So what to do? Some settlement is necessary and should be done quickly. Any relief for foreclosure victims, in particular those who truly are victims, is probably a good thing given America’s lousy economy and terrible housing situation. But how do you make it happen without causing huge controversy?
The attorneys general of five states have already abandoned settlement negotiations in favor of seeking their own remedies against the banks. These include Beau Biden in Delaware and Kamala Harris in California. Last week Biden brought suit against MERS, Mortgage Electronic Recordation Systems, Inc., a company set up by the banks (and Fannie Mae and Freddie Mac) in the ’90s to streamline mortgage procedures in order to facilitate, among other things, easy securitization. Biden’s suit claims that MERS engaged in deceptive practices, not by inducing borrowers to take out loans that they shouldn’t have, but rather by constructing a process that severely hampered borrowers from pursuing their rights. MERS routinely took nominal ownership of mortgages written by its constituent banks, thereby undermining the traditional state system of mortgage and property ownership records keeping. In other words, a buyer of a mortgage-backed security—if he ever looked—would see that everything was owned not by any individual, but rather by MERS.
[Related Article: Delaware AG Sues Mortgage Registry]
I think Biden has uncovered the belly of the beast, and that he and others should be allowed to pursue their initiatives against systemic problems involving mortgage procedures.
In the meantime, it’s best for the country that the settlement go forward quickly at whatever number with whatever mechanisms are agreeable to both sides. Enough time has been consumed arguing about numbers and mechanisms. It’s just throwing more darts at the dartboard anyway. Frankly, there is no right way to do a settlement, and no right number that will really solve the problem. No one will get what they deserve; they will only get what they negotiate.
That said, the settlement should not include a blanket release. The banks should only be released from money claims, not from the necessity of making procedural reforms if the states prevail in their ongoing initiatives in court and otherwise. Further, I encourage all currently nonparticipating attorneys general to join the settlement and strongly suggest that those who are seeking further relief act in unison rather than filing separate actions in each state.
We need to get a settlement together, put numbers and mechanisms behind us, and let the state AGs do what they will to attack MERS and other integral parts of the mortgage procedure and foreclosure establishment in an organized and efficient manner in order to reform a systemic problem. In fact, I believe that the entire real estate and mortgage meltdown was more the result of systemic issues—in lender behavior, regulatory perspective, and borrower attitudes—than the result of natural economic forces. And although it’s difficult to be verbally precise about exactly what the systemic problem is, I once again return to the words of Mr. Justice Stewart (about a very different subject): “I know it when I see it.”
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