CNBC Nightly Business Report – June 8, 2016 with David Dayen

I can almost hear the producers at the end saying cut him off, cut him off!


HERERA:  Though it`s been eight years since the housing crisis, the next guest some home buyers are still dealing with the fallout from dishonest mortgage lenders and banks today, and he believes that the housing crisis has led to a breakdown of social order and a lack of trust in our financial system.  He is David Dayen, journalist and he`s author of the book “Chain of Title”.

Welcome.  It`s nice to have you here, David.


HERERA:  You know, it is surprising that the wounds go so deep, on the one hand, but on the other hand, when you look at the completed and total collapse of the housing market, perhaps it should take that long to heal.

DAYEN:  Yes, perhaps.  The fact remains is that not only did we see dishonest lending at the origination stage and then dishonest securitization where the investors were defrauded and told that the loans were of good quality when they actually weren`t, but we saw dishonesty in terms of breaking the transfer process and the chain of title that goes from entity to the other, and when individuals were foreclosed on, they were done so with false documents which was a cover-up for this lack of chain of title.

And so, there was dishonesty and the fraud was layered on top of one another, and it really does engender this loss of faith in institutions.

MATHISEN:  Well, let me bore in a little bit on that.  So, you`re saying some of these people who bought houses with loans they couldn`t repay, what was faulty about the foreclosure that caused them then to lose their homes?

DAYEN:  Well, what was faulty was that the evidence that was used for the foreclosing entity to prove that they actually owned the loan and had an interest in it was faulty.  It was fabricated.  It was forged and in any other legal context if you`re using false evidence to convict somebody, the judge would throw you out of court, whether you were innocent or guilty.

And the fact remains that every day in America, to this day, somebody is
kicked out of their home based on a false document.

HERERA:  And as I understand it, you feel as though that`s part of the reason this lack of faith in institutions, it has led to sort of societal breakdown if you will, the lack of trust that goes much further than in some previous financial crisis.  Is that — is that correct?

DAYEN:  Well, I mean, I think there`s a lot of frustration, a lot of anxiety, and it gets to the lack of accountability.  The fact this is still going on today, we had settlements over this activity in 2012.  You would presume that when you settle over unlawful conduct, that the unlawful conduct stops.

And the fact that it`s gone on and continued and most people feel that there was not very much accountability for those who perpetrated the financial crisis and the associated frauds that occurred and that is — that runs deep, sort of in the American psyche.  It gets to fair play and justice and all these bedrock American values.

MATHISEN:  What responsibility do borrowers have in all of this?  A lot of people took out loans in that they had no business taking out.  I`m not saying that they weren`t sold those loans, rather than being the viewers of them.  But the fact remains, they had no business being in it.

DAYEN:  The fact remains that there are two sides to a lending contract. And just as the borrower makes a promise to pay, the lender is supposed to make a promise that they`ve underwritten the loan and seen that the borrower has the ability to pay.

And so, there`s plenty of fault to spread around in that particular process.  However, what we know and what is detailed in my book is that there was tremendous deception at the lending stage and also at the loan servicing stage.  A lot of these defaults were servicer driven where you had loans that were 2 cents short and put into default.

You had loans — you know, people getting foreclosure notices when they paid cash on their homes.  There was a serious breakdown in the system of property records law which is 150 years older than the Constitution.  When you have that breakdown, it really does have this sort of breakdown in the social order.

HERERA:  David, thank you.  We have to leave it there.  Thank you very much for joining us.


HERERA:  David Dayen, author of “Chain of Title”.