After the housing crash, people have lost faith in financial institutions, writes author David Dayen in his book “Chain of Title.”
Dayen spoke with MarketWatch staffer Andrea Riquer about the current lack of trust in the housing finance institutions. “In many ways, the closing documents symbolize the structure and authority that the housing finance market creates, Dayen told MarketWatch in an interview. “I think the closing process is like the psychological way in which you’re taught that this is a very deliberate process that you can trust,” Dayen said.
But in the housing bubble of the mid-aughts, he said, “The fact that you couldn’t is the heart of the problem.”
“Chain of Title” refers to the entire process of transferring ownership of title to a property. Once upon a time, it was straightforward.
Financial institutions originated agreements with consumers, then sold stakes in all the different pieces of that transaction over and over again, sometimes in whole pieces, other times as parts of securitized investments.
The book touches on individual cases, but also makes a broader point. The entire housing finance system was built on faulty, if not fraudulent, documentation, Dayen argues. Lenders cut corners, ignored regulations, and faked signatures to get as much fodder for the securitization machine as they could when the bubble was inflating. When it burst and the foreclosure crisis began, they repeated the process on the way back down.
That broad-based breakdown of the social contract, Dayen believes, not only cratered the financial system and the economy, but also is still rippling through American society today.