Who holds the deed to your house?

You have probably heard of the moratorium on home foreclosures due to sloppy paperwork in the mortgage industry. But there is potentially a far bigger problem, one that may affect your own paid-up mortgage. A court in Kansas has ruled that the old practice of registering titles to property in the local courthouse is, in fact, the law of the land. This was largely ignored during the mortgage book, with its high-tech mortgage repackaging and speculating. Let’s let the New York Times explain it:

For centuries, when a property changed hands, the transaction was submitted to county clerks who recorded it and filed it away. These records ensured that the history of a property’s ownership was complete and that the priority of multiple liens placed on the property — a mortgage and a home equity loan, for example — was accurate.

During the mortgage lending spree, however, home loans changed hands constantly. Those that ended up packaged inside of mortgage pools, for instance, were often involved in a dizzying series of transactions.

To avoid the costs and complexity of tracking all these exchanges, Fannie Mae, Freddie Mac and the mortgage industry set up MERS to record loan assignments electronically. This company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder.

Cost savings to members who joined the registry were meaningful. In 2007, the organization calculated that it had saved the industry $1 billion during the previous decade. Some 60 million loans are registered in the name of MERS.

As long as real estate prices rose, this system ran smoothly. When that trajectory stopped, however, foreclosures brought against delinquent borrowers began flooding the nation’s courts. MERS filed many of them.

“MERS is basically an electronic phone book for mortgages,” said Kevin Byers, an expert on mortgage securities and a principal at Parkside Associates, a consulting firm in Atlanta. “To call this electronic registry a creditor in foreclosure and bankruptcy actions is legal pretzel logic, nothing more than an artifice constructed to save time, money and paperwork.”

The system also led to confusion. When MERS was involved, borrowers who hoped to work out their loans couldn’t identify who they should turn to.

As cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, was among the first to argue that MERS, which didn’t own the note or the mortgage, could not move against a borrower.

Initially, judges rejected those arguments and allowed MERS foreclosures to proceed. Recently, however, MERS has begun losing some cases, and the Kansas ruling is a pivotal loss, experts say.

While the matter before the Kansas Supreme Court didn’t involve an action that MERS took against a borrower, the registry’s legal standing is still central to the ruling.

via Fair Game – The Mortgage Machine Backfires – NYTimes.com.

Now factor in this from the Washington Post:

The federal government’s pressure on lenders Wednesday to fix the paperwork problems plaguing foreclosures left unaddressed a far greater potential threat facing the financial system and the U.S. economy.

Financial and legal analysts are divided over how the ownership questions will be resolved and the scope of the potential damage. Lenders and investigators are in the midst of a painstaking process of unraveling the complex chain of loans that were sold from one party to another, a process that some analysts say could take years.

Of the nearly $11 trillion in mortgages in the United States, about two-thirds was turned into securities that were traded around the globe.

After a home buyer gets a mortgage, the lender typically pools that loan with hundreds of others to create a security that can be traded like a stock. This process is commonly called securitization and has been the preferred method of financing debt in America for more than a decade.

Wall Street firms would set up partnerships called “trusts” and would raise money from pension funds, university endowments, hedge funds and other investors to buy these mortgage securities. The investors would then share the cash flow from the payments made by homeowners every month.

However, local laws in most states dictate that each time a mortgage changes hands, the transaction needs to be recorded in courts or county offices. But the speed with which the loans were being generated during the housing boom and then pooled together and passed around Wall Street meant that big financial firms took shortcuts, consumer lawyers said.

Often the proper paperwork got lost or was passed along without being filled out, lawyers say. Some documents have been found retroactively signed or even forged.

“It now appears that in many cases: 1. the paperwork was not properly transferred and 2. it is unclear in many cases where the actual paperwork actually rests today,” Citigroup Global Markets analyst Josh Levin wrote in a note to investors this week.

Some think this can be fixed easily; others think it might paralyze the housing industry and bring down banks, investors, and the financial system.

Titles are a legal bulwark of private property. What we often dismissed as “mere paperwork” can be profoundly important. Or do you think physical titles and the like are obsolete in the age of internet transactions? But even if we need to adjust the system to the new technology, how do we get from here to there without going through an economic mess? And, in the meantime, who holds the deed to your house?


The reverse Okie syndrome

During the Great Depression, thousands of Okies left the dust bowl that was the Sooner State for brighter prospects in California, as well as other states.  Now, during the Not-So-Great Depression, thousands of Californians, as well as denizens of other states, are flowing to Oklahoma.  Here the economy is much better, there are lots of jobs, and housing costs are astonishingly low (with the median homes in Oklahoma City selling for $150,000).  This article details why Oklahoma is flourishing and what turned the state around: More Californians reverse course and head to Oklahoma – USATODAY.com.

I was born in Oklahoma and grew up there.  I too left the state to find work, but I do miss it.  One factor the article cites in the state’s growth is people who left the state moving back.  A good line from the article:  “Oklahoma is one of those places you have to come from to think it’s beautiful.”

But here is something to discuss:  One of the reasons Oklahoma City has become cool all of a sudden is that the local government pushed a number of new initiatives.  Voters imposed upon themselves a sales tax, which, among other things, developed “Bricktown,” a fun downtown entertainment district, including a river walk, music venues, good restaurants, lively bars, a minor league baseball stadium, and (a short distance away) the home of the new NBA team the Oklahoma Thunder.  Reasons the state has been attracting businesses is that the state and local governments have been promising tax breaks, subsidies, and other sweeteners.

In other words, it isn’t just the free market that has brought prosperity to Oklahoma.  Do you think these government programs are legitimate?  (Take into consideration the difference between local governments and federal governments.)

Point/counterpoint: Military Spending

In our efforts to raise the quality of discourse in American politics, let us try something different. We will take two arguments on opposing sides of an issue. We will then discuss which makes the best case.

Kirk Anderson alerted me to two columns on military spending. One argues that in our zeal to cut government expenditures, we had better not touch the defense budget. The other argues that any attempt to cut government spending must cut the military.

Which view do you think is right? Can you deal with the opposing arguments, showing why they are wrong?

Thou shalt not covet thy neighbor’s pay

Why do federal employees generally report less job satisfaction than those in the private sector, even though their pay, benefits, security, and working conditions are generally better?  I suspect lots of reasons.  Here is a theory:

There may be yet another explanation for why federal employees have long been less satisfied in their jobs than their private sector counterparts, a new study highlighted in Slate Tuesday reveals. Researchers from Berkeley and Princeton found that workers who know what their peers make, especially if they earn below-median pay, are more likely to be disgruntled than their blissfully ignorant peers.

Some HR thinkers have argued that more transparency would lead to better motivation and overall job happiness. If that’s true, federal employees, who have access to databases, public records and water cooler chatter over who makes what, should be much happier than their private-sector peers. But they’re not, according to data from the Partnership for Public Service, and FedBlog’s Tom Shoop wonders if a lack of pay secrets might be one reason.

One might argue, as HR gurus have, that knowing how you stand among your peers would make you motivated to perform better, in hopes of earning more. But the Berkeley and Princeton researchers argue the opposite. The study authors emailed University of California employees about a new Web site that listed the salaries of all of the university system’s employees, and then followed up to see how they felt about receiving the new information. Those who made less than median incomes reported more dissatisfaction and were more likely to say they’d be looking for a job sometime soon.

But those who made more than the median incomes did not report any kind of higher satisfaction from making more than their peers. Rather, they likely assume they’re worth it, and see the data as little more than confirmation of their superiority.

The study is a reminder, Slate’s Ray Fisman notes, of the increasing recognition by economists that humans are actually quite social when it comes to economics. Our salary doesn’t just make us happy or unhappy if we can (or can’t) cover our mortgage or buy an iPad for our spouse for Christmas. Rather, we are constantly comparing ourselves and what we earn to those around us.

via PostLeadership: My coworker makes what?! (When knowing more is not a good thing) – Jena McGregor.

That is to say, we value money not just for what we can buy with it but for the status it confers.  And what bothers us in the workplace is not just our need for a higher salary, but the prospect of other people making more than we do.  Is there anything wrong with this, or is it an example of the economic implications of coveting?

The Republican “Pledge to America”

The last big Republican midterm election gain featured a “Contract with America” that summed up the party’s agreed-upon policies.  Now Republicans, looking for a similar victory, have put together a “Pledge to America.”  The link below will give you access to the full 21-page document, but here are some highlights:


- Stop job-killing tax hikes

- Allow small businesses to take a tax deduction equal to 20 percent of their income

- Require congressional approval for any new federal regulation that would add to the deficit

- Repeal small business mandates in the new health care law.

Cutting Spending:

- Repeal and Replace health care

- Roll back non-discretionary spending to 2008 levels before TARP and stimulus (will save $100 billion in first year alone)

- Establish strict budget caps to limit federal spending going forward

- Cancel all future TARP payments and reform Fannie Mae and Freddie Mac

Reforming Congress:

- Will require that every bill have a citation of constitutional authority

- Give members at least 3 days to read bills before a vote


- Provide resources to troops

- Fund missile defense

- Enforce sanctions in Iran

via “Pledge to America” Unveiled by Republicans (Full Text) – Political Hotsheet – CBS News.

What do you think?  Will a platform like this lead to a Republican win?  Will it solve our nation’s problems?

Cut payroll taxes?

One idea to help the economy–advocated by members of both parties–is  to cut payroll taxes, that money deducted from your paycheck.  Here is the case for that from liberal economist Nouriel Roubini:

A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years).

Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward. In the second quarter, capital spending reached an annual growth rate of 25 percent. The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment and offshore offices that allow them to produce the same amount of goods with less — and lower labor costs. To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor — achieving job creation — rather than making it cheaper to buy capital, as investment and other tax credits would do.

President Obama could fully fund the reduction in payroll tax by allowing the Bush tax cuts for people making more than $250,000 a year to expire. Meanwhile, the Bush-era cuts affecting middle- and low-income earners — the vast majority of Americans — would remain in place for the time being. . . .

To maximize the incentives for private-sector hiring, there should be sharper reductions to the payroll taxes paid by employers than for those paid by employees. This will counter the argument that the higher income taxes funding these payroll tax cuts will hurt the wealthy and small businesses (many of which are run by those same high-income individuals) and their willingness to hire. Moreover, any cut in the payroll tax reduces the costs of operation and labor for all businesses. Other targeted policies that induce smaller banks to lend to small and medium-size businesses may be needed.

Low-income workers have historically shown a much higher propensity to consume when given extra money, so the payroll tax cut should be designed to provide a larger-percentage break to those on the low end of the income scale compared with the upper middle class.

via Nouriel Roubini – What America needs is a payroll tax cut.