Earlier this week the New York Times featured a depressing story about homeless people living in the foreclosed and abandoned houses that still dot the landscape in Nevada, reminding everyone of that awful time just a few years ago when families all over the country lost their homes in what has become euphemistically known as "the housing crisis." It was actually much more specific than that, it was an epidemic of criminal mortgage fraud and it devastated millions of people, many of whom have still not recovered.
My Salon colleague (and one-time blogging cohort) David Dayen has written a wonderful new book called "Chain of Title" about some amazing Americans down in Florida who were caught in the maw of this epic criminal conspiracy and bravely took on the system when no one else would do it. Faced with a morass of impenetrable documents and intractable officials they took matters into their own hands and uncovered the crime of the new century by becoming internet muckrakers, using crowd-sourcing and social media. And in the process of following their fascinating story, we learn the full scope of this massive crime which goes all the way from the Florida suburbs to the boardrooms of Wall Street.
I had a chance to ask Dayen some questions about the book this week.
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.
You covered the foreclosure crisis on a daily basis as it was unfolding. Did you have any idea of the scope of the problem in the beginning? Did anyone?
I actually feel like I got to things a little late, once it was in full swing. The first wave of defaults began in 2006-2007. I didn’t really pay attention until late in 2008, when these “Bushvilles” started popping up across the country, these large homeless encampments made up of foreclosed homeowners. It was clear by that point that this was an enormous crisis, parallel to a recession that was likely to create a second wave of defaults for families who were paying their mortgages until someone lost a job.
The problem was that we thought a new administration would get in and recognize how the foreclosure overhang could drag down the economy for years. But they never made the necessary commitment. And when the banks were caught faking documents to force through the foreclosures, they didn’t take advantage of that opportunity either, to create a reasonable solution for everyone involved, which was all the subjects of my book wanted.
It seems there were a multitude of ethical lapses and laws broken. What, in your mind, was the most important precipitating factor? Or was it really just a perfect storm? A black swan?
What precipitated this was that the mortgage industry thought they could ignore a 300-year old system of property law. They considered it too costly and time-consuming to generate and store (and pay to publicly record) paper assignments for every single transfer. Never mind that it was the law. Never mind that having a well-established property records system, so you can buy and sell property with the confidence that nobody else has a claim on it, is what separates developed and under-developed nations. The industry didn’t want to pay for it, so they didn’t. And they dared everyone – homeowners, politicians, law enforcement – to stop them. And given what transpired, and how little accountability we ended up seeing for this, you have to acknowledge that the industry made the right bet.
And to be clear, ignoring property records law facilitated the securitization frenzy, led to the housing bubble, and drove the collapse. There wouldn’t have been a recession, at least not one that looked like this, if the banks had to follow the property laws.
I think what struck me most about this story was the fact that the foreclosure fraud these ordinary citizens uncovered was so crude and so sloppy. I could only conclude that the people involved knew there was nobody minding the store. That says a lot about Americans' sense of ethics. How many people working in that industry do you think knew they were committing fraud and just didn't care?
At the low levels, what you heard a lot in depositions and interviews is that these people needed a job, they didn’t understand the complexities of foreclosure law at all, they were told that what they were doing was legal, and it was drummed into their heads that their employer could always find someone else if they had a crisis of conscience. What I call in the book the Great Foreclosure Machine survived on this intimidation of their own workers. It was a tough time for the economy and the ordinary $12/hour working stiff didn’t have any bargaining power. So people just went along. That probably says something worse about American workplaces than American ethics!
And needless to say, workers under pressure and threats don’t do the most exquisite job, which just made things worse.
Even at the higher levels, the managers of the document processors were under pressure to supply the false mortgage paper. The law firms were under pressure from their clients to close out the cases. Sure, there were a few assholes in the executive suites, who knew that 95 percent of foreclosure victims never contested their cases, and didn’t think anybody in government would ever challenge them. But we shouldn’t discount how tunnel vision on the part of the cogs of the Great Foreclosure Machine made the ethical quandaries disappear.
The only person convicted of foreclosure fraud was the CEO of DocX, a robo-signing firm. Can you explain how the rest of the mortgage servicers wriggled out of accountability for this? It was standard operating procedure, right?
Not only was she the only person convicted, she was convicted for duping the banks! The indictment said that Lorraine Brown directed the document fabrication “unbeknownst to DocX’s clients.” So she just invented the concept of faking documents! As if there was some expectation on the part of the industry that a third-party document processor could supply them with legitimate paperwork!
After the book was done, Lynn Szymoniak, one of my subjects and the woman whose complaint triggered the investigation that led to Brown’s conviction, got the results of a Freedom of Information Act request about that whole case from the Jacksonville FBI.
I’ve seen the documents, and I’m going to be writing about them. But suffice to say that was a serious investigation with a lot of agents involved, and if it were done properly, it could have gone up the chain to implicate every major bank in America. In fact the FBI was on the way to doing that in a couple respects. And then everything just stopped. Right around the time that the Justice Department got involved.
I also think that the conduct was so systemic, so routinized, that you would have had to prosecute pretty much every high-level figure in the industry. And nobody was willing to even conceive of that possibility.
How did you come upon Lisa Epstein, the oncology nurse who started the ball rolling when she discovered there were anomalies in her foreclosure documents?
There’s a scene in the book after Lisa and her counterparts exposed foreclosure fraud, where they came to Washington for this meeting with a lot of political folks, journalists, activists, to try to figure out what to do next. I was at that meeting. I met Lisa, Michael, and Lynn there, in fact. And they became great sources of information. I read their websites every day for a few years probably. They just had a better knowledge of what was happening, better contacts on the ground, than anybody else. I couldn’t believe it was only three people, it seemed like you would need a team of assistants to pump out what they did on a daily basis.
What was it like finally meeting her and Michael Redman, the fellow victim she met online and the lawyer Lynn Szymoniak, the other two leading characters in your story? They are such interesting brave citizens. Did you get a sense of what it takes for ordinary people to rise to such an occasion?
One thing that fascinates me about them is the nature of this obsession. Lisa described this time as like an intense romance. They really sacrificed everything going on in their lives – jobs, marriages, personal comfort – because they could not stop thinking about foreclosures, strategizing, providing support and comfort, and taking on the next challenge. And remember, they had no knowledge of foreclosures or real estate or finance when they started!
I think as bloggers, you and I have a sense of that obsession, of how you can’t let an hour go without another post. But this was much bigger than that, and it just took tremendous courage to go up against the most powerful institutions in America armed only with the truth.
Was the local press in Florida following the story as closely as you were? Was anyone?
Yes, actually. The locals in Florida got this faster than the national papers. Kim Miller at the Palm Beach Post wrote some great stuff using Lisa and Michael’s information. I think she won awards. One of the great unsung heroes was a journalist named Paola Iuspa-Abbott. She worked for the Daily Business Review, this little industry trade publication in Miami. Paola was from Argentina, and she remembered during the military dictatorship in the 1970s how the rule of law broke down, and she saw the Florida courts exhibiting the same tendency. But I couldn’t believe what she would get away with, because the main revenue for the Daily Business Review came from foreclosure law firms publishing notices of default in their classified section. Paola would get incontrovertible evidence and write these stories, and they would publish them. And the whole time, she was working for a paper kept alive by the foreclosure industry!
The story sets forth a real life example of crowd-sourcing, using the internet for local activism. Do you see this as a template for other forms of consumer activism going forward?
I think it already has been. At the time of the book, 2009-2010, it was pretty new to have this collaborative, networked activism. It was the combination of the old blogosphere where everyone would link to and comment on each other’s stories, amplifying them to the public, and a distributed research project. And offline activism grew out of it. I think that’s the same model that gave us Occupy Wall Street, the low-wage worker Fight for $15, the Bernie Sanders campaign in some respects.
The foreclosure fraud movement was an early adopter that didn’t succeed the way its activists hoped. But I say in the book that movements in America crash onto shore like waves, each one a little bit further than the last. We should recognize what these people did because it informs so much of the movement-based culture happening today.
During the financial crisis the Wall Street story, government bailouts and executive bonuses were sexier stories and got a lot of coverage but this was one that directly affected six million mostly middle class working families and literally wiped out decades of wealth accumulation, particularly of people of color who had just gotten a leg up into the middle class. It's an extremely compelling illustration, as your book shows, of how the abstraction of systemic corruption is relevant to average Americans. Why are you and a handful of other journalists the only ones who recognized this?
This was a story that was mostly relegated to the business pages. I was covering it because I was working for a political website and living out in Los Angeles, and I wasn’t walking into Congress or out on the campaign trail every day, and it was how I could add value to my reporting, to sort of “own” a beat. But it took a lot of accumulation of knowledge, which the media didn’t want to invest in. There is one reporter in the story who tells Michael that it was just too complicated to explain to a daily newspaper audience, so she would have to pass on the story.
There are moments when I think that I shouldn’t have been able to write this book in 2016. This should have been common knowledge. Somebody should have gotten to this. And the fact that they didn’t represents a failure of the media to connect with a story so central to the lives of millions of people, one that probably has a better claim to explaining the anger and frustration people feel about a rigged economy than any of the other armchair explanations.
Are we safe from it happening again?
It is happening again. Every day in America people get kicked out of their homes from false documents. The government created a bunch of settlements with the mortgage companies, but central to most people’s conception a settlement is the notion that the settled misconduct stops. It never did. Nobody cleaned up the paper.
It’s going to take an entire cycle of getting mortgages originated in 2004, 2005, 2006 out of circulation to actually end this. After that, we do have new laws on what kind of mortgages get issued, and the private investors are thoroughly uninterested in buying private mortgage securities from banks. So the skepticism of the investors might save us. But those memories don’t always stay so long.
Just for fun, any thoughts on Trump Mortgage? You have to admit his timing was perfect ... 2007.
I wrote about Trump Mortgage, actually. So did Lynn Szymoniak. When the first iteration of Trump Mortgage imploded, Trump licensed the name to a company called First Meridian, who originated loans that got sold up the chain to big banks, and then went through this exact same cycle of dodgy origination and securitization and foreclosure fraud. First Meridian got really mad at me for pointing this out. I guess the apples don’t fall far from the tree.
And of course Trump’s finance chair is Steven Mnuchin, one of the worst foreclosure operators of this entire period back when he was CEO of OneWest Bank. Activists sat on his lawn and threatened to move into his house unless he stopped a particularly egregious eviction. Mnuchin called in twenty police officers and a helicopter. So you know, Trump got the right guy for the job.
"Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud" by David Dayen, published by The New Press, is available now.