Op-Ed

Daniel Pennell

The Wall Street – Washington – Richmond Axes

As a states’ rights, pro-business republican since my youth(I registered as a republican before I registered for the draft) I have always held a certain distrust of the Federal Government and felt that state and local government because of it is so much closer to the people was both more effective and less corrupt. Growing up in an upper middle class, conservative family of doctors, bankers, insurance agency owners and small business people I was taught a certain respect and reverence for the business class, its principles and efficiency.
Recent goings on in the Virginia House of Delegates and the Governor’s Office have served to undermine both of these articles of faith and I find the new reality of modern state government and business ethics a bitter pill to swallow.
This week we saw how vested financial special interests have created an obscene and incestuous relationship with the leadership in the state legislature and the Governor’s office. This cabal managed to kill off a bill (HB-1506) proposed by Delegate Bob Marshall that was designed to protect the integrity of the county property records and preserve the integrity of home owner’s title to their property. Simultaneously the cabal attempted to alter the Uniform Commercial Code (UCC) with HB-1718, proposed by Delegate Merricks, such that any “record” ( the previous version said document) signed or unsigned by a person they claim owed a debt would be good enough for the banks to win a legal judgment against a person. In other words a spreadsheet from a bank would be good enough to take someone’s home or report someone to a credit bureau. This was in direct response to a Supreme Judicial Court case in MA where the court said that a bank had to have proof it owned a mortgage before it could foreclose on a home. Apparently it is not a novel idea in MA that a bank should demonstrate that it has a legal claim to a mortgage before it forecloses.
The problem that HB-1506 attempted to address originated in 1995 when big Wall Street banks decided that they had the authority to replace the existing public land title recordation system with its nearly 400 years of successful history in Virginia, with a private system that only members who pay in excess of $7,000 could access. This system called the Mortgage Electronic Registration System (MERS) gutted the public property records and left millions of homes with questionable titles. The banks did this without any government approval and against the recommendations of the title industry and the county recorders. They did however get an opinion from Moody’s Rating agency the same people who brought you AAA ratings on subprime loans. MERS has been found by 10 state supreme courts to be acting illegally and is currently being sued by CA, NV, TN and 14 other states. The Federal Reserve, Office of the Comptroller of the Currency (OCC) which regulates all the national banks and the FDIC are investigating MERS for questionable business practices and for the risk it poses to the financial system that may require another bailout. The CEO resigned last week. Speculation in Washington has the OCC taking over MERS and nationalizing our land records a clear violation of states’ rights. All this so the banks could save $21 in recording fees on deals worth hundreds of thousands of dollars.
HB-1718 was submitted by Delegate Merricks. Bills to change the UCC are rare. They are rare because the implications of unintended consequences are usually substantial and not usually easy to foresee. The summary of the bill on the Legislative Information System (LIS) states that the bill is intended to address recent court decisions and changes in technology. There is no question that the bill was targeted at both protecting MERS and avoiding a court decision in VA similar to that in MA. Apparently Delegate Merricks, member of a bank board and a former vice president of a bank, thinks that banks should take the home first and then figure out who actually is entitled to do so later. Never mind the risk to title that a future buyer of a foreclosed home faces or that we have situations in VA where multiple banks are foreclosing at the same time on the same person. In that fight the winner gets the house and the loser the right to sue the borrower for the loan amount.
The banks wanted HB-1506 killed and HB-1718 passed to protect MERS and, I believe, to avoid providing proof to mortgage investors that they were defrauded. The requirement to record would have provided evidence to investors in mortgage backed securities (MBS) that what they bought was empty; the mortgages were never legally transferred to the MBS. In my humble opinion if you sell someone a security that you claim is backed by collateral when it is not then that would be securities fraud.  But then I am just an ignorant layman and not a master of the universe Wall Street banker. Among these investors are Fannie Mae and Freddie Mac whose losses are being paid for with your tax dollars to the tune of $280+ billion dollars over the next three years. Other investors include state and private pension funds. The total exposure to the banks exceeds 1.5 Trillion dollars. You can see why they would fight so hard and spend so much money to avoid a $21 fee and the right to use their own “records”.
HB-1506 was killed by the Speaker of the house (Delegate Howell), the Chairman of the Courts Committee (Delegate Albo), the Chairman of the Civil Subcommittee (Delegate Athey) and the governor’s office.
Delegate Howell, the Speaker, sits on the board of Virginia Heartland Bank. Courts Chairman Albo received 13% of his campaign funds from the VA Bankers Association and more from two major bank servicers. The lobbyist representing the bankers, Matt Bruning, at the hearing of the Civil Subcommittee was a former aid to the chairman of the subcommittee, Delegate Athey, and an aid to the governor.
One of the reasons given by Delegate Athey for not passing HB-1506 on was that the governor’s office in the person of Terri Suit, a former bank lobbyist and current head of the governor’s foreclosure task force sent a letter asking the subcommittee to hold off and let the task force work on it first. Did I mention that according to the Virginia Public Access Project that Terri Suit, who chairs the Foreclosure Task Force, previously, was a paid lobbyist for the Mortgage Lenders Association and the “private” members of the Task Force are almost entirely comprised of representatives of the mortgage industry?

HB-1718 was pulled from the floor when Delegate Marshall threatened to attach an amendment that would exclude mortgages from the language. Had the speaker left it on the floor, the members would have had to record a vote on the amendment and with the amendment there no longer was reason to pass it. The bill is still alive waiting for no one to be watching.  Delegate Merricks sits on the board of Virginia Bank & Trust and has 25 years in the banking industry.
I spoke to the U.S. Attorney’s office in Richmond and to the FBI today about all this. Although both declined to say they would not investigate both indicated that this was politics as usual and may not rise to the level of criminal corruption.
I do not know if the behaviors here rise to the level of criminal corruption or not but they certainly meet my personal definition. At the least the relationships are so inappropriate as to cause any reasonable citizen to question the integrity of the process.
A survey released today in the Financial Times shows that Americans trust of all large institutions from government to corporations is at an all time low. Banks come in for particular levels of distrust with only 25% of American saying that they trust financial institutions.
A survey published last week ranked Virginia as the country’s second most corrupt state only after Tennessee.
The American people and citizens of Virginia have a right to feel as they do after the shenanigans going on in Richmond this week.
You can take action: Call your delegate and tell them you want HB-1506 reheard and voted on by the full house. Call the governor’s office and Terri Suit’s office.
If you feel strongly enough, call the FBI & US Attorney in Richmond.