In an article in The New York Times on August 19th titled “The North Dakota Miracle,” Catherine Rampell writes:Forget the Texas Miracle. Let’s instead take a look at North Dakota, which has the lowest unemployment rate and the fastest job growth rate in the country.According to new data released by the Bureau of Labor Statistics today, North Dakota had an unemployment rate of just 3.3 percent in July—that’s just over a third of the national rate (9.1 percent), and about a quarter of the rate of the state with the highest joblessness (Nevada, at 12.9 percent).North Dakota has had the lowest unemployment in the country (or was tied for the lowest unemployment rate in the country) every single month since July 2008.Its healthy job market is also reflected in its payroll growth numbers. . . . [Y]ear over year, its payrolls grew by 5.2 percent. Texas came in second, with an increase of 2.6 percent.
Why is North Dakota doing so well? For one of the same reasons that Texas has been doing well: oil.Oil is certainly a factor, but it is not what has put North Dakota over the top. Alaska has roughly the same population as North Dakota and produces nearly twice as much oil, yet unemployment in Alaska is running at 7.7 percent. Montana, South Dakota, and Wyoming have all benefited from a boom in energy prices, with Montana and Wyoming extracting much more gas than North Dakota has. The Bakken oil field stretches across Montana as well as North Dakota, with the greatest Bakken oil production coming from Elm Coulee Oil Field in Montana. Yet Montana’s unemployment rate, like Alaska’s, is 7.7 percent.
A number of other mineral-rich states were initially not affected by the economic downturn, but they lost revenues with the later decline in oil prices. North Dakota is the only state to be in continuous budget surplus since the banking crisis of 2008. Its balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million, and is debating further cuts. It also has the lowest foreclosure rate and lowest credit card default rate in the country, and it has had NO bank failures in at least the last decade.
If its secret isn’t oil, what is so unique about the state? North Dakota has one thing that no other state has: its own state-owned bank.
Access to credit is the enabling factor that has fostered both a boom in oil and record profits from agriculture in North Dakota. The Bank of North Dakota (BND) does not compete with local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state. In 2010, according to the BND’s annual report:The Bank provided Secured and Unsecured Federal Fund Lines to 95 financial institutions with combined lines of over $318 million for 2010. Federal Fund sales averaged over $13 million per day, peaking at $36 million in June.The BND also has a loan program called Flex PACE, which allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, small business, and essential community services. In 2010, according to the BND annual report:The need for Flex PACE funding was substantial, growing by 62 percent to help finance essential community services as energy development spiked in western North Dakota. Commercial bank participation loans grew to 64 percent of the entire $1.022 billion portfolio.The BND’s revenues have also been a major boost to the state budget. It has contributed over $300 million in revenues over the last decade to state coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County. According to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state’s general fund as oil and gas tax revenues did (oil and gas revenues added $71 million while the Bank of North Dakota returned $60 million). Over a 15-year period, according to other data, the BND has contributed more to the state budget than oil taxes have.
Barely a week goes by without someone contacting me to say that a bank is trying to steal their home. Often, this "theft" is the result of unpaid mortgages that have resulted in foreclosure.
But every so often, I hear from someone who seems to have become genuinely entangled in a banking system that is both rigid in its dealings with customers and deaf to legitimate pleas for help.
That's the case with Lana Ashford, who faces the loss of her Marina del Rey condo to Bank of America because of what turned into the refi from hell.
It's a story worth telling, if for no other reason than because bankers, lawmakers and regulators need to be reminded from time to time that the housing mess involves real people and that many folks find themselves in trouble through no fault of their own.It's a story worth telling because, quite simply, it could happen to any of us.
BofA, which this week agreed to pay $137 million to settle charges that it helped rig bids on municipal bond contracts, says it was justified in how it treated Ashford. But a bank spokesman said BofA would take a closer look at the case.
Ashford, 63, works as sales director for a Hermosa Beach hotel. She'd been paying about $3,100 a month in mortgage payments for her two-bedroom condo, which she bought 25 years ago.
She wanted to lower her monthly payments and spoke with a BofA rep about her options. Because her loan was with Countrywide Financial, which BofA acquired in 2008, Ashford said, she was told this shouldn't be much of a problem.
BofA said it could offer her a lower-interest, 30-year loan that would cut her monthly payments to about $1,600.
"This sounded like a great deal," Ashford told me. "That's why I wanted to go with it. Now I wish I never had."
There were some early signs of trouble. The bank wanted to see additional paperwork before committing to the refi. Then it sent Ashford a contract that she signed but that BofA subsequently said contained errors. A new contract was sent.
BofA had also said the closing cost of the refi would be relatively low, but then Ashford discovered in the paperwork that she was being charged $6,000. The bank lowered it to $1,900.
The refi contract was scheduled to be signed Aug. 26, 2009. But a notary hired by BofA failed to show up.
Ashford signed the contract the next day, Aug. 27, and this time the notary was on hand to make it official. Ashford paid the $1,900 in fees and submitted her first mortgage payment of $1,607. BofA cashed both checks.
That missed day, though, would turn out to be crucial.
Not long after the documents were signed, Ashford said, she started receiving messages from the bank asking her to get in touch. She said she tried — repeatedly — but couldn't get through to a human being.
Finally, last October, she managed to connect with a service rep, who informed Ashford that her loan wasn't in the system.
After bouncing around BofA's service network and speaking with numerous reps, Ashford said that even though she'd signed a notarized contract in August, and even though BofA had cashed her checks, her loan had in fact been declined in September.
How could that be? No one at the bank was able to tell her.
Ashford retained a lawyer, who sent a letter to BofA warning that the bank was in breach of contract and asking for the agreed-upon refi to be reinstated. Shortly afterward, BofA stopped cashing Ashford's mortgage checks and returned the original payments.
"I couldn't make them cash them," she said. "So now it looked like I was delinquent on my loan."
It turns out that Ashford's refi was doomed from the start. That's because federal law requires that borrowers be given three business days to reconsider their decision before a lender funds a loan.
Ashford's contract specified that the loan had to be funded by Aug. 31. But because of the missed appointment by the notary, there was no way the terms of the loan could be met. Once Sept. 1 arrived, all bets were off.
In March, Ashford received a notice of trustee's sale informing her that she was in default on her loan and that her home could be sold at any time after 20 days.
"I think they're determined to sell my condo," Ashford said. "This has been my home for 25 years, but the bank seems to want me out. Maybe they think they can get a lot for it if they sell it."
Rick Simon, a BofA spokesman, said that "during the period in 2009 when Bank of America was working with Ms. Ashford, there were changes in her credit profile that provided valid underwriting reasons for her loan to be declined."
He declined to elaborate on how Ashford's credit profile had changed.
Ashford assumes that the changed credit profile reflects a single mortgage payment she missed earlier in the refi process, when she believed the lower monthly rate was about to kick in. She said she was told at the time by a BofA loan officer that this wasn't a problem and that the missed payment would be included with the final refi package.
Simon acknowledged that BofA moved ahead with the loan even though it was aware of the credit issue. He also admitted that Ashford wasn't to blame for the timing of the contract notarization or the missed funding deadline.
"We are reviewing our processes, with particular concern about why the document signing took place," he said, adding that BofA may resurrect the original refi "if we find fault in the processes relating to her loan."
Here's the bottom line: Ashford acted entirely in good faith and did nothing wrong, and for more than a year she's been given the run-around by BofA and now faces the loss of her home. The bank is to blame for this mess, yet it's either unwilling or unable to take responsibility for its actions.
That's not good enough.
Steve Kroft gets a rare look inside the secretive world of "high-frequency trading," a controversial technique the SEC is scrutinizing in which computers can make thousands of stock trades in less than a second
I swear to God Almighty: Mortgage Backed Securities are America’s Herpes – the gift that keeps on oozing.
Last Friday, Bank of America announced that it was suspending all foreclosure proceedings, presumably until further notice. Other banks have already suspended foreclosures in a whole truckload of states. A nationwide moratorium on foreclosures might soon happen – which would be a big deal: Global Financial Crisis, Part II – Longer, Wider and Uncut.
But the mainstream media – surprise-surprise – has downplayed the whole shebang. They’re throwing terms out there into the ether, but devoid of context or explanation: “Robo-signings,” “foreclosure mills,” forged signatures, “double booking,” MERS – it’s confusing as all get-out.
So the mainstream media just mentions it casually – “and in other news tonight . . .” – like it’s no big deal: A couple-three lines, lots of complicated, unfamiliar terms, an attitude like it’s a brouhaha over paperwork of all things! – and then zappo-presto-change-o!: They’re showing video footage of a cute koala nursing in the arms of a San Diego zookeeper.
But even the koalas know that something awful is heading America’s way. Smart little critters, they’re heading for the treetops, to get away from this mess.
So what the hell is going on with the God forsaken mortgage mess in the United States?
It’s got a lot of bells and whistles, but it’s basically quite simple: It’s all about the fucking Mortgage Backed Securities (MBS). Again.
So this is what happened, more or less – the short version:
In the crazed frenzy to get as many mortgages securitized during the Oughts, banks took shortcuts with the paperwork necessary for the Mortgage Backed Securities. The reason was because everyone in the chain of this securitization mania got a little piece of the action – a little slice of the MBS pie in the shape of commissions.
So in the name of “improved efficiencies” (and how many horror stories are we finding out, carried out in the name of “improved efficiencies”), banks digitized the mortgage notes – they didn’t physically endorse them, like they were supposed to by the various state and Federal laws.
Plus – once the wave of foreclosures broke, and the holes in this bureaucratic paperwork became evident and relevant – some of the big law firms handling the foreclosures for the banks started doing some document fabrication and signature forgery, in order to cover up the mistakes – which is definitely illegal.
Long story short (since this is the short version): A lot of the foreclosed properties might not have been foreclosed legally. The people evicted might still have a right to their old houses. The new buyers might not actually own the REO’s they bought off the banks. The banks could be on the hook for trillions of dollars, and in the sights of literally millions of lawsuits.
In short: This could become another massive oozing sore, complete with yellow-green pus drip-drip-dripping out of some unmentionable places on the Body Economic.
Now – the long version:
Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper – only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage – the note, which is the actual IOU that people sign, promising to pay back the mortgage loan.
Before Mortgage Backed Securities, most mortgage loans were issued by the local Savings & Loan. So the note usually didn’t go anywhere: It stayed in the offices of the S&L down the street.
But once mortgage loan securitization happened, things got sloppy – they got sloppy by the very nature of Mortgage Backed Securities.
The whole purpose of MBS’s was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with therefore higher rates of return.
Therefore, as everyone knows, the loans were “bundled” into REMIC’s (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then “sliced & diced” – split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.
This slicing and dicing created “senior tranches,” where the loans would likely be paid in full, if past history of mortgage loan statistics was to be believed. And it also created “junior tranches,” where the loans might well default, again according to past history and statistics. (A whole range of tranches were created, of course, but for purposes of this discussion, we can ignore all those countless other variations.)
These various tranches were sold to different investors, according to their risk appetite. That’s why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
But here’s the key issue: When an MBS was first created, all the mortgages were pristine – none had defaulted yet, because they were all brand new loans. Statistically, some would default and some others would be paid back in full – but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads – but what will the result be of, say, the 723rd toss specifically? I dunno.
Same with mortgages.
So in fact, it wasn’t that the riskier loans were in junior tranches and the safer mortgage loans were in the senior tranches: Rather, all the loans were in all the tranches, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder take the loss last.
But who was the owner of the junior tranche bond and the senior tranche bond? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn’t be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.
Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier MBS tranche?
Enter stage right, the famed MERS – the Mortgage Electronic Registration System.
MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two, again, I know, I know: Like the chlamydia and the gonorrhea of the financial world – you cure ‘em, but they just keep coming back).
The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially the operating table where the digitized mortgage notes were sliced and diced and rearranged so as to create the Mortgage Backed Securities. Think of MERS as Dr. Frankenstein’s operating table, where the beast got put together.
However, legally – and this is the important part – MERS didn’t hold any mortgage note: The true owner of the mortgage notes should have been the REMIC’s.
But the REMIC’s didn’t own the note either, because of a fluke of the ratings agencies: The REMIC’s had to be “bankruptcy remote,” in order to get the precious ratings needed to peddle Mortgage Backed Securities to institutional investors.
So somewhere between the REMIC’s and the MERS, the chain of title was broken.
Now, what does “broken chain of title” mean? Simple: When a homebuyer signs a mortgage, the key document is the note. As I said before, it’s the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a Mortgage Backed Security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the “chain of title.”
