“It Is Happening Again”: David Dayen on the Epidemic of Mortgage Fraud and the Rigged Economy That Sets It in Motion
Can you explain in plain English how the foreclosure fraud industry worked?
I’ve described the book as picking up where The Big Short left off. From that, we know that investment banks sucked up millions of mortgages from fly-by-night companies like Countrywide and Ameriquest, put them into trusts, and packaged them into bonds for sale to investors all over the world. Well, when they did that, they simply neglected to follow the steps that would legally transfer ownership between the originators, the investment banks, and the trustees. When the bubble collapsed and homeowners began to default, the trustees needed evidence that they actually owned these loans in order to foreclose. Just like if you wanted to sue someone for stealing your car, you would have to come up with some proof that you actually owned that car. And because the mortgage trustees didn’t have that evidence, they just decided to fake it.
They hired third-party companies (or sometimes mortgage servicing companies and “foreclosure mill” law firms did this in-house) to fabricate the necessary documents after the fact. Because they needed these documents by the millions, they prized speed over accuracy. So they would have multiple people sign the same person’s name to double the output, or sign on behalf of companies that were out of business, or backdate the documents, or whatever. They would forget to change the effective date (so the mortgage was transferred on the date 9/9/9999) or who received the transfer (lots of mortgages were transferred to “BOGUS ASSIGNEE,” a placeholder name one of these third-party document fabricators used). One company had a price menu: they would mock up whatever document you needed, including re-creating the entire mortgage file, for a nominal fee. So whatever the lawyers needed to get the foreclosure done, they would fabricate.