Mark Thoma sends us to this Washington Post article about an apparently low-paid private sector employee who has been signing off on GMAC mortgage foreclosures at the rate of roughly 10,000 per month with little regard for the accuracy of the documents he was signing.
...as the leader of the document execution team for GMAC Mortgage. He has signed off on as many as 10,000 foreclosures in a month, according to court documents. That's barely a minute per case, assuming he works a normal eight-hour day.
His signature indicated that the information in the cases was accurate to the best of his knowledge, and that he had signed in the presence of a notary. The problem was, that didn't always happen, according to depositions that Stephan gave in December and June for court cases involving families trying to keep their homes.
Stephan's admission has cast into doubt thousands of mortgage foreclosure filings. Ally Financial, the nation's fourth-largest home lender and GMAC's parent company, halted evictions of homeowners this week in the 23 states that mandate a court judgment before a lender can take possession of a property.
When Jason Grodensky bought his modest Fort Lauderdale home last December, he paid cash. But seven months later, he was surprised to learn that Bank of America had foreclosed on the house, even though Grodensky did not have a mortgage.
Grodensky knew nothing about the foreclosure until July, when he learned that the title to his home had been transferred to a government-backed lender. "I feel like I'm hanging in the wind and I'm scared to death," said Grodensky. "How did some attorney put through a foreclosure illegally?"
Bank of America has acknowledged the error and will correct it at its own expense, said spokeswoman Jumana Bauwens.
The same article describes one real estate agent's attempt to halt a foreclosure because she had a buyer. Unable to halt it, the bank foreclosed and is now listing the property for less than the buyer was willing to pay. Apparently private sector firms that are too big to fail are also too big to achieve that ultimate of neo-classical economics accolades: efficiency. Or maybe it is efficient to foreclose and sell for less rather than halt foreclosure and sell for more? In that case, is efficiency all that we should care about?
Regular readers know that one recurring theme in this blog is that concentrated economic and political power in the private sector is as much a "problem" as an ineffective, inefficient guvment especially one that has been deprived of the funds needed to regulate a complex capitalist society based on commercial exchange and characterized in some sectors (like health and finance) by several types of market failure. Regular readers also know that as someone who grew up in a private sector family business, I expect private sector employees and their managers to behave better than caricatures of mindless guvmint bureaucrats that populate cautionary tales about totalitarian guvmints.
It should also be noted that it was in a government court that the GMAC travesty was exposed and halted. I also deduce from the article that there are 27 remaining states that do not mandate a court judgement before a lender can take possession of a property (that is to say, they do not have this regulation) and that in those states foreclosures may be continuing unabated thanks to Mr. Stephan's very efficient, but highly unethical rubber stamp.
It's a problem when guvmint is always and everywhere perceived to be the problem. It makes it difficult to pass legislation that would protect homeowners, borrowers, small businesses, renters, consumers (all the people who fuel and benefit from economic growth and prosperity) from corporate abuse of political and economic power. Next thing you know, we're living in Potterville, instead of Bedford Falls.
In this case, there's definitely a problem. I don't think its the government, however (although as you can see government helped by serving the papers and evicting the homeowners).
Broward Chief Judge Victor Tobin, who set up the county court's foreclosure system, said this is the first he's heard of this type of mistake. "From the court's point of view we have no way of knowing that someone sells a house unless they tell us," said Tobin. "The bank would first have to tell the lawyers and the lawyers would presumably ask the court for an order dismissing the case."
Let's hope it's also the last time Judge Tobin hears of this type of mistake. It sounds so simple doesn't it? In one case, the bank would have to do its job and tell the lawyers. The bank's lawyers would have to do their jobs and ask for a dismissal. In the other case, the bank would have to halt the foreclosure and sell the house to a willing and qualified buyer for a higher price than they will get if they foreclose. Complicated, yes? It's amazing how a taxpayer-funded bank bailout could be arranged almost overnight, but stopping an erroneous bank-initiated foreclosure of a taxpayer's home can take weeks or months (and thousand of homeowner dollars in legal fees, I'll bet).
In economics, we teach that firm size and market power can lead to monopolistic pricing that results in loss of consumer welfare. Most of that discussion, at least in intro courses, focuses on the monopolistic firm being able to set price higher than marginal cost (in a competitive equilibrium we would expect price to equal marginal cost). When a firm has sufficient market power to set price higher than marginal cost, consumers lose because they pay a higher price and they purchase less of the good. The higher price deprives them of money that could otherwise be spent on other goods and services. The above suggests that for large firms with concentrated economic and political power, monopoly rents might be the least of our worries. Far worse is that they appear to have the potential to inflict long lasting harm on people who lack the resources to hire an attorney to defend themselves from efficiently, but improperly, processed papers and unreasonable seizure.
Just ask yourself, as I often do, was your last unpleasant encounter with a cell phone company, a cable television company, a credit card company, or a bank or was it with a government agency? In my case, I'm sorry to say that some of the larger, more powerful parts of the private sector lose hands down.