Clearly the financial crisis was caused by poor people taking out loans they couldn’t afford

…rather than unbelievably horrendous business practices. This family refinanced their home to take advantage of lower interest rates. The mortgage servicer, however, never closed the old loan, and filed an “Erroneous Release of Mortgage” (signed by a $10-an-hour fake notary). The interest rate went back up, and they were hit with late fees for not making their payments during the several months they thought they were paying their new mortgage. (No one knows what happened to they money they paid during that time.) The FHA showed the original loan, which they insured, had been paid off.

What do you think would happen to you if your tax records were kept this shittily? This was standard practice during the boom times. Everybody was obsessed with originating new loans as quickly as possible; they would collect the fees, then sell the loan to anyone who would buy it.

(And it turned out anyone would buy the loan. Someone figured out along the way that if you can figure out how to bundle loans together in the right way, a security backed by mortgages would qualify for the highest rating. Institutional investors, like pension funds and local governments, are legally obligated to invest their money in high-grade investments in order to minimize the risk to anyone relying on them. It turned out, however, that the models used to calculate the risk didn’t admit the possibility that house prices could decline nationally, which is exactly what happened, leaving these institutional investors holding the bag while banks, desperate to get some of their money back, started foreclosing on mortgages.)

So on one side, you have a prudent homeowner who sees falling interest rates and wants to lower her monthly payment. On the other hand, you have a company that specializes in originating, buying and selling home loans. Who would you expect to be more on top of their shit? Or, I suppose, who should be? If a legal dispute arises, the burden shouldn’t be on the homeowner, who in this case is now in foreclosure due to the bank’s negligence.

There absolutely must be consequences for businesses that engage in negligence and fraud. The public has a right to know which companies were running legitimate mortgage businesses, and which were hiring anybody off the street to shuffle papers in order to make a quick buck. The role for the government in a situation like this is to ensure everyone is on the level, and punish anyone who isn’t; people who should know better should face criminal liability. This isn’t going away. I hope the Department of Justice’s new task force (announced in the President’s State of the Union address) can get something done, as this is one area where the Republicans in Congress won’t be able to block action.

(And if anybody tells you the financial crisis was caused by the Community Reinvestment Act, which prevented banks from denying loans to black people just because, you’ll know what to tell them.)