If you're planning to pull the lever Tuesday for a candidate who promises to fix the economy by easing the burden of regulation on business, you might want to first consider the recent education of Haddonfield lawyer Michael Gaier.
Gaier has spent the last nine months digging into more than 140 foreclosures in Pennsylvania and New Jersey. Many could be Exhibit No. 1 in a case titled Lax Oversight v. the American People.
Take the case of Mark Jones, a construction worker, who paid $130,000 a decade ago for a home in Levittown for himself, his wife, and their three children.
Six years later, Jones was a widower and in a financial hole. But he had one major asset, his home, and the appraisal ordered by a Bucks County mortgage broker said it was worth more than twice what Jones had paid for it.
If you're not Rip Van Winkle, you can likely write the next sentence yourself: Jones got a loan using some of that airy equity, paid off his debts, and then got caught as the housing bubble burst and the economy and job market collapsed.
Jones now faces foreclosure - court papers say he owes $227,000 on a $187,000 loan.
Gaier doesn't question that Jones fell far behind. But as he delved into the case to decide whether to mount a defense, he says, it was clear that something else wasn't right.
Hundreds of lawyers around the country are probably doing similar work. Right now, a few are known for delaying tens of thousands of foreclosures because of their discovery of the role of "robo signers" - low-level employees who pushed forward thousands of key foreclosure documents without actually reviewing them.
But Gaier isn't trying to simply delay Jones' foreclosure, even though he shares the belief that no homeowner should face eviction unless crucial documents - such as those showing the chain of title to a home or mortgage - are in order.
Instead, he's looking at something more willful than sloppy: a grand scheme that he believes played out during the middle of the last decade and basically put a bull's-eye on unwitting homeowners such as Mark Jones.
Several threads connect the cases that Gaier has assembled with the help of his law partner, Michael Shaffer, an associate, and four paralegals in their Center City office.
One is what Gaier calls a bait-and-switch pattern in loan applications that changed repeatedly before closing.
Gaier says Jones' loan broker first offered to refinance his home with a 30-year fixed-rate mortgage, with cash out to pay off debts, at 8 percent. But when the loan closed, the rate was adjustable, starting at 8.8 percent, and was set to rise to 13 percent two years later and even higher after that.
"They promised to help me refinance again in two years," Jones said in an affidavit. It wouldn't be a problem, he was told, "because 'house prices will keep going up.' "
Of course, each time the loan rate jumped, the monthly payment rose, making it less and less affordable. Which brings us to another flaw that Gaier says he finds repeatedly in the cases he has taken on: manipulation of a loan applicant's data.
He says, for example, that Jones' income was sharply overstated in the final loan application, even though Jones had signed documents authorizing the lender to pull his tax returns from the IRS.
Even stranger is the application of a Camden homeowner represented by Gaier, Erica N. Bailey, which bears an oddity that should have leaped off the page at any underwriter: Each of Bailey's monthly expenses, including unavoidable bills such as her utilities, was listed as requiring her to pay just $1 a month - apparently to make the loan look affordable. Yet somehow the application passed muster at her mortgage company, and the loan was purchased by Bank of America Corp.
Gaier is quick to concede that every such case faces high hurdles - starting with the fact that each homeowner signed the flawed application. He attributes such decisions to the pressure they felt to close the deals, and the avalanche of paperwork that can overwhelm even many sophisticated borrowers.
Nor does he suggest that his clients represent every subprime borrower, let alone every borrower during the bubble. "Many people got what they deserved," he says.
But Gaier also believes that many were unjustly harmed - and not just his clients, but also the large investors, such as big pension funds, that bought mortgage-backed securities built from garbage loans. "There were victims at both ends of the chain," he says.
Gaier practices law in two of the nation's 23 states that require court involvement in foreclosure. Usually, it's something of a rubber stamp, but he's hopeful that the scheme he's alleging can draw real judicial scrutiny - in part because both states require, in general, that a mortgage refinancing provide a borrower with a clear financial benefit.
For example, a loan that strips $10,000 from a home's equity in points and fees while reducing payments by $70 a month - a typical deal given to some of his clients - wouldn't qualify, Gaier says. "It would take more than 11 years just to break even," he says.
What kind of relief does Gaier want for his clients?
To start, he wants them to have access to loans they can afford, or at least to a recalculation of their debt based on what they expected. That alone may save some homes.
He also wants to pursue damage claims under state consumer statutes, and perhaps even fraud and conspiracy charges. Gaier says the lenders behind the loans and securitization schemes have what the law considers "unclean hands" and should be barred from benefiting from their own misdeeds.
Many of the loans made to Gaier's clients would now be barred under the new federal financial overhaul, which requires that lenders ensure that a borrower actually has the ability to repay a loan - yes, I know that's a shockingly meddlesome rule. Such loans would also be less likely because the new law requires lenders to retain some risk for subprime loans rather than reselling them completely - making them keep some "skin in the game," a keep-them-honest incentive plainly lacking when it was needed most.
If the new rules work, this ugly bit of history won't repeat itself, and Gaier is glad for that. But above all, he wants those who hurt his clients to pay for their wrongs.