Neo-Feudalism and the Housing Crisis

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A number of people have linked to the part of this Joseph Stiglitz interview where he says we won’t fix the economy without some good old fashioned prosecutions. But I wanted to highlight where he describes the way our system of debt imposes a kind of indentured servitude on the debtors.

Can we draw a direct line from the outsize influence of the executives and the bankers — because these skewed incentives and penalties out of whack didn’t just arise out of a vacuum. How did we get to where we are?

It’s clearly the influence of campaign contributions and lobbyists. Let me give you another example of where the legal system has gotten very much out of whack, and which contributed to the financial crisis.

In 2005, we passed a bankruptcy reform. It was a reform pushed by the banks. It was designed to allow them to make bad loans to people to who didn’t understand what was going on, and then basically choke them. Squeeze them dry. And we should have called it, “the new indentured servitude law.” Because that’s what it did.

Let me just tell you how bad it is. I don’t think Americans understand how bad it is. It becomes really very difficult for individuals to discharge their debt. The basic principle in the past in America was people should have the right for a fresh start. People make mistakes. Especially when they’re preyed upon. And so you should be able to start afresh again. Get a clean slate. Pay what you can and start again. Now if you do it over and over again that’s a different thing. But at least when there are these lenders preying on you should be able to get a fresh start.

But they [the banks] said, “No, no, you can’t discharge your debt,” or you can’t discharge it very easily. They have a right, now, to take 25% of your before-tax income. Now imagine what that means. Let’s assume that you wound up, as it’s not that hard to do, with a debt equal to 100% of your income. You’re making $40,000, and your debt is $40,000. You have to turn over to the credit card company, to the bank, $10,000 of your before-tax income every year. But, the banks can now charge you 30% interest.

So what does that mean? At the end of the year, you’ve paid the bank $10,000, a quarter of your income. But what you owe the bank has gone from $40,000 to an even larger number because they’re charging you 30%. So you’re debt is larger. So the next year you have to give a quarter of your income again to the bank. And the year after. Until you die.

This is indentured servitude. And we criticize other countries for having indentured servitude of this kind, bonded labor. But in America we instituted this in 2005 with almost no discussion of the consequences. But what it did was encourage the banks to engage in even worse lending practices.

We’ve made it so difficult for individuals to discharge their debt and have this fresh start, and yet it is just taken for granted that a corporation or a company can blow up and then they can file for bankruptcy and then they can start over.

We give rights to corporations that we don’t give to ordinary Americans. One of my proposals in my book Freefall — one of the ways to deal with this foreclosure problem, the fact that one out of four Americans who have a mortgage are underwater: They owe more money on their home than the value of their home. Their home used to be what they used as the reserve for paying their kids college education, for their retirement. Now it’s a liability, not an asset.

So what I’ve argued is, we have these laws called Chapter 11 to give a fresh start to corporations. We say it’s very important to be able to do this quickly, we want to keep jobs, we want to keep the corporation going as an ongoing enterprise.

Families are as important as corporations. Keeping kids in school, not forcing them out of their home, keeping the community together, is certainly as important as keeping a corporation alive.

He calls this indentured servitude, but I call it (because I’m also factoring things in like the privatization of security and decline of the nation-state) neo-feudalism. In either case it’s an observation that people who used to be citizens have been turned into profit centers for the very powerful. Through a variety of means, these very powerful entities have secured the ability to oblige those profit center people to turn over large chunks of their  worldly gain for the foreseeable future, and even though those powerful entities offer little in return, the people bound to them have little hope of escape. Hell, in many states, mortgages serve as a similar kind of legal bind to a piece of territory, one ultimately owned (if they can prove they have the note) by these powerful entities.

And as Stiglitz notes, a key to pulling this shift off is to write the law to favor the powerful entities and disempower the weak. And (as he points out elsewhere in this interview) to make sure that only those powerful entities have access to justice.

Yet, as a recent study made clear, the access to justice for the poor in this country rivals that of Mexico and Croatia.

In January 2008, well before the financial crisis became an emergency, I asked Chuck Schumer why Democrats didn’t repeal the 2005 Bankruptcy Bill Stiglitz addresses above. I pointed out that repealing it might mitigate the problem of foreclosures and with it, stave off a larger crisis.

Schumer responded by saying we did not yet have the votes to make the kind of substantive overhaul that was necessary. We had to wait, he said in January 2008, eight months before foreclosures contributed to the the collapse of financial system, until 2009, when we had a larger majority.

We just lost the majority that Schumer claimed we would use to repeal the bankruptcy bill. During the entire time the Democrats had the majority, families were losing their homes in ever increasing numbers.

And yet Democrats never used their vaunted majority to stem the advance of neo-feudalism in this country.

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Want to Sue the Banksters? Ask WhereIsTheNote

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Remember WhereIsTheNote?

In the face of mounting evidence that the banks foreclosing on homes did not comply with legal requirements during securitization of mortgages and therefore don’t have legal standing to foreclose, the SEIU and some community organizations teamed together last month to create an online tool that anyone can use to ask their mortgage servicer where their note is. By helping homeowners proactively check whether their bank has the right paperwork, it gives them more power in the event of a foreclosure.

The site launched just over three weeks ago. 200,000 people have visited the website; around 15,000 have used the tool to ask their bank for their note (I’ll have a more exact number shortly).

What has happened since gets very interesting. In the first few days, some banks responded quickly and in apparent good faith, some admitting there was a problem, and others sending what they claimed was the note, but was either something else entirely, or clearly did not meet the requirements for transfer.

But as banks realized those first requests were not isolated requests, two things happened. Either banks have sent back a response saying the homeowner had no right to see their note. Or, banks have not responded at all.

Here’s where things get interesting. The WhereIsTheNote-generated letters invoke the Real Estate Settlement Procedures Act (RESPA). Section 6 of RESPA dictates how loan servicers must reply to consumer complaints about their loan.

Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer’s required payment.

A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, within three years, against a servicer who fails to comply with Section 6’s provisions. Borrowers may obtain actual damages, as well as additional damages if there is a pattern of noncompliance. [my emphasis]

In other words, RESPA says that if homeowners write their servicer and say, “I have a problem with the way you’re servicing my loan,” the law requires that the bank acknowledge that the homeowner has written that letter within in 20 days. And it requires that it resolve that complaint within 60 days. If banks don’t do so, homeowners can sue.

So, as I said, just over three weeks after people started using this site, banks have been writing back and either telling homeowners that the complaint basically saying “I have doubts about whether you actually have legal standing to collect my mortgage payments” doesn’t qualify as a “problem” under RESPA. Here’s how IndyMac made such a claim in one response letter.

Although your fax references the response as RESPA Qualified Written Response eligible, your request actually does not qualify. The statute and case law require that the correspondence disputes the servicing of the loan and requires the sender to provide the servicer specific facts that would enable the servicer to investigate and respond. For instance, a dispute may involve a misapplication of a payment or a miscalculation of a monthly escrow amount. The statement that you are concerned about what you may have heard on the news does not qualify as a dispute with the servicing of your loan. Consequently, we are not subject to the response requirements set forth in the Real Estate Settlement Procedures Act.

In other cases–such as Citibank in my case–the bank appears to have simply let the 20-day deadline pass without a response.

Now, the genius of the WhereIsTheNote campaign is twofold. First, for the first time, someone is collecting an independent set of data about whether banks have a right to collect payment on the loan or not (there is privately available data, but it’s very expensive). WhereIsTheNote has already recognized, for example, that Bank of America and its subsidiaries have adopted a uniform claim that RESPA doesn’t apply in this case (of course, Bank of America is one of the most suspect banks for note problems). And WhereIsTheNote is collecting information that will show that not just those houses in foreclosure, but performing loans have note problems, proving that this is not an issue of “deadbeat” homeowners, but rather banks that are playing fast and loose with private property rights.

But more interesting is enforcement. As the section I cited above makes clear, borrowers whose banks refuse to respond to a RESPA request can sue for damages.

And as it happens, the Attorneys General in all 50 states are already investigating whether the banks are engaging in foreclosure fraud to cover up securitization problems. Which means there are already lawyers out there ready to take on the banks that do things–like refusing to respond to homeowner RESPA requests. WhereIsTheNote will be referring these RESPA non-responses to the AGs to respond accordingly.

If you haven’t already done so, I encourage you to ask your servicer WhereIsTheNote. Because–on a day when all else seems hopeless–it may well be a means of holding the banks accountable for the shitpile they made of our nation.

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Freddie Repossesses Its Files

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Fannie Mae and Freddie Mac had already suspended all their work with David Stern. But now they’ve officially severed all relations with him and Freddie has taken their files away.

Freddie Mac took the rare step of removing loan files after an internal review raised “concerns about some of the practices at the Stern firm,” a Freddie spokeswoman said.

“We have begun taking possessions of all files on Freddie Mac mortgages simply to protect our interest in those loans as well as those of the borrowers,” the Freddie spokeswoman said. A Fannie spokeswoman declined to elaborate.

Fannie and Freddie said they will move those files to other law firms in the state but that they hadn’t yet identified where they would be redistributed. The firms said they had notified Florida’s attorney general about the decision to remove the files and that the Stern firm had cooperated with the action.

Let’s see. It’s November 2. On October 4, 29 days ago, the former assistant of the woman who oversaw Stern’s robosigner division testified that 1) Stern’s firm would routinely reclassify Freddie Mac loans as some some other firm’s loans when Freddie came onsite for an audit to hide those files from the firm, and 2) sometime in August, Stern reportedly packed up an eighteen wheeler full of documents and took them to an unspecified office in Orlando.

I can’t imagine why Freddie would want to take possession of its files, can you?

Problem is, it may well be far too late to prevent Stern from tampering with Freddie’s documents. Though it’s nice of them to start worrying about protecting the interests of their homeowners.

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Citi’s Fear

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I wanted to return to a detail I mentioned in yesterday’s book salon. As I noted, in his book on the auto bailout, Steven Rattner described Citi as being worried during the Chrysler negotiations that retail customers would retaliate if Citi played hard ball.

Bankers for Goldman and Citi had advised [JP Morgan Chase VP and the Chrysler bondholder’s lead negotiator] Jimmy Lee to make the best of a bad situation. Privately they felt his brinksmanship was embarrassing and potentially costly. Citi especially wanted to avoid a liquidation. Its analysis showed it would recover no more than 20 cents on the dollar in that instance. Citi also feared losing business in its branches in states like Michigan and Ohio where consumers might blame it for Chrysler’s demise. (173)

That didn’t make sense to me given that Citi doesn’t have branches in MI and OH; the closest actual branches are in Chicago. Compare that to Chase, which just took over from Comerica as the biggest bank in MI by deposits and was presumably second at the time of the bailout negotiations. Citi should only fear retaliation from consumers elsewhere, in those urban areas that actually have Citi branches, or they should fear retaliation some other way, presumably through their credit card business. I asked Rattner why Citi was worried, but JP Morgan Chase was not, given its much greater involvement in the auto states. He responded, “Yes, they were definitely worried.”

Frankly, I don’t know what to make of this. Given the context of the claim–in which Goldman and Citi are portrayed as talking Jimmy Lee down from a hardass negotiating position–JPMC appears not to have been sufficiently worried to change its behavior. And the Citi claim doesn’t make sense on its face. Perhaps Citi was worried about something else. Perhaps they were just more worried because they were insolvent? There are a few details he pretty clearly got wrong in his book (such as his claim that Nissan’s consideration of a deal with Chrysler was secret), but this seems instead like one of the abundant examples of where Rattner is an unreliable narrator. Rattner chose to portray Citi as worried (and quickly agree the hard-bargaining JPMC was, too), but it’s unclear whether that was really true or just nice spin on the banks.

What Rattner probably didn’t know was that FDL was trying to increase this worry at the time by encouraging people to take their money out of Chase. That was a mostly unsuccessful effort (let me tell you, Chrysler is  no more popular in this country than the big banks) to target the banksters for actions that hurt the communities they’re in.

As unsuccessful as our effort was in terms of numbers, if Rattner-the-unreliable-narrator’s claim has any basis in fact, then our effort to pressure JPMC to behave better worked. Sort of.

Since then, Arianna’s Move Your Money campaign has more successfully advocated for people and institutions to move their money out of the big banks. By April, they claimed $5 billion had been moved. And it does seem like some of the banks are losing market share to smaller banks.

The largest banks in Michigan are losing market share and Chase Bank now has the most deposits in the state, according to new data released Thursday by the Federal Deposit Insurance Corp.

As of June 30, the five biggest banks in Michigan — Chase Bank, Comerica Bank, PNC Bank, Bank of America and Fifth Third Bank — accounted for 55% of all deposits in the state. That’s down from 57.3% on June 30, 2009.

I raise all this because of another interesting discussion about whether consumer action might more effectively target the banks. Via Yves Smith, I found this Playboy article on Edmundo Braverman’s WallStreetOasis.com’s proposal on How to Destroy a Bank (Yup, it appears you have to have a pierced navel and no pubic hair to be a Playboy model these days).

This article set forth a plan for how consumers could destroy one of America’s four largest banks. Customers would deliver a series of escalating threats against Wells Fargo, Bank of America, JPMorgan Chase and Citibank, demanding policy changes. The threats would culminate in a series of flash-mob bank runs that targeted one of the banks.

In a comment in Yves thread, Braverman acknowledged his idea was a thought exercise to take Move Your Money the next step.

The whole thing was inspired by Arianna Huffington’s “Move Your Money” idea. I thought it was a good idea, but not one that would be dramatic enough to produce any changes in the way the banks did business. So I asked myself, “What would have an impact on the banks?” and that’s when I came up with the Tank-A-Bank plan.

It was always just a thought exercise, and never something I advocated.

Yves seems to be thinking more about this; what can consumers do that won’t get them jailed as terrorists but will get us to a point where the finance industry isn’t dragging our country down even while stealing our money in the process?

Read more →

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Some Questions on Principal Reductions

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Both Felix Salmon and DDay are arguing that if the banks lower principal on some unspecified set of loans, it’ll fix the “mortgage mess.” Now, I agree that loan modifications are one of the things we ought to strive for to solve a number of our problems. But I’ve got questions about what they’re proposing.

First, which mortgages do you intend to modify? Just those in foreclosure? If you do that, you’re stuck with the same problem modification programs already have: the point is to modify a loan early enough to make a difference for both the homeowner and the mortgage holder.

Would you extend the principal reductions to non-performing loans? Those amount for 9-10% of all mortgages. That would prevent some homes from going into foreclosure, but probably not those of people who have lost their jobs. Moreover, this only helps a fraction (maybe a third to a half?) of people underwater on their mortgage.

Both Felix and DDay suggest this plan would do something about the underwater home issue, though, suggesting they’re contemplating principal reductions on the underwater homes more generally? Those amount to 23.3% of all mortgages. This would have the tremendous value of effectively making the banks pay for the inflated prices they encouraged during the boom. But that’s already a whole lot of mortgages you’d have to modify.

But even then, you haven’t solved the shitpile problem. Because these percentages still leave out the majority of mortgages. And many of those were securitized during the bubble, either because relatively new mortgages (those written in the last decade) were securitized or because people refinanced and the new loan got securitized. If the problem lies in securitization–and I’m certain Felix and DDay agree that that’s the problem–then to clear up the title problem you’re going to have to do it for all those homes that were not securitized properly.

And we don’t know how many mortgages that includes. Indeed, how would we identify those mortgages?

Just as an example, take my home. I bought it in 2002. At some point, ABN Amro either took over the loan itself or the servicing of it. After that, Citi did. Freddie Mac claims to own the loan right now. The original mortgage was written before the securitization problems got really bad, but within the window that it might be a problem. I asked Citi where my note is using the WhereIsTheNote site. And thus far, at least, they haven’t responded by saying, “Oh, Freddie’s got your note.” Now, I’m trying to sell my house, which is just barely not underwater (I put 20% down when I bought it eight years ago, but it has lost a third of its value, largely due to the number of foreclosures in my neighborhood). Now if things go well, I’ll be able to get out of my house without any principal reduction (and trust me, I am grateful that I am better off than a lot of people trying to sell now). But what happens if it becomes clear there is no clear note holder? To whom do I pay off my mortgage when I sell it? How much value would I lose on the house in the process and would that put me underwater (answer: yes)? And if so, would I then qualify for a principal reduction? But if you don’t modify my mortgage and in the process give my house a clean title, then my house would for very good reasons be worth less than my neighbor’s house that did get a modification.

I’m all in favor of principal reductions. But I doubt you’d ever be able to reach even those underwater homeowners who would benefit from it. But it seems to me it still doesn’t fix the more general problem of shitpile.

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Fidelity National Drops Nationwide Indemnity Requirement

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This whole title insurance thing is getting confusing.

Fidelity National Financial Inc., the largest U.S. title insurer, canceled a requirement for lenders to guarantee proper foreclosure procedures amid “heightened review” processes by banks.

The company won’t require an indemnity agreement before insuring individual foreclosed properties, according to a memorandum to employees yesterday. It will continue the arrangement with Bank of America Corp., the largest U.S. lender.

Fidelity National reversed course from a requirement put in place a week ago after institutions took steps to police foreclosure paperwork, according to the memo. Failure of other insurers to follow its lead also put the Jacksonville, Florida- based company at a competitive disadvantage, said Peter Sadowski, executive vice president and chief legal officer.

“Although competition was a factor, we wouldn’t take undue risk for competitive reasons,” Sadowski said in an interview. “We feel comfortable with the new process.”

But what I take it to mean is that, at least partly because other title insurers weren’t requiring Fannie and Freddie to indemnify their foreclosure sales, Fidelity National dropped the requirement that they (and other lenders) do so, too. But it’s not clear if, in lieu of this indemnity, Fidelity is going to require the lenders to actually prove they have standing to foreclosure.

Whatever the case, Fidelity National seems to be saying that a risk that was there just week ago, no longer exists.

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NOW Fidelity National Is Heading in the Right Direction

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According to MarketTicker via 4closureFraud, Fidelity National has done the thing (at least in Florida) that makes it demand that mortgage servicers warrant against mistakes-otherwise-known-as-fraud meaningful.

Eh, I have an update from Fidelity Title – this is for Florida foreclosures.

Here’s the salient “trouble spot” – this is what must be in the foreclosure docket for them to grant a policy:

The plaintiff in the action is: (1) the record holder of the mortgage being foreclosed; or (2) has filed the original promissory note in the foreclosure file; or (3) has obtained a final order reinstating the lost promissory note.

In other words, before Fidelity will insure the title of a foreclosure sale, it wants to see real proof that the party foreclosing on the home has the legal right to do so. Imagine that?!?! Property rights!

This may well increase the likelihood of clearing out the shitpile the finance industry created.

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The Investigative Process

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Adam Levitin, one of the first people to tell investors how the foreclosure crisis may just point to much larger problems introduced by securitization, has this to say about what we need to do to get out of this mess.

I was glad to hear Ben Bernanke announce this morning that federal regulators would be looking into the faulty foreclosure process.  But how is this inspection going to work?  The only way to actually answer whether we have a systemic faulty foreclosure problem is to have legally trained personnel examine a healthy sample of actual loan files on both the servicer and trustee level.  Is that what the federal bank regulators are going to do?  Do they even have the personnel?   I don’t think bank examiners have the training to know what sort of legal documentation and procedures are required to properly consummate a foreclosure; it’s just not part of what they do.  And are they going to look at the actual loan files or just talk to the servicers and get reassurances?

The credibility of the federal response rests on the investigative process; unless there are sufficiently trained personnel looking at the actual files, we won’t know the real scope of the problem, and any clean bill of health will be a white wash. [my emphasis]

This gets at something I’ve been trying to get to in my continued rants about warranting titles. The legally trained people who would normally review titles on this kind of individualized basis are title insurer employees (I grant that they probably don’t have experience in tracking the trustee data, though my suspicion is that the easily identified problems, like robosigned documents, would be a good initial trigger point for further investigation into the securitization of the loan).

By having the banks warrant these loans, it makes it far less likely that the title insurers will do that kind of review (and remember, Fidelity National by itself looks at almost 40% of the titles that pass hands).

Now maybe there is someone besides the title company prepared to do this work, but I’m not hearing anyone besides Levitin talk about who that might be.

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Fannie and Freddie Near a Deal with Title Industry

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As I noted in my last post on the move, led by Fidelity National, to require banks to warrant against “incompetent or erroneous affidavit testimony or documentation,” the move was largely about getting Fannie and Freddie on board and with them making this a standard practice in the industry.

So I’m not surprised by the report that that’s precisely what is happening. But I do find the description of Fannie and Freddie’s role in this process to be noteworthy.

The behind-the-scenes work illustrates how, as banks prepare to resume home repossessions, few entities have a greater interest in helping to put the foreclosure train back on track than Fannie and Freddie, which together own or guarantee half of all U.S. mortgages.

“They’re in a position to pursue good, straight, and solid answers. In that way, they play a quasi-regulatory role,” said Kurt Pfotenhauer, chief executive of the American Land Title Association, a trade group.

[snip]

Still, the foreclosure-document crisis is raising an age-old question that has dogged the mortgage firms: Should they play the role of regulator, or business partner, with the mortgage originators and servicers that are their customers?

On one hand, Fannie and Freddie need to make sure foreclosures are proceeding properly. But on the other hand, they want to move the process along as fast as possible because each day that they can’t repossess homes, they lose more money and ring up a bigger bill for taxpayers.

“Given their public purpose and the special advantages they have in the marketplace, Fannie and Freddie should be a model to the whole industry of how to make sure the foreclosure process is working properly,” said Julia Gordon, a senior policy counsel at the Center for Responsible Lending.

But the firms’ regulator, and the companies themselves, say that the onus is on servicers to fix any problems and vouch for the quality of their foreclosure processes.

Fannie Mae “is not in a position to be the determining body as to whether servicers are putting processes in place that comply with the law,” a company spokeswoman said.

This is basically the government–as the owner and guarantor of Fannie and Freddie–basically saying the banks should just fix their own practices. No wonder that line sounds so similar to what we’re hearing from the Obama Administration.

And couple this disinterested stance toward servicer problems with the news that the government has known, since sometime after May, that there was a,

significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.

Yet it has not done anything about the servicers that it knows (but will not name) which have not followed required practices to try to keep people in their homes.

Note too the reference in the linked article to Fannie’s institution of fines on servicers that didn’t churn through their foreclosures in timely fashion.

The past practice of Fannie and Freddie shows they have every intention of keeping foreclosures churning through the system and government regulators appear to have no intention of slowing that churn. Signing this title insurance agreement is part of that same process.

We, the taxpayers, have become the owners of a system that churns inexorably on to evict us from our homes.

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“The Federal Government Is Moving Comprehensively and Quickly”

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Something has been nagging me about this HuffPo description of HUD Secretary Shaun Donovan’s briefing on the foreclosure crisis the other day. It’s the revelation that, in a review started in May, the government had found that foreclosure servicers are not complying with FHA requirements that servicers attempt to modify loans before they foreclose on them.

Donovan said the administration had yet to complete its review, which began in May. Thus far, though, it had found “significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.” Donovan said the findings were limited to firms that deal with FHA loans. He declined to single out servicers. Other HUD officials likewise declined, despite repeated requests.

When it came to the larger issue of what some legal experts describe as a fundamentally-flawed and fraud-ridden mortgage market — fraudulently-underwritten loans that passed through a maze of institutions that failed to properly maintain basic paperwork or follow legal procedures in bundling, securitizing and ultimately selling those mortgages to investors — Donovan said that, thus far, all is well.

“The primary issue that’s been the focus of the moratoria is, is the foreclosure process being followed correctly? Are affidavits being filed correctly, and are notarizations and other things being done correctly? That is one set of issues,” he said. “A second set of issues — and we think this is very important — that we look more broadly at, ‘Are servicers taking steps to help keep people in their homes?'”

The lesser, third issue that has been raised, Donovan said, is whether the process underlying the securitization of mortgages is “in question.”

“So that’s the point that I’m trying to make, is that the issues that we are finding … that we’re focused on are, ‘Are there particular servicers that are not following these processes?'”

Donovan added that “we have not found any evidence at this point of systemic issues in the underlying legal or other documents that have been reviewed.”

Keeping in mind that this review started five months ago, watch this video of Donovan from Wednesday. In it, Donovan seems intent on declaring the overall system of mortgage finance–including MERS–to be sound, even while he reveals that the review showed some servicers were not making the required effort to modify loans before foreclosing on people.

This is not a systematic issue, according to Donovan, but some servicers that he declines to name (as he did in the briefing HuffPo describes) are not following processes to keep people in their homes. Oh, and “the Federal government is moving comprehensively and quickly to ensure that servicers are complying with the law and that they are taking the actions they’re required to take and they should take to keep people in their homes.”

Well over a million homes have been foreclosed on since the government began its review of the foreclosure process. At some point in that time, the government determined that certain servicers were not complying with federal rules about modifications.

So why are we just hearing about it now after those million families have lost their homes?

I appreciate that the government–by refusing to call this systemic fraud systemic–acquires new leverage over servicers to actually do something about their refusal to modify loans. But why have we heard nary a peep out of the government about this before now? And why is the government refusing to make public which deadbeat banks are breaking the rules on loan modifications?

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