Chain of Title (41 page)

When Lewis came up for reelection, Jessica Ticktin, a thirty-five-year-old foreclosure defense attorney who argued cases in her courtroom, decided to challenge her. Lawyers across the state contributed to Ticktin's campaign. And the foreclosure fighters did their part. On a hot August Election Day, Lisa and Michael stood on their feet for hours, encouraging voters to dump Lewis. It worked—
Diana Lewis lost 54 percent to 46 percent, becoming just the fourth Palm Beach County circuit judge to be booted in the last thirty years. Lynn went to court the next day, just to observe. Judge Lewis was unusually peevish.

One election does not make up for the outrage and human tragedy of the foreclosure crisis. But to Lisa, it felt so gratifying. And it showed that the spirit of the movement that gave its best shot at forcing accountability remains alive. They may have gone local, but they can still pack some force.

And they won't stop for generations. Lisa's daughter, Jenna, is now eight. One day her teacher gave a lesson, explaining how you can save money by putting it in a bank. Jenna raised her hand and said, “No, don't you know? The banks steal money! If you put it in a bank it'll be gone forever!” The teacher sent Jenna home that day with a note, telling Lisa that her daughter didn't understand the concept of banking. Jenna told her mother, “Mama, that teacher's crazy! She told us to put our money in a bank today!” Lisa just smiled.

ACKNOWLEDGMENTS

In summer 2010 a family friend asked me, apropos of nothing, “Why was President Obama's plan to help those struggling with their mortgage written to favor the banks instead of the people?” His story of mistreatment by his mortgage servicer sparked an interest I didn't know I had into a subject I hadn't previously bothered to understand. Six years later you're holding the end result.

I have an inordinate number of people to thank, starting with my editor Carl Bromley and all the staff at The New Press. Carl took a chance on a first-time author for reasons that are still obscure to me, and yet he was generous, gracious, and wise from beginning to end. It was a great pleasure working with him and his team.

Jane Hamsher, the founder of the dearly departed, groundbreaking political blog
Firedoglake
, where I worked from 2009 to 2012 as a news writer, was the first to suggest that I turn this story into a book, and I am eternally grateful for not only that but everything else. Gregg Levine, Cynthia Kouril, and the late John Chandley got me interested in foreclosure fraud and nurtured my years of reporting on it at
Firedoglake
. After that, Blake Zeff, David Daley, Ben Crair, Ryan Kearney, Heidi Moore, Ryan Cooper, Robert Kuttner, Jan Frel, Yuval Rosenberg, Steven Mikulan, Blake Hounshell, Dan Froomkin, and many other editors I'm sure I'm forgetting gave me the gift of placing my scribblings at their publications, to say nothing of their expert editorial support. All of that work informed this book, which I feel like I've been writing in a Dickensian serial format for years.

So many offered critical advice and encouragement as the book moved forward, including but not limited to Binky Urban, Daniel Conaway, Peter Richardson, Marcy Wheeler, Rick Perlstein, and Helaine Olen. My agent Andrew Ross recognized the possibilities of getting this made at a time when I was filled with doubt, after years of fits and starts. Without the passion he brought to the project, I don't think it would have happened. Heather “Digby” Parton, Jeff Connaughton, Mehrsa Baradaran, and Jared Blank read the manuscript during various drafts and were extremely insightful with their comments.

I am indebted to my fellow writers, reporters, and academics on the foreclosure fraud beat, whose work I drew upon constantly. Michael Lewis, Neil Barofsky, Matt Taibbi, Michael W. Hudson, Jennifer Taub, Joe Nocera, Bethany MacLean, Shahien Nasiripour, Zach Carter, Ryan Grim, Mike Konczal, Yves Smith, Matt Stoller, Abigail Field, Kimberly Miller, Paola Iuspa-Abbott, Gretchen Morgenson, Damon Silvers, Joshua Rosner, Adam Levitin, and Katherine Porter stand out. But there are dozens of others, especially those from small local papers and broadcast affiliates, who related foreclosure nightmares of people in their areas. This often thankless—and, in an age of newspaper cutbacks, rapidly diminishing—work was immensely helpful in revealing a pattern of widespread abuse, and these reporters deserve the thanks of not only me but the whole nation. If you flip through the footnotes, you'll see I tried to recognize all of their contributions.

I spoke with several dozen lawyers, activists, bloggers, and foreclosure victims to put together this book. Special thanks go out to Matt Weidner, Tom and Ariane Ice, April Charney, Max Gardner, Nye Lavalle, Thomas Cox, Jim Kowalski, June Clarkson, Theresa Edwards, Jacqulyn Mack, Harley Herman, Mark Cullen, Evan Rosen, Dick Harpootlian, Ruben Guttman, and the foreclosure defense community in Florida and across the country, whose work persists to this day. James Elder, James Chambers, Alina Virani, Grace Ricci, Ronald Gillis, Andrew “Ace” Delany, Dan Junk, Eric Mains, Bill Paatalo, Nick Espinosa, Shabnam Bashiri, Malcolm Cho, Carlos Marroquin, and their many fellow foreclosure activists all inspire me. Kim “KT” Thorpe, who sadly did not live to read this story, gave practically her whole life to this cause and will be sorely missed. Thanks also to Larry Schwartztol, Rachel Goodman, Barbara Petersen, Steve Dibert, Matt Lock-shin,
Matt Browner-Hamlin, Daniel Mintz, Jeff Thigpen, John O'Brien, John Kelleher, Sheila Bair, Damon Silvers, Jennifer Brunner, and Tim Miller.

There's a scene in November 2010 when Lisa Epstein, Michael Redman, and Lynn Szymoniak visit Washington, D.C., for a meeting about foreclosure fraud. That's where I first met these extraordinary people, who humble me with their dedication, their knowledge, and their spirit. I was honored to be entrusted with their story, and I hope that they now get the proper credit and respect they deserve for taking on the most powerful entity in American life armed with only their wits, a sense of justice, and the truth. During my weeks of research in south Florida, Lisa, Michael, and Lynn were way too hospitable to me while I retraced years of their lives down to the smallest detail, and with all of them being generally private people I understand how difficult that was. Thanks for being my tour guides.

My parents, Neil and Dara, and my sister, Jessica, should know that they are integral to who I am today. I'm so fortunate to have such a great family in my corner.

I told my wife, Mary, that I wouldn't express my appreciation to her by using a clumsy metaphor tangentially related to the topic of the book (“to Mary, who foreclosed on my heart”), but I appear to have now broken that promise. So I'm sorry. Also I love you.

NOTES

Preface

vii
No high-ranking Wall Street executive has gone to jail:
Jed S. Rakoff, “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?”
New York Review of Books
, January 9, 2014.

1. A Knock at the Door

1
Home prices in Florida, Arizona, California, and Nevada surged:
Federal Housing Finance Agency, purchase-only index data for Q1 1998 to peak,
www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index-Datasets.aspx
.

1
half of all subprime mortgages:
Shayna M. Olesiuk and Kathy R. Kalser, “The Sand States: Anatomy of a Perfect Housing-Market Storm,”
FDIC Quarterly
3, no. 1 (April 2009).

2
one in twenty-two Florida homeowners:
Les Christie, “Foreclosures up a Record 81% in 2008,”
CNNMoney.com
, January 15, 2009.

2
“sewer service”:
“Super Sewer Service—I Feel Bad for All the People Who Lost Their Homes and Were Obviously Not Served,”
4closurefraud.org
, October 3, 2010.

3
fake recipients of foreclosure papers:
Shannon Behnken, “Judge Wants Answers to Foreclosure Document Fees,”
Tampa Tribune
, November 18, 2010.

6
Instead of obtaining a mortgage, purchasers take out loans to buy shares:
HSBC, “Owning a Co-Op: 10 Questions to Ask Before You Buy,”
https://www.us.hsbcxom/1/PA_1_083Q9FJ08A002FBP5S00000000/content/usshared/Personal%20Services/Home%20Loans/Mortgage/FYI/Shared/Coop%20Guide.pdf
.

8
Ameriquest, one of the biggest mortgage lenders:
Kathy Kristof and David Streitfeld, “Ameriquest Plans to Cut 3,800 Jobs,”
Los Angeles Times
, May 3, 2006.

8
New Century Financial, another giant:
Julie Creswell, “Mortgage Lender New Century Financial Files for Bankruptcy,”
New York Times
, April 2, 2007.

9
As Federal Reserve chair Ben Bernanke testified:
Ben Bernanke, “The Economic Outlook,” testimony before the Joint Economic Committee, March 28, 2007,
www.federalreserve.gov/newsevents/testimony/bernanke20070328a.htm
.

11
As prominent financial analyst Josh Rosner said:
Joshua Rosner, Graham Fisher & Co., “Housing in the New Millennium: A Home Without Equity Is Just a Rental with Debt,” June 29, 2001,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1162456
.

12
government officials solicited Chase to buy it:
Andrew Ross Sorkin, “JPMorgan Pays $2 a Share for Bear Stearns,”
New York Times
, March 17, 2008.

14
banks like Chase received hundreds of billions of dollars:
JPMorgan Chase received $25 billion on October 28, 2008, through the Capital Purchase Program. Information from Pro Publica, “Eye on the Bailout,”
https://projects.propublica.org/bailout/programs/1-capital-purchase-program
.

2. The Dark Side of the American Dream

16
CNBC host Rick Santelli shouted:
Rick Santelli, CNBC, February 19, 2009,
https://www.youtube.com/watch?v=bEZB4taSEoA
.

17
around 95 percent of the cases went uncontested:
Virtually everyone involved with foreclosures on either side has made this assertion, though statistics on foreclosures nationwide can be hard to find. Monroe County, Florida, circuit judge Luis Garcia (
http://floridakeyswaterfrontexpert.blogspot.com/2008/12/judge-offers-foreclosure-help.html
) and New Jersey chief justice Stuart Rabner (
www.judiciary.state.nj.us/superior/press_release.htm
) have said this on various occasions.

18
“J. P. Morgan Acceptance Corporation I (the ‘Company')”:
Securities and Exchange Commission 8-K form, June 15, 2007,
www.sec.gov/Archives/edgar/data/1400186/000116231807000671/m0665form8k.htm
.

18
That's how many Americans lost their homes each
day
:
David Wheelock, “The Federal Response to Home Mortgage Distress: Lessons from the Great Depression,”
Federal Reserve Bank of St. Louis Review
, May/June 2008, Part 1, 138.

18
the Home Owner's Loan Corporation (HOLC) bought defaulted mortgages:
Jennifer Taub,
Other People's Houses: How Decades of Bailouts, Captive Regulators and Toxic Bankers Made Home Mortgages a Thrilling Business
(New Haven, CT: Yale University Press, 2014), 40–41.

19
HOLC generated confidence in the long-term, fully amortized mortgage:
Richard K. Green and Susan M. Wachter, “The American Mortgage in Historical and International Context,”
Journal of Economic Perspectives
19, no. 4 (Fall 2005): 93–114.

19
Roosevelt established the Federal Housing Administration:
Ibid., 95.

19
In 1938, the Federal National Mortgage Administration:
Ibid., 95.

19
The FHA loosened standards:
Ibid., 96.

20
In 1940, 15 million families . . .; by 1960 that number:
Taub,
Other People's Houses
, 41.

20
Savings and loans found the formula:
Ibid., 42.

20
State laws initially restricted savings and loans:
Ibid., 40.

20
The annual foreclosure rate from 1950 to 1997:
Peter J. Elmer and Steven A. Seelig, “The Rising Long-term Trend of Single-Family Mortgage Foreclosure Rates,” Federal Deposit Insurance Corporation, Division of Research and Statistics, 1998.

20
By 1980 there was more money sloshing around:
Taub,
Other People's Houses
, 45.

21
four suits, all of them polyester:
Michael Lewis,
Liar's Poker: Rising Through the Wreckage on Wall Street
(New York: W.W. Norton, 1989), 142.

21
“the wild and woolly genius”:
Ibid., 96.

21
The GSEs would pool hundreds of these loans together:
Taub,
Other People's Houses
, 43–44.

21
Salomon Brothers and Bank of America attempted to bypass Fannie and Freddie:
Lewis,
Liar's Poker
, 111; Taub,
Other People's Houses
, 45.

22
This hurt S&Ls on every level:
Lewis,
Liar's Poker
, 124–25; Taub,
Other People's Houses
, 50–53.

22
and Salomon made a killing:
Lewis,
Liar's Poker
, 130–32.

22
Ranieri then got Freddie Mac to help with a bond deal:
Taub,
Other People's Houses
, 68–69.

22
CMOs created different classes for investors with different risk profiles:
Neil Barofsky,
Bailout: How Washington Abandoned Main Street While Rescuing Wall Street
(New York: Simon and Schuster, 2012), 81–87.

23
“If Lewie didn't like a law, he'd just have it changed”:
Lewis,
Liar's Poker
, 125.

23
President Reagan signed SMMEA in October:
Taub,
Other People's Houses
, 74–75.

23
real estate mortgage investment conduit (REMIC):
Bethany McLean and Joe Nocera,
All the Devils Are Here: The Hidden History of the Financial Crisis
(New York: W.W. Norton, 2010), 15–16.

23
The mortgage-backed securities market reached $150 billion:
Lewis,
Liar's Poker
, 142.

23
It probably accelerated the demise of the S&L industry:
Taub,
Other People's Houses
, 76.

24
He was a dream salesman:
Lewis,
Liar's Poker
, 141.

24
But homeownership rates rose nearly twenty points:
U.S. Census Bureau, Historical Census of Housing Tables,
https://www.census.gov/hhes/www/housing/census/historic/owner.html
.

24
Wall Street investment banks staffed up:
Lewis,
Liar's Poker
, 184–86.

24
“I wasn't out to invent the biggest floating craps game”:
Shawn Tully, “Lewie Ranieri Wants to Fix the Mortgage Mess,”
Fortune
, December 9, 2009.

25
By 2009, one out of every four Floridians:
David Streitfeld, “U.S. Mortgage Delinquencies Reach a Record High,”
New York Times
, November 19, 2009.

26
“I believe that the mortgage crisis has produced manifest evil”:
Mission statement,
Living Lies
,
https://livinglies.wordpress.com
.

26
the site had jumped from 1,000 hits per month:
Mike Stuckey, “The Home You Save Could Be Your Own,”
MSNBC.com
, January 28, 2009.

27
“If they can fog a mirror, we'll give them a loan”:
David Dayen, “Wall Street's Greatest Enemy: The Man Who Knows Too Much,”
Salon
, August 28, 2013.

28
Depository Institutions Deregulation and Monetary Control Act (DID-MCA):
McLean and Nocera,
All the Devils Are Here
, 29.

28
Alternative Mortgage Transaction Parity Act:
Taub,
Other People's Houses
, 69–71.

28
“subprime lending could not have flourished”:
Ibid., 70.

28
Investment banks made the securities attractive with credit enhancements:
McLean and Nocera,
All the Devils Are Here
, 31.

28
warehouse lines of credit:
Ibid., 23.

28
Brokers were given “yield spread premiums”:
Center for Responsible Lending, “Yield Spread Premiums, a Powerful Incentive for Equity Theft,” June 18, 2004.

29
Another industry creation was the cash-out refinance:
McLean and Nocera,
All the Devils Are Here
, 35.

29
“redlining”:
Ta-Nehisi Coates, “The Case for Reparations,”
Atlantic Monthly
, June 2014.

29
Federal Reserve statistics show that subprime lending increased:
Liz Laderman, “Subprime Mortgage Lending and the Capital Markets,”
Federal Reserve Bank of San Francisco Economic Letter
, December 28, 2001.

29
The Clinton administration wanted to increase homeownership rates:
McLean and Nocera,
All the Devils Are Here
, 32.

30
collateralized debt obligation (CDO):
Ibid., 120–22; Barofsky,
Bailout
, 86.

30
Commodity Futures Modernization Act:
McLean and Nocera,
All the Devils Are Here
, 109.

30
“Synthetic” CDOs:
Ibid., 263–84.

31
second wave of subprime mortgages dwarfed the first wave:
Ibid., 125–37.

31
a man coordinating dances at a Mexican restaurant:
Michael W. Hudson,
The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—and Spawned a Global Crisis
(New York: Times Books, 2010), 4–9.

31
Some brokers used light-boards:
McLean and Nocera,
All the Devils Are Here
, 130.

31
Others presented borrowers with a loan at closing:
Hudson,
The Monster
, 3.

32
It was clear securities fraud:
Felix Salmon, “The Enormous Mortgage-Bond Scandal,” Reuters, October 13, 2010.

32
“Good find on the fraud :)”:
Nathaniel Popper, “Court Filing Illuminates Morgan Stanley Role in Lending,”
New York Times
, December 29, 2014.

32
“If fraudulent practices become systemic”:
Financial Crisis Inquiry Commission,
The Financial Crisis Inquiry Report
(Washington, DC: Government Printing Office, 2011), 161.

32
when Georgia tried to protect borrowers:
Hudson,
The Monster
, 165–81.

32
Banks issued $1 trillion in nonprime mortgage bonds:
Adam B. Ashcraft and Til Schuermann, “Understanding the Securitization of Subprime Mortgage Credit,” Federal Reserve Bank of New York staff report no. 318, March 2008.

32
Subprime mortgages made up nearly half:
McLean and Nocera,
All the Devils Are Here
, 216.

32
Total mortgage debt in America doubled:
Neil Bhutta, “The Ins and Outs of Mortgage Debt During the Housing Boom and Bust,” staff working paper 2014–91, Divisions of Research and Statistics and Monetary Affairs, Federal Reserve Board, 2014.

32
loan brokers right out of college made $400,000 a year:
McLean and Nocera,
All the Devils Are Here
, 125.

32
Home prices appreciated rather slowly for fifty years:
Barry Ritholtz, “Classic Case Shiller Housing Price Chart, Updated,”
Big Picture
(blog), December 30, 2008,
www.ritholtz.com/blog/2008/12/classic-case-shiller-hosuing-price-chart-updated
.

32
In several states,
annual
price increases hit 25 percent:
Federal Reserve Bank of St. Louis, All-Transactions House Price Index for Arizona, accessed at
https://research.stlouisfed.org/fred2/series/AZSTHPI
. All-Transactions House Price Index for Florida, accessed at
https://research.stlouisfed.org/fred2/series/FLSTHPI
. All-Transactions House Price Index for California, accessed at
https://research.stlouisfed.org/fred2/series/CASTHPI
. All-Transactions House Price Index for Nevada, accessed at
https://research.stlouisfed.org/fred2/series/NVSTHPI
.

33
Even Fannie Mae and Freddie Mac, locked into buying:
Taub,
Other People's Houses
, 178–80; McLean and Nocera,
All the Devils Are Here
, 183–84.