Obama to pocket-veto stealth bill that would make foreclosures easier for banks

posted at 4:21 pm on October 7, 2010 by Allahpundit

Shady congressional procedures and a one-size-fits-all federal “solution” that’s guaranteed to generate a ferocious populist backlash? Why, it’s ObamaCare all over again!

Actually, I think people might be overreacting to this one. Here’s Reuters raising the alarm this morning:

A bill that homeowners advocates warn will make it more difficult to challenge improper foreclosure attempts by big mortgage processors is awaiting President Barack Obama’s signature after it quietly zoomed through the Senate last week.

The bill, passed without public debate in a way that even surprised its main sponsor, Republican Representative Robert Aderholt, requires courts to accept as valid document notarizations made out of state, making it harder to challenge the authenticity of foreclosure and other legal documents

The bill’s approval involved invocation of a special procedure. Democratic Senator Robert Casey, shepherding last-minute legislation on behalf of the Senate leadership, had the bill taken away from the Senate Judiciary committee, which hadn’t acted on it.

The House passed the bill back in April, before the systemic problems with foreclosure documents became known. Aderholt’s been pushing it for years as a simple way to make life easier for court stenographers, but Pat Leahy and Jeff Sessions took a sudden curious interest in it in late September after news broke that Ally Financial would halt evictions in 23 states due to improperly executed paperwork. Turns out bank officers were rubber-stamping foreclosure documents churned out by the bank’s computers without personally reviewing the homeowner’s file to see if the foreclosure was justified. WaPo’s story of Sept. 23 describes the practice of “robo-signing”:

Ally Financial has not called off evictions in the other 27 states or the District of Columbia, none of which require a court order to initiate a foreclosure. And yet in those places, distressed borrowers, on the brink of losing their homes, are finding flawed and forged documents in their files and scrambling to challenge foreclosure proceedings.

Joan Cavanagh, who lives near Cape Cod, in Massachusetts, a state not included in Ally Financial’s moratorium, is scheduled to be kicked out of her home in 30 days. Her documents were signed by Jeffrey Stephan, the Ally document processor who admitted that he approved 10,000 foreclosures a month but never read the files to see whether the proceedings were justified.

Until Ally’s announcement this week, she said she did not understand why her documents had so many inconsistencies. Her file, for instance, was notarized after Stephan signed it, although the notary was supposed to witness the signing.

Aderholt’s bill passed the Senate by unanimous consent on Sept. 27 and went to The One’s desk for signature, where it languished until all hell broke loose online this morning. The fear, of course, is that Congress is trying to reduce the backlog of foreclosure proceedings and thereby save lots of time and legal expense by letting banks railroad homeowners with bogus affidavits. Or, as John Carney of CNBC puts it, “It could be a backdoor bailout of the liar foreclosure problems of big mortgage lenders”:

The fear is that the bill will allow banks to “forum shop,” pushing through notarized foreclosure statements from states with lose [sic] standards or courts unfriendly to challenges to notarized foreclosure statements. Proponents of the bill would probably argue that it will help avert a nation-wide slowdown to the foreclosure process that could serve simply to delay a housing recovery by leaving more houses in mortgage limbo.

In other words, less than a month before the midterms, with unemployment sky high and taxpayers set to vent their rage about the TARP bank bailout at the polls, the big congressional plan before November was … to make it easier for banks to throw struggling people out of their homes. Bad idea. So bad, in fact, that within a matter of mere hours after the story broke big, The One had vowed to let it die on his desk and thereby avoid the “unintended consequences” it might have for the mortgage industry. (Pat Leahy, who helped fast-track the bill for passage, now claims he supports Obama’s decision.)

Just one lingering question: Would the bill really have been some great boon to banks in pushing foreclosure proceedings through? I had the same reaction to it initially as this post at lefty site Firedoglake. The timing and sketchiness of Congress’s actions here are oh so suspicious, but all the bill says is that “lawful notarizations” from out of state (including ones signed electronically, which are allowed in about a dozen states according to Reuters) should be “recognized” to the same extent as lawful notarizations executed in state. Are the problematic documents described in the WaPo piece above “lawful”? Some were signed without the notary present, which isn’t supposed to happen, and all apparently include sworn statements that the signer had personally reviewed the homeowner’s case file, which turns out in many cases not to be true. A homeowner challenging an out-of-state affidavit on those grounds would presumably be able to bar it from court even on the bill’s own terms. As for the point about “forum shopping,” here’s where I need the lawyers among us to chime in: Do notarization standards vary so widely from state to state that it’d be in a bank’s interest to do all of its affidavits in state A and then ship them out to courts in states B, C, D, etc? And don’t personal jurisdiction requirements in foreclosure cases severely limit the banks’ ability to shop for friendlier courts? If so, how would this bill have made banks’ lives significantly easier, to the point where at least one site today was describing this bill as “TARP 2″?

If legislators really want to do something to give homeowners more leverage, they could consider requiring banks to get a court order for evictions. As WaPo noted last month, 27 states currently don’t do that, which means it’s up to the homeowner to sue the bank to challenge the eviction. Tough, costly stuff if you’re one of the millions currently out of work and enjoying the aftermath of “Recovery Summer.” Exit question: Are we sure the Senate rammed this bill through because they were looking to stealthily help out some banks? They don’t read bills as important as ObamaCare; how likely is it that they bothered with an innocuous-sounding little nothing about notarizations?


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Shady congressional procedures and a one-size-fits-all federal “solution” that’s guaranteed to generate a ferocious populist backlash?

Oh wait! Let me guess. There’s a waiver for that….?…

the Whim of Autocracy
/Morrissey

ted c on October 7, 2010 at 4:25 PM

I think it’s fair. Since state courts are used for foreclosures, it’s correct for states to expect that a notary public in the state where the foreclosure is performed notarizes the documents, and that the documents are signed by a bank official resident in the state.

Obama’s right on this one.

unclesmrgol on October 7, 2010 at 4:26 PM

So bad was it, in fact, that within a matter of hours of the story breaking big, The One had vowed to let it die on his desk and thereby avoid the “unintended consequences” it might have for the mortgage industry. (Pat Leahy, who helped fast-track the bill for passage, now claims he supports Obama’s decision.)

I smell softball legislation. Send a really bad bill to the WH, let him swat it down, then talk up his tough stance on shitty laws.

Col.Mustard.Library.Knife.

This was too easy.

BobMbx on October 7, 2010 at 4:29 PM

The bill isn’t the story…how it was going to be handled is the story.
This guy, this “president” is at best inept…

right2bright on October 7, 2010 at 4:33 PM

Prediction: The mortgages are all going to blow up completely after November and it will all be blamed on the Republicans that took back over and set in place more failed policies.

I have heard just today so many crooked things the Dems are doing that I am really losing any hope at all about this country.

Greyledge Gal on October 7, 2010 at 4:38 PM

If so, how would this bill have made banks’ lives significantly easier, to the point where at least one site today was describing this bill as “TARP 2″?

Because ZeroHedge needs the traffic hits? He can’t continually praise Meredith Whitney for her “gutsy” call on CitiGroup in ’07 forever, you know.

http://www.bloomberg.com/news/2010-10-06/asia-day-ahead-goldman-s-forecast-economic-releases-japan-australia.html

Not that I’d ever accuse ZeroHedge of “riding the horse ’til it dies.’

BradSchwartze on October 7, 2010 at 4:39 PM

Obama now also physically sickening people

wildweasel on October 7, 2010 at 4:39 PM

Exit question: Are we sure the Senate rammed this bill through because they were looking to stealthily help out some banks? They don’t read bills as important as ObamaCare; how likely is it that they bothered with an innocuous-sounding little nothing about notarizations?

And how likely is it that Obama’s current position was based on a careful analysis of the potential impact of this bill? The guy is scared of his own shadow.

TexasDan on October 7, 2010 at 4:40 PM

Conservatives cant have it both ways.

You cant bash the big bad banks and their shady ties to government and then feign outrage over of the protection of deadbeats by lawyers and the government who let irresponsible people live in mortgaged homes for free and create a moral hazard.

I think this slipped through because no one wanted to look like they were for “big banks” but it was responsible. It had broad bi-partisan support rushed it through.

Too many deadbeats are living free because of lame technicalities in paperwork. The banks pass on the costs to the rest of us, who were stupid enough to pay their mortgages or rent.

I saw Michelle jump all over this. But I dont get the conservative outrage.

swamp_yankee on October 7, 2010 at 4:40 PM

Don’t overlook the fact that its a “pocket veto”. He didn’t veto it all. He just won’t sign or veto it before Congress adjourns. In this way, the bill dies on his desk.

Present.

BobMbx on October 7, 2010 at 4:41 PM

Obama’s right on this one.

unclesmrgol on October 7, 2010 at 4:26 PM

Yeah, sure, but he’s being weaselly about it with the pocket veto. I’m sure he doesn’t want the folks to find out which party is actually for big business and against the “little guy”. It’s bad enough with the “health care reform” waivers for those with clout….

JeffWeimer on October 7, 2010 at 4:43 PM

Present.

BobMbx on October 7, 2010 at 4:41 PM

THIS

JeffWeimer on October 7, 2010 at 4:43 PM

There have been hints, stories, that the bundling of mortgages into derivative securities has so jumbled up the title/mortgage documentation that challenging foreclosure is forcing banks to present to the court a clearly documented title/mortgage, and the banks can’t do it.

Which then leads to the question, if the bank can’t clearly document who actually holds the mortgage on a piece of real estate, is the loan properly being credited with payments made by those who are current? Are the payments being collected by the banks who originated the mortgage actually being forwarded to the entity currently holding the derived (MBS)security?

Skandia Recluse on October 7, 2010 at 4:46 PM

They don’t read bills as important as ObamaCare; how likely is it that they bothered with an innocuous-sounding little nothing about notarizations?

If they read it, they’re guilty.

If they didn’t, they’re even more guilty.

Schadenfreude on October 7, 2010 at 4:46 PM

I saw Michelle jump all over this. But I dont get the conservative outrage.

swamp_yankee on October 7, 2010 at 4:40 PM

Outrage over a dead-of-night stunt in the face of a “robo-signing” “scandal” shouldn’t have to be based upon partisanship. Regardless of whether or not such action would be effective (which I don’t think it would).

BradSchwartze on October 7, 2010 at 4:46 PM

swamp_yankee on October 7, 2010 at 4:40 PM

So two wrongs would make a right here? Allowing the banks, or the example here of Ally financial, to force their documents through no matter how poor the work makes it all better?

JeffWeimer on October 7, 2010 at 4:47 PM

Is this a procedural rule to apply to federal courts? If not, why is the fed gov’t even getting involved in this?

evidence standards are not so high in any state that a bank cannot get a proper foreclosure through.

It sounds to me like banks are looking for ways to legalize/legitimize their sloppy paperwork.

If nothing else, this strikes me as serious overreach by the fed gov’t.

Monkeytoe on October 7, 2010 at 4:47 PM

There are form and substance differences from jurisdiction to jurisdiction. People need to be aware of them when executing affidavits. Submitting a legally insufficient affidavit is incompetency. I don’t think incompetency by lenders, lawyers or court stenographers justifies federal intervention.

Forum-shopping isn’t really much of an option, and wouldn’t explain why lenders would want this bill passed.

It isn’t at all clear to me what is going on here. I’m cynical enough that the timing alone makes me suspicious, coming on the heels of revelations of systematic perjury on foreclosure affidavits. I’ve got a hunch the picture will clear when we learn more about who was involved.

There are a whole lot of loans secured by mortgages in default out there. During the glory days, lenders were cranking out loans and bankers were buying and selling them. Is there a big problem with unenforceable mortgages that turn partial losses into total write-offs? Is this an effort to provide cover or even relief for lenders, either for churning out false affidavits or filing on unenforceable paper? I don’t know, but I think we will find out.

novaculus on October 7, 2010 at 4:55 PM

Yeah, sure, but he’s being weaselly about it with the pocket veto. I’m sure he doesn’t want the folks to find out which party is actually for big business and against the “little guy”. It’s bad enough with the “health care reform” waivers for those with clout….

JeffWeimer on October 7, 2010 at 4:43 PM

The pocket veto prevents an override. It’s the smart thing to do when possible, as President Madison showed us in the early 1800′s.

unclesmrgol on October 7, 2010 at 4:55 PM

Foreclosure law is state law…Congress has no authority in this area. If I was a state, I would ignore them.

JIMV on October 7, 2010 at 4:57 PM

Using a couple of anecdotes of worse case scenarios is poor argumentation. It reminds me of the ObamaCare round table, when all the Democrats had were anecdotes, while the Pubs had real data. Lawyers and “community organizations” are clogging the courts with nonsense. You can let the banks pay for all the deadbeats, but, inevitably, we all suffer.

(And yeah. I’m a thirty-something attorney in Boston and I still rent unlike many of the idiots around me who got in over their heads. I know a little too much about liberals, lawyers and the fools acting like they “own” a home, when they still owe the bank 80%. Douchebags.)

swamp_yankee on October 7, 2010 at 4:58 PM

From what I understand, not having researched this much, it’s an open question as to who actually IS the owner of the mortgage in most cases anymore. The financial industry doesn’t know itself. You pay your bill, and have to hope that it is going to whomever it needs to.

I’m waiting for the day when someone who has been paying will be foreclosed on because the paperwork got all fouled up. It’ll happen sooner rather than later, and probably already has. And they may well be SOL, too. I can think of all sorts of ways to be screwed over. Lesson in all of this? Get rid of your mortgage as fast as you can!

Vanceone on October 7, 2010 at 4:59 PM

Good for him.

I don’t know what is in this bill, but neither do the Senators that voted for it. It was passed without debate and using unanimous consent. It did require GOP cooperation to allow it to bypass committee.

Damn our Senators for pulling this crap.

Kasper Hauser on October 7, 2010 at 5:02 PM

The question I want answered is why Fannie is buying up virtually all mortgages created this year. Are they seriously going to package them up with all of the existing garbage on their books and try to reflate the bubble?

Vashta.Nerada on October 7, 2010 at 5:03 PM

Michigan Judge Upholds Obamacare

The plaintiffs have not opted out of the health care services market because, as living, breathing beings, who do not oppose medical services on religious grounds, they cannot opt out of this market. As inseparable and integral members of the health care services market, plaintiffs have made a choice regarding the method of payment for the services they expect to receive. The government makes the apropos analogy of paying by credit card rather than by check. How participants in the health care services market pay for such services has a documented impact on interstate commerce. Obviously, this market reality forms the rational basis for Congressional action designed to reduce the number of uninsureds.

That is insane reasoning, you are part of the health care market by virtue of your existence.

commodore on October 7, 2010 at 5:05 PM

Foreclosure law is state law…Congress has no authority in this area. If I was a state, I would ignore them.

JIMV on October 7, 2010 at 4:57 PM

Since the 0bama regime has de-facto nationalized the banking industry, the federal government now does have a very vested interest in mortagages and foreclosures.

Rebar on October 7, 2010 at 5:05 PM

I do not believe it is outrageous to demand the mortgage holder prove they own the home in question and that the paperwork in the state of the home be proper…

JIMV on October 7, 2010 at 5:06 PM

Michigan Judge Upholds Obamacare

I am sure this was simply another example of Judge shopping..forget the various district court decisions and wait for it to get to a real court at the appellate level…

JIMV on October 7, 2010 at 5:08 PM

OT: Stimulus checks went to the dead, really.

Schadenfreude on October 7, 2010 at 5:18 PM

JIMV on October 7, 2010 at 5:06 PM

What they have to prove is that they have a debtor in default and a security interest in the property that entitles them to foreclosure.

novaculus on October 7, 2010 at 5:21 PM

I’m a lawyer in Iowa. I saw in another article that this legislation was sponsored in the House by Iowa Congressman Bruce Braley. He’s a D, and a trial lawyer at that, so I have a hard time seeing some nefarious plot by him to help big bad nasty banks.

As a general matter, having uniform laws apply to commercial transactions throughout the country is better than the alternative. As for “state law / federal law” and the question of nationalizing the banking industry, you all need to realize that a significant part of the law regarding banks has been nationalized for a long time due to the FDIC.

DakotaBoy on October 7, 2010 at 5:42 PM

To Allah’s question about forum shopping: the proposed law has nothing to do with the choice of forum for the foreclosure proceeding. Foreclosure is an action against the property (“in rem”) and must be brought in the jurisdiction where the property is located.

Perhaps there could be a situation where a national company wanted to have all of its documents (to the extent possible) notarized in a state with the least restrictive procedures. But the procedures aren’t all that restrictive in most places, and I’d wager that most states are like Iowa and already have a law similar to Iowa’s, that treats notarizations validly made in other states as valid in Iowa.

My guess is that there were some groups raising frivolous challenges in a few states, and Congress was asked to do something to stop the abuse.

DakotaBoy on October 7, 2010 at 5:50 PM

There have been hints, stories, that the bundling of mortgages into derivative securities has so jumbled up the title/mortgage documentation that challenging foreclosure is forcing banks to present to the court a clearly documented title/mortgage, and the banks can’t do it.

Skandia Recluse on October 7, 2010 at 4:46 PM

This is what’s really going on here. Banks are mired in a glut of poorly documented foreclosures. They have loans that aren’t getting paid and now may lose any ability to collect. So far we’ve only really seen residential foreclosures. There is a coming wave of commercial foreclosures that should dwarf the residential wave. If banks end up having to take baths on every single one, they will go under. Many courts have now decided that the way banks documented the MBS derivatives was legally insufcient, so they don’t have a lot of recourse. It’s a disaster if you think having a functional banking system is a good thing for the country.

alwaysfiredup on October 7, 2010 at 5:56 PM

Want to know how badly everything is messed up? The local NBC affiliate ran a story about a Northern CA woman who had received a Notice of Default and B of A had set a date to sell her home at auction.

The problem?

She didn’t have a mortgage with B of A. In fact, she owned her home free and clear! She had purchased the REO home from B of A several years ago after it had foreclosed on the previous owner. She contacted B of A and got the run around, then she contacted the title company who confirmed that she had clear title. The title company tried to contact B of A and clear up the matter, to no avail. Finally, in desperation, she contacted the news station’s consumer advocate program and they got B of A to admit their mistake and stop the trustee sale.

If this can happen to someone who never had a mortgage with a bank, don’t assume that everyone who is fighting their foreclosures are deadbeats. The initial wave of foreclosures that happened because of the subprime mess is past. The foreclosures that are occurring now are a whole different animal.

KaliMom on October 7, 2010 at 6:11 PM

Michigan Judge Upholds Obamacare

I am sure this was simply another example of Judge shopping..forget the various district court decisions and wait for it to get to a real court at the appellate level…

JIMV on October 7, 2010 at 5:08 PM

You’re right. Guess who appointed the Judge?

Del Dolemonte on October 7, 2010 at 6:21 PM

Sequidiot- where are you? We need some of your wit and wisdom on this topic too. /

CWforFreedom on October 7, 2010 at 6:24 PM

Unanimous consent? How does this pass by unanimous consent? As I understand the Senate rules, this only applies to “expediting proceedings” not actually voting on a bill. The Constitution says (Article 1 Section 7):

Every Bill which shall have passed the House of Representatives and the Senate, shall…in all such Cases the Votes of both Houses shall be determined by Yeas and Nays, and the Names of the Persons voting for and against the Bill shall be entered on the Journal of each House respectively….

So how does this get passed without actual “Yeas” and names entered?

SunSword on October 7, 2010 at 6:39 PM

Wow, it’s a bill that is against what prevents a bank from stopping foreclosure prevention by a court or not. I’m dizzy.

leftnomore on October 7, 2010 at 6:44 PM

Many courts have now decided that the way banks documented the MBS derivatives was legally insufcient, so they don’t have a lot of recourse. It’s a disaster if you think having a functional banking system is a good thing for the country.
alwaysfiredup

Fortunately, we actually have Canadian banks in the USA. Who operate under Canadian rules and so never exposed themselves to the mortgage disaster — as in, they hold all their own mortgages and never resold them. I bank with one of them, and have my mortgage with them specifically because they won’t resell it. And if other banks fail — mine won’t. Interestingly, you would never know the bank is Canadian — they are all over the Midwest with more than 300 branches and more than 1 million customers.

So not all banks are going to choke on this. Some of them will happily pick up the pieces.

SunSword on October 7, 2010 at 6:45 PM

There have been hints, stories, that the bundling of mortgages into derivative securities has so jumbled up the title/mortgage documentation that challenging foreclosure is forcing banks to present to the court a clearly documented title/mortgage, and the banks can’t do it.

Which then leads to the question, if the bank can’t clearly document who actually holds the mortgage on a piece of real estate, is the loan properly being credited with payments made by those who are current? Are the payments being collected by the banks who originated the mortgage actually being forwarded to the entity currently holding the derived (MBS)security?

Skandia Recluse on October 7, 2010 at 4:46 PM

This is the problem. If it becomes large enough, the entire mortgage industry goes up in flames. Literally a catastrophic failure. Millions and millions of loans that are unenforceable.

What to do?

nukemhill on October 7, 2010 at 10:51 PM