The Foreclosure Document Mess: Cloward, Piven, and Their President Are Surely Pleased

The foreclosure document mess is a red-flag indication that a long-term leftist strategy to take down the nation as we know it is as close to "success" as it has ever been.

The latest, as of when this column was drafted, was this:

Officials in 50 states and the District of Columbia have launched a joint investigation into allegations that mortgage companies mishandled documents and broke laws in foreclosing on hundreds of thousands of homeowners.

Many banks, including Bank of America, have halted all sales of foreclosed properties. The state of Connecticut slapped a 60-day moratorium on all foreclosure sales earlier this month. Title insurers are backing away. A brazen gambit to get banks off the hook for many of their documentation errors, the "Interstate Recognition of Notarizations Act of 2010," zoomed through Congress and reached President Obama's desk last week. The president pocket-vetoed it.

"Mishandled documents"? "Documentation errors"? What's this all about?

The goal of the unsuccessful legislation was to force state courts "to give equal treatment to notarized documents ... that were notarized out of state." Apparently, many overwhelmed mortgage servicers frequently failed to have their foreclosure documents properly notarized in the states where their delinquent borrowers live; in some cases, they weren't notarized at all. In the courts, non-notarized or improperly notarized documents relating to real property usually aren't enforceable. There appears to be little dispute, to paraphrase Jerry Lee Lewis, that there has been a whole lot of wrong-state notarization and outright non-notarization going on.

The key word in the previous paragraph is "overwhelmed." In full context, mortgage servicers' inability to keep their foreclosure documents in order is best seen as a symptom of a system thrown into crisis by decades-long employment of a deliberately disruptive "progressive" tactic applied to housing and home lending. Its roots go back to 1960s radicals Richard Andrew Cloward and Frances Fox Piven.

The pair, in a 1966 Nation magazine column, announced a goal, as described here, to "persuade millions of Americans to get on the relief rolls -- to bankrupt the welfare agencies ... [in order to] provoke a financial crisis that would force Congress to enact a guaranteed annual income for all Americans." At the time, of the roughly 8 million Americans who were receiving public assistance, about 4.5 million were on "welfare," then known as Aid to Families with Dependent Children. Cloward and Piven believed that adding another 8 million to the public assistance rolls would bring about the desired crisis.

The growth in dependency did occur; it just took a while. By 1991, a quarter-century later, the welfare rolls alone had increased by 8.5 million to almost 13 million. The caseload peaked at 14.2 million in 1994. Meanwhile, the food stamp program, starting from virtually unnoticeable levels in the late 1960s, grew into a $20 billion behemoth with 25 million recipients.

Yet the system didn't buckle, partially because the increases didn't occur quickly enough, but primarily because the left's worst enemy, the USA's still largely capitalist economy, expanded during most of that period at a rate that enabled it to absorb these mostly unnecessary costs. The systemic threat ended when the 1996 welfare reform law took effect, after which welfare rolls shrank significantly. Darn.

But what the left attempted with welfare is not the only potential application of what has become known as the "Cloward-Piven strategy." Succinctly stated by David Horowitz, it is all about:

... forcing political change through orchestrated crisis. ... (It) seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.

The strategy's filthy fingerprints are all over housing and mortgage lending, in at least these forms:

  • The Community Reinvestment Act and its amendments, which enabled "community organizations" to force banks to make imprudent loans as a condition of getting regulatory approval of mergers, acquisitions, and other corporate actions.
  • The explosive growth of Fannie Mae and Freddie Mac (Fan and Fred), and the quiet de facto government takeover of the mortgage loan approval process that accompanied it.
  • Once they had commandeered the approval process, the deliberate loosening of lending standards at Fan and Fred, which enabled throngs of undeserving applicants to buy houses they couldn't afford.
  • As detailed by Peter Wallison and based on work by Edward Pinto, Fan and Fred's 15-year campaign of fraudulently overstating the quality of loans in the mortgage-backed securities they issued. In December 2009, Wallison wrote: "... because of Fannie and Freddie's mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience."

If the system isn't already overwhelmed, it's awfully close. This Cloward-Piven attempt is working. Here's a sign of how much "progress" has been made:

Potential paperwork errors on some of the $1.34 trillion of securitized home mortgages may give investors an opening to challenge the legality of deals, threatening to unnerve financial markets. .... [Q]uestions about the ownership of the loans ... may allow investors to force lenders to buy back the securities.

Guess who issued a huge percentage of these mortgage-backed securities, and has hundreds of billions more in underwater mortgages sitting on their books? That's right, Fan and Fred, who "just so happen" to have a promise of relief without limits from the Obama Treasury Department.

Unlike their twentieth century failure with welfare, this time the left's goal of "pushing society into crisis and economic collapse" appears to be within their grasp -- and the person who James Simpson described as "the Cloward-Piven candidate" in his brilliant September 2008 American Thinker column ("Barack Obama and the Strategy of Manufactured Crisis") is now president of the United States. This is a man, as Stanley Kurtz recently noted at National Review, whose now-demonstrated socialist belief system "is still very much alive in the governing philosophy and long-term political strategy" of his administration. What basis is there for believing that Obama would not welcome a collapse while pretending otherwise?

The foreclosure mess is so pervasive that I don't see how anyone can be comfortable making a prediction as to where it's heading. From their outposts in the afterlife (a fiery one, I suspect) and New York, respectively, Mr. Cloward and Ms. Piven are probably quite pleased with developments thus far. Whether they ultimately get their way heavily depends on November's election results, aggressive post-election action to restore constitutional governance, and lots of prayer for those who must deal with this.