I received an e-mail from a correspondent I’ll call MBSGuy and I thought readers would find it informative. He’s been an expert witness in quite a few securitization cases (which is an area with relatively little in the way of case law, in contrast to real estate). And in case it isn’t obvious, to serve as an expert witness, you do have to know what you are talking about.

By MBSGuy:

I think Calculated Risk is a great web site and I read it every day. But for the most part, CR has avoided mortgage securitization market details. That was really Tanta’s turf.

CR has a post up today which is a troubling, in that it mentions “hysteria” and “misinformation” yet misconstrues critical issues. The article, “Why did the mortgage servicers use “robo-signers”?” despite being well intentioned, does not answer the question posed in its headline, adds no real information and is about two weeks late.

It is patently incorrect to say that the “foreclosure gate” issue is about “robo-signers”. A dozen top banks or servicers voluntarily halted foreclosure across much of the country because title insurers were no longer comfortable working on their foreclosure sales, borrowers were having increasing success challenging the foreclosures, their sub-contractors (such as Lender Processing Services and various foreclosure mill law firms) were being investigated for fraud and perjury, and news was starting to get out that the problems were much more widespread than had been previously reported.

The entire legal structure of foreclosure was coming undone. Robo-signers were just a manifestation of a much larger issue that was already becoming a problem.

People who believe that the foreclosure crisis issue is just about servicing are either new to the issue or unwilling to ask some obvious questions about what is going on. Certainly all aspects of process intensive work can be exposed to human error and mistakes, but you’d think the mistakes might be randomly distributed, rather than concentrated in the same parties and the same documents, over and over again in the same ways.

I believe that a reasonable examination of the facts shows that the documents were not prepared incorrectly due to mistake, but rather due to a strategic choice.

How can you look at this issue in detail and not wonder why the servicers chose the routes they took? If it was really just a bunch of technical mistakes, how come they never did anything to fix the problem, even though they have been facing legal challenge from a growing number of borrowers?

Surely, someone at the servicer knew that submitting unverified affidavits could create legal problems The deposition of GMAC’s robo-signor Jeffrey Stephan, which seemed to break the case open in September, was actually from 2009. GMAC was on notice of the problem with unverified affidavits for over a year and did nothing about it – in fact they submitted thousands more with the same problems, even after Mr. Stephan admitted in court that he repeatedly submitted false affidavits to court. It was their business to submit them on an unverified basis, it was not a technical mistake.

Having witnessed a servicer and its counsel lie repeatedly in a court where I was testifying, I can say with confidence that the incorrect statements they made were not mistakes. I wondered why they spent so much money to dispute our claim that the form of the note and mortgage were not in the proper form. If the servicer had just made a technical error, why didn’t they just go correct it and re-submit the foreclosure in the name of the party actually holding title (rather than the people they wanted to be holding the title)?

They submitted the documents to cover earlier mistakes in the origination process. If it is true that the servicing “mistakes” are correlated to the number of loans with conveyance problems, then it appears that the conveyance problem could be quite large.

In fact, the hysteria seems to be coming from people like CR and from the servicers themselves. Doesn’t preemptively and voluntarily halting foreclosure in 23 or 50 states seem like a bit of an overreaction if this really were just a few technical mistakes in preparing some otherwise uncontested servicing documents?

Refusing to ask “WHY did the servicers prepare so many incorrect documents?” is evidence of a very advanced stage of denial.