Innocence Project for Borrowers

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In a recent Gallup poll, more than a third of Americans oppose the death penalty — the highest number in more than forty years. And the number of people who still favor the death penalty is at the lowest point in a decade.  To me that means there is a growing awareness that our judicial system doesn’t work well enough to trust it. The innocence project led by Barry Sheck has proven in over 200 cases that death row inmates were not only improperly convicted, but that they were actually innocent.

The odds are against a defendant charged with a crime —- many times getting a bad result from bad lawyering or prosecutorial misconduct, along with a Judge who presumes that the investigation was complete and that the person charged wouldn’t be in court but for his inevitable guilt.

The question that arises is that with all the safe guards we supposedly have in place to protect the rights of the innocent man or woman, why should we trust the rest of the system? The answer is that we should not trust or expect justice unless we fight tooth and nail for it.

The assumption remains, whether you are charged with a crime or charged with defaulting on your mortgage, that you are guilty of something and that you should pay the price — even if the facts — completely revealed — would show that you are innocent of the charges and especially where the system allows the charges to be brought privately without a court ever getting involved unless you bring a lawsuit (Non-judicial states) over matters that are so complex, most economists cannot fully explain them.

I think we need something like an innocence project for borrowers and I don’t just mean homeowners. Practically all consumer debt was subject to a claim of securitization, which means that the parties in the securitization chain treated the flow of money as though the securitization documents had been followed. It means that the “lender” was not lending its own money and that the risk was apportioned in a way different from the conventional loan — because the money on the table came from investors whose remoteness created the opportunity for extreme moral hazard.

Of course that means that the risk in a mortgage transaction is not nearly as simple as the pretender lenders would have the courts believe. And that is why so many foreclosures and evictions have gone forward even though the obligation of the borrower no longer existed or the lien never attached to their land. The complete facts would show that the parties who advanced the money don’t believe they have any real options in pursuing the borrower and have chosen to pursue the investment bankers instead. Assuming they collect, why would we allow anyone to collect a second time by foreclosing a home and evicting the homeowner?

Here is another example. Student loans now crush the yourth of America to the tune of about $1 Trillion. They too were securitized which means that the “lending” bank elected a different path to deal with risk of loss than the one offered by the government. So they used investor money to fund the loan and split it into pieces just like the mortgage loans. They charged usurious rates to the student as soon as it was possible to do so, leaving the student in debt for the rest of his or her life with a non-dischargeable claim in bankruptcy court. But if the government guarantee was not used to underwrite the loan, then why should the loan be non-dischargeable? The answer is that the bank can’t have it both ways. It can’t do a loan that has NO RISK because it loaned no money and then claim the loan is non-dischargeable. Students petitioning for bankruptcy might want to consider this approach after consultation with their bankruptcy attorney.

The list goes on. Securitization is not a bad thing but it is different than the conventional loan model. The reality of those differences changes the risks and outcome of each loan.

A project that was designed to show those differences in court, one case at a time, like the innocence project, would show that the borrowers have done nothing wrong and should not pay any price even if they s topped making payments, because unless there is proof that a payment was due (instead of presuming it to be due) it must be assumed that the homeowner, or student is innocent. It is up to the pretender lenders to do what I think is the impossible — prove why they should get a payment on an obligation that is not owed to them, that they did not purchase and in which the creditor or its agents received payment already from third party sources.

The idea that there is some moral imperative for the borrower to make a second payment to the pretenders even though it isn’t owed to them is preposterous. In the business arena the idea would be laughed out of court.

Somehow when it comes to the lowly individual, the presumptions run the other way. If we take the cases in which the documents have been scrutinized and the it was found that the banks were fabricating and forging documents, offering them in court with perjured testimony, should alert us to the possibility that we are putting millions of our citizens on a financial death row when they should, in reality, be left alone.

Tags: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND
Posted in bubble, Corruption, Eviction, securities fraud |