The good: As a true crime book, Chain of Title is gripping. Even those without an interest in housing issues will find it engrossing.
The bad: Dayen does not suggest any solutions, and a reader will put down the book doubting whether the problems it identifies can even be fixed. Early in the book, Dayen provides a worthy summary of the housing reforms of the New Deal; reviving these strategies would have been a simple recommendation for Dayen to make, but he did not.
Bottom line: Readers will have a thorough understanding of how mortgages for homeownership work, as well as the major problems. Above all, Chain of Title will leave readers with a sense of urgency to fix these problems. Homeowners will realize that they could make every mortgage payment on time and in full, yet still have their homes taken from them.
Chain of Title surely ranks among the best true crime books ever written. In a gripping narrative style, Dayen follows the story of a handful of ordinary homeowners who lose their home in foreclosure under suspicious circumstances and decide to investigate. Working together as amateur sleuths, a small network of strangers uncovers fraud of unimaginable scale. This fraud is entangled with and inseparable from the most serious problems of America’s homeownership system, and the motley crew reveals some appalling abuses that had been ignored by the mainstream media.
The result is one of the best available introductions to the issues of homeownership in the US. As a true crime novel, it is riveting; even those with no interest in affordable housing issues will find it difficult to put the book down. When they finally do, readers will have a thorough understanding of the problems of the home mortgage finance system, as well as a sense of urgency to fix them. Homeowners who read this book will realize that they could make every mortgage payment on time and in full, yet still have their homes taken from them: the countless horror stories recounted in Chain of Title could happen to you.
Millions of forgeries
The people Dayen follows through Chain of Title realize that there are errors on the legal documents used to foreclose on their homes. This is where the title of the book comes from: the lenders who foreclosed on them failed to adequately document an unbroken chain of title from the loan’s originator to them. For example, if Countrywide originated a loan but sold it to Wells Fargo, Wells Fargo would have no right to take that home in foreclosure unless it could document that it had actually bought the mortgage for that home from Countrywide. It turns out that many banks were not actually properly documenting transactions; if Wells Fargo wanted to foreclose on a home in Cincinnati, they would simply forge whatever documents they needed to “prove” that the loan was bought by Wells Fargo from Countrywide and proceed with the foreclosure even if they had no right to do so.
Some of the most appalling sections of the book detail how documents that were obviously fraudulent – notary signatures dated prior to the notary obtaining notary certification, or the same person signing the same document as both witness and bank vice president – were inexplicably accepted by courts around the country, even after the errors were pointed out. The judiciary allowed foreclosures to proceed even though they knew they were illegitimate, even though that meant destroying the lives of homeowners who had never been a day late or penny short on a mortgage payment. Judges even accepted these obviously fraudulent documents and let banks take homes from people who had paid off their mortgages in full. Many of these victims weren’t even given an opportunity to contest their foreclosure because they were never notified they were even being foreclosed on.
The real crime is what’s legal
Foreclosing on a home with a broken chain of title is illegal, but the story takes a particularly dark turn as the band of amateur sleuth-homeowners start uncovering legal abuses perpetrated by lenders. They find two instances of homeowners being foreclosed on over a payment shortfall of less than $1. In both cases, the borrower had written a check for the wrong amount by mistake; the bank actually succeeded in taking the home in the smaller, 14 cent-shortfall. They also find people who lost their home through dozens of legal, but totally unethical strategies.
One example is being force-placed to a different insurer: without their knowledge or consent, a lender switches borrowers to a more expensive homeowner’s insurance plan. Not knowing their monthly payment has increased (because they were never told about the change of insurer), borrowers make their normal mortgage payment, only to lose their home in foreclosure for not paying their full monthly payment amount. It sounds superficially reasonable that a lender should have the right to take a home if you do not make your monthly payments on time and in full; you have, after all, agreed to make those payments. But rules that ignore the deceitful schemes underlying the foreclosures allow for these and countless other travesties of justice documented in Chain of Title. Without exaggeration, if your lender decides they want to take your home, they can find a way to do so, with or without breaking the law, even if you have made every monthly mortgage payment on time and in full.
Though the book is not primarily about predatory mortgages, probably the best part about the book is the clarity it provides on predatory lending. Over and over, Dayen embarrasses experts by comparing their public statements on predatory loans to the realities of predatory lending. Even the experts don’t understand how predatory lending works. First, predatory lending isn’t a problem that only affects poor or elderly homeowners, though they are the primary victims. Rather, Dayen highlights examples of people with perfect credit scores who were nonetheless deceived into signing up for predatory loans. Anyone can be duped into signing up for a predatory loan, even those financially savvy enough to have a literally perfect credit score. Dayen cites studies that show that ruining people’s lives with predatory loans was a deliberate strategy of mainstream lenders; predatory lending was systematic, not limited to a few bad actors.
Second, Dayen points out that while a majority of people foreclosed on were behind on their mortgage payments, a large share of these people were deceived into signing up for predatory loans. Dayen cites numerous experts who concluded that little harm was actually done because many of the people who lost their homes illegitimately were actually behind on payments. But this is an outrageous position: predatory loans are designed to be impossible to pay back, so of course people were behind on payments. The goal of predatory lenders is to put you into a financial situation you cannot possibly escape, then take your home and sell it for a tidy profit. For example, imagine you bought a home worth $200,000 with a $40,000 down payment and a $160,000 predatory loan. For the first several years, you have an affordable monthly payment. But suddenly, your monthly payment triples and you can no longer afford those payments. If you do not refinance, you will lose the home. You explore options to refinance, but to your horror, you realize that your loan balance is $220,000. You were not actually reducing the amount you owe by dutifully making payments each month; the amount you owe was increasing. Not only is your down payment gone, you now owe more than the home is worth, so it is not possible to refinance: lenders will not make a loan for more than the value of the underlying asset. If you sell the home, you will actually owe your lender several thousand dollars. When your monthly mortgage payment tripled, you fell behind on payments. Clearly, it would be absurd to conclude that no harm was done when the bank takes your home. Yes, you were behind on payments, but you were set up for failure.
Third, Dayen points out that anyone with a predatory loan is a victim, and not acting irresponsibly. No one would sign up for a predatory loan if they knew it would rob them of their down payment, destroy their credit, and upend their life. Predatory loan documents are written to be impossible to understand. We meet a person in Chain of Title who had perfect credit and had meticulously read her entire loan document. Because it was written to be impossible to understand, she had no idea that she was signing up for a predatory loan. Worse, it was standard practice to staple a fixed-rate mortgage agreement on top of a predatory loan document; in this way, the predatory agreement literally looked like a standard mortgage, and after the borrower signed the last page – the signature page for the predatory loan – the lender would throw the fixed-rate mortgage agreement in the trash. Failing all this, some predatory loan officers would simply forge a borrower’s signature when she refused to sign.
It’s worse than you think
We talk a lot at this organization about how lots of Americans simply don’t know just how bad the American housing system is. Chain of Title will teach you heartrending detail what it is like to be victimized by a predatory loan. Dayen points us to a man whose small home is worth $12,500 but his loan balance ballooned to over $200,000.
Similarly, many Americans simply don’t realize that a foreclosure ruins your life: you lose your home as well as your life’s savings. This is because the bank gets to keep your down payment and any equity you built by paying off your mortgage. You do not get your down payment back. You get nothing. For good measure, Dayen ends Chain of Title by citing a study linking foreclosures to suicides.
Sending in the cavalry
Chain of Title is also strong as it traces the Obama Administration’s efforts to shield banks from punishment and prevent homeowners who had been grossly wronged from getting restitution. The Obama Administration set up a federal lawsuit to go after lenders who had forged chains of title, and then pressured individuals and states who had pending legal action against banks to merge their cases with the federal lawsuit. In a similar way, the Obama Administration also swallowed up many federal law enforcement and regulatory investigations, including several by the FBI.
Since the feds have more resources, lumping all cases together should be more effective. In reality, the Obama Administration wanted to let the bankers off the hook, and was merging cases in order to defang them. This is especially clear since states had been pursuing criminal charges against lenders because they engaged in criminal activity; the federal lawsuit took criminal charges off the table. Many state attorneys general balked at merging their prosecutions with when they realize what is going on, but Obama applies a massive pressure campaign, publicly (and wrongly) accusing reluctant attorneys general of hurting their own constituents by not joining. In other words, the cavalry were sent in to rescue the banks, not ordinary Americans who had been preyed on.
To get an idea of how toothless the Obama Administration’s efforts against the banks (and on behalf of homeowners) were, one federal task force supposed to be investigating wrongdoing had no leadership, no phones, and no staff. State attorneys general are livid with the lack of investigation into wrongdoing, but eventually relent to intense pressure. Surprisingly – given her later reprehensible decision not to prosecute OneWest Bank for literally thousands of violations of lending laws – then-California Attorney General Kamala Harris comes out well in this section, a lonely holdout standing in the way of the Obama Administration’s effort to roll up state lawsuits and shield banks from justice.
In the end, banks are forced to pay a fine, but it is a slap on the wrist: it averages out to $2000 per foreclosure – about a month or two of rent – yet it retroactively immunizes banks’ wrongdoing, from forging documents to charging individual borrowers thousands of dollars in illegal fees. Remember, in a foreclosure, homeowners forfeit their down payment and any equity built in their house; homeowners thus lost tens of thousands, or even hundreds of thousands, of dollars. Banks are left fully incentivized to continue operating as they had been: a penalty of $2000 per mortgage is barely a slap on the wrist, 1-2% of the cost of the homes they illegally took.
Unsurprisingly, banks find loopholes in the settlement and avoid paying about half of the settlement, and little of the settlement money actually makes it to foreclosure victims. Some people who lost their home in foreclosure – despite making every payment on time and in full – return their restitution checks for $300 in disgust.
Legalese isn’t boring?
While true crime books lend themselves to engaging prose, give Dayen credit as a writer. One of the strongest parts of Chain of Title is the section tracing modern housing finance policy, and there could hardly be a more dry topic. His research is thorough; he nitpicks the minutia of real estate mortgage investment conduits, the primary vehicle for mortgages as investments, outlining requirements for paperwork and wet signatures.
This legwork is essential for understanding what happened, but couldn’t be a more boring topic. But Dayen takes dry, challenging topics and makes them understandable in an engaging way, getting the reader to understand why this minutia is important. A reader will walk away with a basic but thorough understanding of American housing policy, from the New Deal to the Savings & Loan crisis, deregulation laws through the 1980s and 90s (such as those legalizing predatory lending), and the inflation of the housing bubble. There is probably no better explainer available to non-experts of why the 2007-9 housing bubble collapse occurred.
Who killed the HOLC?
One key point Dayen overlooks is how the New Deal housing reforms were limited by political realities at the time. At the time of the New Deal, a widespread, mainstream sentiment was that the catastrophe of the Great Depression was “actually a good thing.” In face of a world collapsing all around them, mainstream American thought leaders held that the people suffering actually deserved their plight, be it unemployment, eviction, or foreclosure. Dayen does not mention this, even though this point of view dictated the limits of what the New Deal could accomplish, stymying the organizations he discusses, such as the Home Owners Loan Corporation (HOLC). Dayen recounts how HOLC played an indispensable role in ending the Great Depression, buying a whopping 20% of all home loans in the US, then selling them back to the homeowners who had lost them under extremely favorable loan terms. These loan terms were better than any loan terms heretofore available to the most qualified borrower; HOLC literally invented the fixed-rate long-term mortgage. In other words, HOLC took a housing system that had catastrophically failed and made it immeasurably better than it was prior to the crisis.
Despite its success, HOLC started liquidating itself in 1947. Dayen gestures towards the fact that the government “did not want to own mortgages,” but it was more than that; HOLC was, by law, temporary. The compromise between “do something” and “do nothing” is to do something temporary. HOLC was legally obligated to find buyers for its loans and wind down its own operations; private financiers did not want to compete against a public lender, so HOLC’s termination was written into the law that created it.
This matters because the logical extension of the success of the public sector via HOLC and Fannie Mae (another invention of the New Deal) on one hand, and the recurrent, spectacular failures of the private sector (the Great Depression; the savings & loan crisis of the 1980s; predatory lending of the 1990s and 2000s; the mammoth bursting of the housing bubble in 2007-9; the failure of innovations of housing finance to actually increase the homeownership rate; private loan servicers pursuing foreclosures even when it would be more profitable for the loans’ owners to modify loan terms) is an argument in favor of a public option for housing finance. In other words, Dayen does not take the many threads he wove into a compelling story to their logical conclusion. If public sector lending works so well and private sector lending works so badly, why shouldn’t we resurrect the HOLC and open it to all Americans? HOLC was a resounding success; it could have continued operations indefinitely and only shut down because it was legally required to do so.
Nearly half of all home loans are owned by the federal government, and nearly all of the remaining loans are guaranteed by the federal government or made possible through some action of the federal government. If the private sector plays a bit role in the housing finance and the federal government underwrites the entire system, why shouldn’t we simply apply for a loan directly from the federal government?
Dayen has written in support of public banking since the publication of Chain of Title. Perhaps, after meticulously documenting the despicable failure of the Clinton and Bush administrations in regulating housing finance and the total failure of the Obama administration to hold bankers accountable for their wrongdoing or to ensure compensation for victims, Dayen did not believe he could convince his readers that the federal government could be a part of the solution.
Chain of Title is a gripping story that even those without interest in affordable housing issues will find difficult to put down. When readers finally do put down Chain of Title, they will have a thorough understanding of the problems with homeownership in the US and a sense of urgency that these problems need to be fixed, now.
Indeed – simply through force of numbers – Chain of Title may be the best available introduction to the problems of the American housing system. A large majority of American households are homeowners: there are twice as many homeowners as renters. Whereas Evicted focuses on the issues of low-income renters – a subset of a minority of households – Chain of Title is an indictment of the entire owner-occupied sector of housing, to which most of us belong. In other words, there is no other work that so thoroughly indicts so much of our housing system.