Law Should Trump Economic Arguments in Mortgage Foreclosure Mess
First, Congress and Presidents George W. Bush and Barack Obama corrupted our financial system through taxpayer bailouts to "save" the economy. Now there's pressure to corrupt our legal system, too.
Hundreds of thousands of mortgage foreclosures allegedly have been processed fraudulently, and some government officials, financial industry analysts and real estate experts are warning that following the law and stalling or reversing mortgage foreclosures based on fraudulent processes would be disastrous for the economy.
Falling housing values, high unemployment and a slow economy are serious matters, but they aren't excuses for shrugging off crimes.
Employees at some of the nation's largest mortgage lenders have admitted signing thousands of affidavits (or allowing others to forge their signatures) stating the lenders had the legal right to foreclose on certain properties. In fact, these employees say, they never saw the documents. In some cases the documents didn't exist. That's perjury.
Perjury about document-signing is not the only problem. Evidence recently has emerged that many "mortgage-backed securities" held riskier loans than investors were told. That's fraud.
Despite evidence of lies to and fraud against borrowers, investors and courts by businesses that already have received huge taxpayer bailouts, we're being told we must make allowances for them again - and for government-sponsored entities such as Fannie Mae, Freddie Mac and the Federal Reserve. They played huge roles in the financial collapse by manipulating interest rates, the money supply and lending standards.
The government-sponsored entities and other institutions now hold trillions of dollars of bad mortgages and "mortgage-backed securities" that apparently originated with Moe, who sold them to Larry, who bundled them for Curly - until, in many instances, our stooges of high finance cannot say with certainty who owns what.
If legal ownership cannot be established, there is no legal way a foreclosure can happen.
Fifty state attorneys general and the District of Columbia are jointly investigating whether mortgage companies improperly evicted people from their homes. A few days ago, the Federal Reserve announced it, too, would study the matter.
But can we trust them when the Fed, Fannie and Freddie stand to lose huge piles of money on bad mortgages and a further drop in real estate values, and when financial institutions overseen by the Fed stand to lose more money?
Already we see the Fed further manipulating record-low interest rates. Fed officials are promoting inflation in an effort to boost the economy.
Low interest rates and higher inflation would blow up another housing bubble and enable the government to pay its debts with cheaper dollars. Left unspoken is the harm to consumers, whose purchasing power falls as inflation climbs, and to savers whose savings evaporate.
Promoters of the "let them slide" school of mortgage foreclosures say they'll figure out later how to hold people accountable. Now, for the economy's sake, they say tainted seizures and sales of real estate should proceed.
Mortgage company employees should not have "Get out of jail free" cards. Courts can hold up and reverse bad foreclosures. They can treat mortgage company perjurers as they'd treat you if you got caught lying about millions of dollars of real estate.
Allowing these institutions to fail probably would cause economic pain, it's true. But look at the pain we have now because of the lies upon which our real estate market was built. The "too big to fails" - including Fannie and Freddie - already would have failed if not for the taxpayer bailouts. Refusing to let them fail in the wake of this foreclosure mess just reaffirms that no matter how recklessly, stupidly or criminally they behave, taxpayers will be forced to save them.
If this mess is swept aside for economic expediency, we'll never be safe in our homes, because doubts over titles to property always will be nagging at us. And a government that in recent years has earned little trust will have none of that precious commodity left.
STEVE STANEK IS A RESEARCH FELLOW AT THE HEARTLAND INSTITUTE IN CHICAGO. CONTACT HIM AT SSTANEK@HEARTLAND.ORG.