Article: A Million Cuts




Young Boy: ¡Mira, mira! ¡Viene la tormenta!
Sara Connor (to the boy's father): What did he just say?
Father: He said there's a storm coming.
Sara Connor: … I know.

--James Cameron, The Terminator


Forward
When the economic meltdown of 2008 (EM08) sent its shot heard round the world, few were thinking that four years down the road we'd still be in the thick of it. Yet, here we are, with the Fed having recently (September, 2012) announced not only more “quantitative easing” (“QE,” or, creating money from nothing), but a particularly nasty strain of it; “QE3” specifically targets the buying of toxic mortgages to the tune of $40 billion per month with no end date given.1 Thus, innocent taxpayers, far removed from the high-flying investment banking world, have -- once again – been unfairly saddled with Wall Street's, mortgage brokers' and insurance companies' crimes. It's all held together by the glue of a regulatory and justice system that did nothing to police them then and evidently has no interest in criminally prosecuting any of the major players now.

Toxicity. Subprime. Mortgage backed securities. Credit default swaps. It's all so dizzying, convoluted and ... arcane. The average person has no more idea of EM08's inner workings than the Hadron Collider. This knowledge gap has led to what con men, magicians and hustlers exploit, only now, the cons wear Dunhill and come from more angles than a protractor.

There is plenty of information on the large players and the big plays that led us to the meltdown's doorstep. This is a different view; it tells the tale of a single homeowner caught in EM08's hyper-byzantine web. As such, it serves as a lens through which to look at a world that teetered upon an historic precipice whose judgment day still looms.


Jerry Baylor2 is not the typical subprime borrower. He'd purchased his home over twenty years ago on LA's coveted westside and lived the quiet and successful life of the American Dream; entrepreneur, technologist, job creator, stable. A native Angeleno, product of both UCLA and Cal and owner of a successful business, Jerry married Vivian3 and, in the late 80's, bought in to homeownership. The couple settled into that nice section of LA that serves up plenty of beach, the postcard LA that draws people from around the world for its lifestyle and entertainment capitol status.

But LA was also the belly of the EM08 Beast, spewing out construction round the clock and, of course, the financing and post-sale hijinks that led to the fall of 2008. And if LA was the belly, LA's notorious Countrywide Financial, the single largest producer of toxic mortgages, was EM08's beating heart.

Jerry's business grew and, for the duration of the couple's homeownership, he'd been the sole income earner and had never missed a payment. He bought another property in the coveted Malibu area. Life was good.

Their lives proceeded in fashion when fate stepped in; Vivian had been traumatized by a robbery during their marriage, and the subsequent treatment consisted of a heavy regimen of painkillers. In a short time, Jerry was living up close and personal with an addict whose habit would be one of the bricks in a house about to fall. Strung out on a smorgasbord of prescription meds that had her coming and going, the couple separated because of the strain. Jerry moved out while Vivian remained in the house. That's when things got crazy and a chain of events occurred that set the wheels in motion for his roller coaster ride.

The news came maybe not fast and furiously, but steadily and in escalating fashion; a DUI here, another there. Vivian hired an attorney who knew the ropes, and soon she'd be back behind the wheel, often high as a kite, a ticking time bomb without Jerry there to nix the fuse.

That fuse soon lit the bomb that led to Vivian being involved in a serious hit and run accident and the target of a lawsuit. Since she had separated from Jerry, Vivian had won ownership of the couple's house, a house she'd never made a payment on because she'd never had any income. That happens when you haven't worked in over ten years and relied on your husband to bring home the bacon.

Vivian was desperate now, backed into a legal and financial corner whose angle was getting smaller. But she had an out; this was 2006. Real estate was booming, she was in LA's coveted westside and she had the ace up her sleeve; a home with over a decade of equity.

Enter the re-fi business, the little discussed sub-industry (relative to other EM08 factors), that had been a booming business, creating real millionaires from smoke and mirrors. Think about it; liar's loan mortgages were predatorially doled out like crack4 and then re-financed based upon bubble inflated prices and market demand. Along the supply chain, the servicers at every bus stop extracted their fees – they made real money, despite their fees having been produced from thin air, but with the meltdown and discovery that these loans were predatory garbage, the supply chain servicers' bank accounts went untouched. Now, consider if a bunch of crooks steal a shipment of flat screen tvs. So they sell them off and you purchase one. Then the crooks get busted and the police find that they can trace and locate these tvs. Do the crooks get to keep the money you gave them? Do you get to keep “your” tv?

Ethics, legality and morality aside, 2006 saw refis booming and Vivian had her out. She pulled the trigger, betting over ten years of equity would produce the cash she needed to make the Sword of Damocles swinging above her head go away. She gambled and won when Downey Savings, a small LA bank, gave her the cash which she used to make her problem disappear. That, despite Vivian having not been gainfully employed in over twenty years. The terms were what we now know as a predatory liar's loan; stated income, a low rate (for starters) and the booby prize buried in the cereal back end balloon payment. All of this nitro was then set down upon the fragile casing of one of the largest bubbles in history. But if it's two laws we know about the universe, it's Newton's Law and all bubbles burst. And Vivian's re-fi was cruising that boulevard at high speed.


Downey Savings and Loan's loan officers made some of that real money from nothing, and Vivian's re-fi was part of their portfolio. In another twist, the EM08 black hole opened up, swallowed Downey and upchucked it on to the largest bank failures list,5 whereupon US Bank picked up Downey's paper. Meanwhile EM08 made its presence felt in a bigger way with the implosion of Bear Stearns and only months later, Lehman Brothers. Then Treasury Secretary Hank Paulson served as point man for the largest welfare payments in history, and Congress, despite first declining the bailouts, a mere four days later, passed it, and America crossed an historic line. Their excuse? They had to; Merrill Lynch (as with Bear and Lehman) was for all intents and purposes gone as well6, leveraged to the hilt at about 40-1. Bottom line: tens of millions of innocent Americans got stuck with the check, while Jimmy Cayne (former Bear Chair/CEO), Dick Fuld (former Lehman Chair/CEO) and Stan O'Neal (former Merrill president/CEO/Chair) sailed off into the sunset, golden parachutes softly cushioning their landings upon massive piles of money in the form of compensatory packages, despite having been key players in dropping WMDs on the global economy.


By 2008, Vivian had fallen prey health-wise to a combination of drugs and stress, and the prognosis was dim. She and Jerry had been divorced for close to two years, but in spite of this, Jerry tended to her needs, visiting her regularly since she had also been estranged from her family of three siblings who never once visited her.

Then Vivian died in late 2008, but not before willing the house back to Jerry. He moved back in to the home he'd bought and made payments on for over a decade and a half. His payment was less than $1,800, and his life was finally stabilizing. Vivian's two dogs were the living bookmarks of a chapter of Jerry's life that had closed. Or so he thought.

In the spring of 2010, US Bank updated their computer system, and the bank began rejecting Jerry's payments. In a mis-alignment of the stars, Jerry had made one of his payments late, causing the bank's system to assess late fees and begin rejecting his payments. So the bank began sending Jerry notices to this effect, however, Jerry never received these notices; during US Bank's update, they had recorded Jerry's address incorrectly, were sending his late notices to the wrong address and thus having them returned as “undeliverable.”

US Bank then initiated unilateral escalation; instead of contacting Jerry and speaking with him, they took his payments and began applying them to the principal. They sent him another notice that he needed to make another payment which, of course, went undelivered. When they received no response, they escalated foreclosure proceedings, the clock began ticking (unknown to Jerry), and perhaps most importantly, after they (and the rest of the banks) had already been made whole (and then some) with welfare from taxpayer money.

With the EM08 clock ticking, Jerry went to the bank to make a payment and got a shock; it was rejected. When he inquired as to the reason, the teller gave him one of those suspicious looks and fatefully said; “The house is in foreclosure.”

With that sickening feeling millions of Americans were experiencing, Jerry contacted US Bank. He paid all of the penalties and brought his loan up to what he thought was good standing.

Then came his July, 2010 payment. What was once a reasonable $1,800 note had ballooned to over $5,000. In a panic, Jerry immediately called US Bank and stated the facts; he'd been a customer for nearly 20 years, had never missed a payment – the missed payments, as both parties discovered, were the fault of the bank inputting his wrong address. Jerry wanted a loan that made sense, no more, no less. They hung up on him. Despite the absurdity of having already been paid for committing blunders the size of mountains and helping to create an atmosphere of uncertainty that froze credit markets worldwide, by refusing to communicate with Jerry, US Bank had spoken volumes; now they wanted Jerry's house.

With the stress meter red-lining, Jerry pivoted to plan B; file for a loan mod. If it isn't hard to imagine the average American's eyes glazing over the minute “collateralized debt obligations” are mentioned, imagine taking that same person and throwing them into the deep end of the EM08 loan mod pool, rife with sharks, killer whales and mines at every turn. “Collecting documents, filling out forms, asking questions when I could finally find someone to provide a straight answer... it was the most stressful and confusing thing I've ever been involved with. I'm an engineer, I write complex code for complex software for complex business situations,” says Jerry, his voice reflecting the remembered frustration. “This loan modification process makes my programming work look like a day at the beach.”

Then in January of 2011, a US Bank rep called and told Jerry that if he just made more money....


One of the fundamental principles good poker players know is that you can't make good decisions without good information. In the aftermath of EM08 it wasn't so much about the quality of information, good or bad, it was also one of quantity. Go back to the essential facts; Bear, Lehman and Merrill were over-leveraged 40-1, meaning that for every dollar they had, there was 40 owed. Now consider the Lehman bankruptcy, known, fairly or not, as the EM08 poster-child. Lehman was and remains the largest bankruptcy in history, took approximately four years to process and the bankruptcy law firms billed in excess of a billion dollars.

I have a stack of paper a good 3 inches thick containing all of the shenanigans that my property was involved in,” says Jerry. “Basically, my house was used to generate real income for loan originators, who then sold it off to a bank, who bundled it up, and it got sold and re-sold... up to 40 times. This is insanity.”

That tsunami of information that Jerry's creditors produced was only the beginning. With the foreclosure time bomb ticking, he became desperate. Thus began another chapter in Jerry's EM08 debacle; finding help. Right on time, a whole side-industry of “experts” sprang up, purporting to help the underwatered, foreclosed upon and just plain shell-shocked masses. Retainers were signed, fees paid, and results were fuzzy, at best.

There was the young Asian hot-shot whose offices in central LA smacked of a boiler room set up; The non-profit NACA (Neighborhood Assistance Corporation of America); a loan broker acquaintance referred him to a mass joinder suit; another law firm that supposedly had expertise and traction against foreclosure; a real estate broker who'd been speaking on the subject heard on the radio....

Not only was the information wide and varied, it was dizzying to try and sort out for lawyers with real estate expertise, but for the lay person it was the headlights catching the deer. And so, Jerry now had two jobs; his own company, and the job of assembling a team to help him in a fight he knew nothing about. In several instances, Jerry signed on, paid a retainer and crossed his fingers. It amounted to him not only being engulfed psychologically, but with thousands of dollars in fees paid out, financially.

What the EM08 landscape meant in the early stages of 2009 through 2011 was that the methods to defend one's case were being discovered. Yet, despite having been made whole by massive injections of welfare capital by the taxpayers, the banks had their own tried and true methods of making money. Namely, foreclosure.

The problem with foreclosure during that time was, much like the surfeit of information because of the re-sell market that helped create the largest derivatives debt bubble in history, the sheer numbers on the banks' ledgers was overwhelming. The banks answer? Robo-signing. (see footnote #10 further on)

It should also not be lost that despite the banks having been made whole on their riskiest in history bets, and despite stipulations to re-negotiate,7 the door was wide open for them to not work with home borrowers. Thus, there can only be incredulity when Assistant Attorney General Lanny Breuer maintains that what the banks did and continue to do isn't necessarily criminal. Aside from the stipulation that banks had to re-negotiate with homeowners, robo-signing, for one, is about as open and shut a case for massive fraud beyond Bernie Madoff and Enron. So is selling junk securities based upon predatory liars loans that are touted as AAA8, withholding vital information and then betting against them behind the buyer's back, a modern day text book definition of a con.


Having little wiggle room, Jerry soldiered on. For a retainer of $5,000, he signed on to a mass-joinder suit. His attorney filed a demand letter against US Bank, and Jerry felt he at long last had a dog in the fight with some bite. The feeling was short-lived; in September of 2011, California State Attorney General Kamala Harris shut down Jerry's hired law firm amid complaints of fraud. If you've made it this far, the situation of massive fraud by the banks by selling securities based upon lies and then robo-signing foreclosures and yet being allowed to continue with business as usual, but closing down law firms gaining traction on behalf of home borrowers because of “whatever” allegations is not only shocking, but mocks justice.

In mid-2011 Jerry had also contacted and was working with NACA on a loan modification. Seminars and tutoring over the course of many days produced a package that was submitted but never acknowledged. Despite repeated attempts to contact US Bank regarding his application, he was ignored.

Then, suddenly, he entered into discussions with US Bank. They requested more documentation. More calls by Jerry to ask for status resulted in more requests for further documentation. Lather, rinse and repeat, left a feeling of “working sideways” and resulted in an even bigger question mark in Jerry's mind.

Heading into the latter half of 2011 there followed more talks, with more lawyers and more experts, fourteen by Jerry's count.

In November he signed with another group representing foreclosed home borrowers, and for $800 submitted a new loan app based in part upon the HAMP9 rules. The group told him that compliance under HAMP was difficult, but that they'd help “guide him through the process.”

US Bank's riposte? None. They simply refused to speak with Jerry's representative. The end result was that the foreclosure time bomb's clock had continued to tick during months of entreaties by Jerry and various of his representatives to no avail. The situation for Jerry was whether US Bank intended to stonewall him or not, the end result was the same; he lost precious time and money and was more stressed and confused than ever.

In January of 2012, US Bank foreclosed on Jerry with intent to sell by the end of the month. Jerry signed on with yet another attorney who filed suit against the bank. The ask by Jerry's attorney? Restrain the foreclosure and sale of the property.

The request was denied by the court, the house went on the market, there was one lone (under) bidder, and US Bank took back the house, despite having been made whole by welfare money and having made money from Jerry's payments.


Jerry's story is still unfolding; he's gearing up for another action and as such is keeping mum, and yet it's with more than a touch of resignation when he says, “This isn't death by firing squad, it's by a million cuts, and no one has my back. A nick here, another there... pretty soon you're bleeding to death. This shit is soul crushing.”
There've been a spate of bank settlement payments since the fall of 2008; most recently, US Bank, along with the other too big to fail banks, agreed to settle for the robo-signing crime spree.10

It's alarming to watch what's happening in America, but here's a bit of recent history; George H. Bush is arguably a far better president than his son George W. or Barack Obama if for nothing else than during the Savings and Loan crisis, Bush I prosecuted over a thousand bankers and jailed over 800. Bush I's accomplishment is a signpost; it touched the upper echelons of power, to the Senate and John McCain, his fellow Republican.

Bush I's fair play during the Savings and Loan scandal seems like light years away now, having been obliterated by the crack-smoking stupor of the Internet and EM08 housing bubbles. “I tried watching part of Lance Armstrong's confession, but couldn't. It was sickening,” says Jerry. “Not because I believed in him – I didn't. But he's just like these shithead bankers; lie, cheat, steal, hurt innocent people, and yeah, maybe they get called a few names, but at the end of the day, they're super rich and haven't even seen a jail cell. But, look man, [Olympic athlete] Marion Jones went to jail for roids. I run a red light and don't show up, the book gets thrown at me. But Armstrong and bankers get to keep all of that stolen money? He and bankers don't have to go to jail?”

And we wonder what's wrong with our country.”

# # #


Endnotes

1 A tool of central banks, “QE” basically creates fiat money typically through bond purchases. QE3 toxic mortgages constitute only half of the QE strategy. The other half? Fiat money. As of December, 2013, the total Fed QE tab so far? Four trillion. Welcome to uncharted areas of the universe.

2 Pseudonym.

3 Pseudonym.

4 Subprime loans earned their infamy largely because they were more accurately labeled “liar's loans” in that eventually income was stated, not substantiated. In addition, we now know that these loans were disproportionately targeted toward people of color. See: Pat Garofalo, Huge Racial Disparities Found In Lending Practices At TARP Banks, Think Progress, September 15, 2009, http://thinkprogress.org/economy/2009/09/15/172933/racial-disparities-tarp-banks and Travis Waldron, Latinos, African Americans Twice As Likely As Whites To Have Been Affected By The Housing Crisis, Think Progress, Nov 18, 2011,

6 The state of Merrill Lynch, leveraged in the neighborhood of 40-1, was never widely disclosed to the public, much less B of A shareholders, at the time. Instead, the government put a gun to then Bank of America's CEO, president & chairman, Ken Lewis, and orchestrated the takeover of Merrill by B of A with taxpayer money. Lewis and then Merrill chairman and CEO, John Thain, proceeded to hold a press conference on September 15, 2008, smiling and selling the deal which was great for them, and nothing short of robbing innocent taxpayers and shareholders. In approximately a year, Lewis left B of A at the end of 2009. Lewis' compensation package was valued at $53 million. Thain, who in 2007 had been paid $83 million, in 2008 (post-bailout) suggested to Merrill's compensation board that he receive a $10 million bonus for saving Merrill. He left B of A shortly after Lewis.

7 See: Section 109 of the Troubled Asset Relief Program. Matt Taibbi, Secrets and Lies of the Bailout, Rolling Stone, January 4, 2013, at: http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104

8 Those ratings were derived from one of the fulcrums of the scam, the Credit Ratings Agencies (CRAs), the big three being Standard & Poor's, Moody's and Fitch's. One of the most confounding aspects of EM08 is this fact: Banks pay the CRAs for their ratings, a clear-cut conflict of interest.

10 Banks, Regulators Reach Foreclosure Settlement

http://online.wsj.com/article/SB10001424127887323936804578227513083582172.html

The settlement is an outgrowth over revelations of banks' foreclosure practices in fall 2010. Swamped with foreclosure filings, many banks used "robo-signers" to sign off on thousands of cases, stating falsely that they personally reviewed each one.