of a deep journalistic investigation.
There is a cost. What the book gains in passion it does lose in clarity.
Similarly, and I hate to say this, I fear the author goes for the easy judgement that the banks have the politicians in their back pocket, and that with Eric Holder and Lanny Breuer (habitual defendants of big business at their day job with Covington & Burling) in charge of investigating the injustices of foreclosure, the result was bound to be a cover-up.
Even if that is true, and I have no reason to doubt that to some extent it is (I’ve only recently finished reading Jesse Eisinger’s “Chickenshit Club,” after all) policy of such importance is not made by guys at their level. More to the point, as lawyers they would know better than anybody else that they were acting in a manner that was both at some level illegal and inconsistent with the values that underpin the American legal system. To say that they would stick their own neck out to screw homeowners is to accord them courage in their conviction that they’ve never displayed on any other issue.
Rather, I would not-so-humbly suggest, what was at work was the perceived political mandate to preserve the valuation of the savings of the American middle class. Obama’s economic policies of 2008 – 2016 were guided by 100% the same team who made policy for Bill Clinton in 1992-2000, the time when the “Greenspan put” underpinned the stockmarket and the Democrats discovered they could win by moving to the middle and supporting the net worth of an expanding “ownership class.”
What with trillions of dollars parked in pension funds, both for private corporations and for the government itself invested in mortgage-backed securities and in equities, the policies that won the day were TARP (which stood for “Troubled Asset Relief Program,” don’t forget), Quantitative Easing (which both removed safe Treasury Bonds from the market to encourage investing in riskier assets and brought down the 30yr interest rate which underpins mortgages) and the forced mergers of deadbeat banks with allegedly healthier money-center banks such as JP Morgan, there was simply no way a question mark would be allowed to hang over the banks or the mortgage bonds. Period.
This turned out to be a miscalculation, of course. The reason is that home ownership has fallen from 69% to 61%, stock ownership has fallen even further, the Gini coefficient has moved to places you normally associate with Latin America and the faith of Americans in the justice system has taken a hit that you simply cannot measure in dollars, with political outcomes not worth repeating here.
Furthermore, the author fails to take account of the feelings of those who never borrowed a penny but saw their neighborhoods blighted by the borrowing habits of their neighbors. While they probably all came to eventually realize that from the point of view of “the system” they are no different from their neighbors, back in 2008 – 2010 they would strongly have supported the rough justice meted out to “deadbeats,” much as a more sensible policy of principle reduction would have been to everybody’s benefit.
In conclusion, this book offers but one angle. It is the story of the foreclosure tsunami as experienced by millions of Americans at ground zero, warts and all: the real estate agent who supported the activists’ website was herself a real estate fraudster; the sixties activist eventually made her mark through a whistleblowing lawsuit that actually landed her millions; her efforts to give that money back were met with heckling and even a lawsuit.
It’s a tremendous story, basically, and it’s told well. Its intensity and pain and torrent of injustice felt like watching the first ten minutes of “Saving Private Ryan.” When you’re in there, fighting alongside Lisa, Michael and Lynn, uncovering the robo-signers, getting stared down by hostile judges, getting served foreclosure documents, doing all-nighters by the printer, organizing protests, putting together case files or answering email on the website well past midnight, it’s easy to forget that it’s just one angle. And it’s even easier to forgive.
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