$8.4 Billion Countrywide Settlement… and why they only lower the interest!

I have gotten a number of calls asking if the home ownership retention program announced by Bank of America is likely to have an impact on foreclosures in CA. This program is a settlement with the CA Attorney General, Jerry Brown, and other state attorney generals that were suing Countrywide / Bank of America for predatory lending practices. It is expected to provide up to $8.4 Billion to 400,000 borrowers nationwide, with $3.5 Billion to 125,000 borrowers in CA.

While $8.4 Billion is a huge number – roughly 7.75% of BAC’s market cap today – it is literally a laughable amount. Problem is that it equals only $28,000 per loan in California. I compared that number to the average amount a California homeowner is upside down at the time of foreclosure – the average total debt is $26,200 more than they originally borrowed.(all that negative amortization) So in the best case scenario this puts borrowers back where they started, in loans they fundamentally can’t afford.So really it is nothing. The best thing is that it is admission of fault that could be used in individual cases against the lender in an individual action.

Note that they clearly state that principal balance reduction will only be available on a limited basis to restore negative equity from pay option ARMs – which makes sense given that they really don’t have enough money to do much more. Instead the primary goal is to ensure “modifications are affordable”. Given that they simply don’t have the money to lower principal balances to affordable levels, that means more artificially low payments… the exact thing that got us into this problem in the first place.

So back to the original question, will it likely impact foreclosures? Sort of, but only temporarily. It could impact your foreclosure if you were to copy the complaint and file your own case against countrywide at least you would not get a demur to the complaint. I posted the text of the complaint on Dec 31, 2008 California and everybody else V Countrywidecountrywide-complaint-form

They have graciously committed to not pursue foreclosure until they have contacted the owner and made a decision on program eligibility. So it appears to impact foreclosures, except that the recently passed SB1137 re codified as civil code 2923.5 and 2923.6 required them to do that anyway – so this claim is little more than spin.

Since this completely fails to address the underlying problem of the original loan amounts often exceeding current market value by $100k or more I’d also say the impact will only be temporary. Though that may still be a long time. In one case I recently reviewed Countrywide had a loan balance of over $900k on a home worth $550k – they modified the payment to 2% interest only for 5 years. The homeowner can afford it for now, but what happens in 5 years? Your’e kidding yourself if you think values are going back to those levels that quickly. Do we really still want to be cleaning this mess up 5 years from now?

Bottom line, Jerry Brown and the other state’s attorney generals have given Bank of America a gift. The opportunity to avoid litigation while getting the state’s endorsement for a plan that will never work and buying them precious time to find a way out of their dire predicament. Like the bailouts it’s possible it may help save this financial institution, but it will only delay our return to a stable and healthy real estate market.

Make them stop CALLING !!!

If you are in debt and getting harassed by bill collectors, there is a way to help get the debt collector harassment calls to stop. You can send a copy of the letter found below filled out to the collector notifying them of your wish for them to terminate communications with you. This is option is available to you under the Fair Debt Collections Practices Act under 15 U.S.C. Sec. 1692c (FDCPA).

Under the FDCPA, if a consumer notifies a debt collector in writing that the consumer refuses to pay a bill or that the consumer wants the collection agency to cease from further communication with the consumer the bill collector can no longer communicate with the consumer except for the following cases:

1. To notify the consumer (debtor) that the bill collector or collection agency may invoke specified remedies which are ordinarily invoked by such a bill collector or credit agency. These include wage garnishment or lawsuit.

2. To let the debtor know that future attempts to collect the debt will be ended.

3. Only where applicable, to let the debtor know that the bill collector intends to invoke a certain remedy. If the consumer cease and desist notice is done by mail, it shall be complete upon receipt of the creditor (hint: send the letter by certified mail).

Once you hire an attorney all calls from the bill collector must be directed to the attorney. By the statutes of the FDCPA or Fair Debt Collection Practices Act, the collector must follow these rules. If you do get a call from a bill collector just let them know that you have retained an attorney to handle the debt for you. Let them know to contact that attorney.

Most collection agencies will back off at this point and just call the attorney. If they do continue to call you, the creditor would potentially be subject to a $1,000 fine for violating the FDCPA. The creditors know this and probably will follow the proper rules.

Sample Cease and Desist Letter
Below, you will find an example of a Cease and Desist Letter to mail to a bill collector. Copy and paste into a word processor to edit it. Make sure that you change it according to your personal information. Then mail it certified mail so that the bill collector gets it and it is acknowledged by a received signature.

* Date: ________

(Your name)
(Your Address)

(Name(s) on the credit account)
(Account #)
(Creditor name)

To: (Collection Department, Creditor, Bill Collector – whichever applies)

Since approximately (date when you got the first call), I have received many phone calls and letters from you concerning my overdue account with the above-named creditor.

Accordingly, under 15 U.S.C. Sec. 1692c of the Fair Debt Collection Practices Act, this is my formal notice to you to cease and desist all further communications with me.


(Sign it)

(Print Full Name)
(Full Address)
(Home phone)

The Doan deal

California Civil Code 2923.6 enforces and promotes loan modifications to stop foreclosure in the state. California Civil Code 2923.6 (Servicer’s Duty under Pooling Agreements) went into effect on July 8, 2008. It applies to all loans from January 1, 2003, to December 31, 2007 secured by residential real property for owner-occupied residences.

The new law states that servicing agents for loan pools owe a duty to all parties in the pool so that a workout or modification is in the best interests of the parties if the loan is in default or default is reasonably foreseeable, and the recovery on the workout exceeds the anticipated recovery through a California foreclosure based on the current value of the property.

Almost all residential mortgages have Pooling and Servicing Agreements (“PSA”) since they were transferred to various Mortgage Backed Security Trusts after origination. California Civil Code 2823.6 broadens and extends this PSA duty by requiring servicers to accept loan modifications with borrowers.

How does this law apply?

Attorney Michael Doan provides this example of how the new law applies in his article entitled “California Foreclosures: Lenders Must Accept Loan Modifications” on the Mortgage Law Network blog. We removed the borrower’s name from the example for the sake of privacy.

A California borrower’s loan is presently in danger of foreclosure. The house he bought 2 years ago for $800,000 with a $640,000 first and $140,000 second, has now plummeted in value to $375,000. The borrower can no longer afford the $9,000 per month mortgage payment. But, he is willing, able, and ready to execute a modification of his loan on the following terms:

a) New Loan Amount: $330,000.00

b) New Interest Rate: 6% fixed

c) New Loan Length: 30 years

d) New Payment: $1978.52

While this new loan amount of $330,000 is less than the current fair market value, the costs of foreclosure need to be taken into account. Foreclosures typically cost the lender $50,000 per foreclosure. For example, the Joint Economic Committee of Congress estimated in June, 2007, that the average foreclosure results in $77.935.00 in costs to the homeowner, lender, local government, and neighbors. Of the $77,935.00 in foreclosure costs, the Joint Economic Committee of Congress estimates that the lender will suffer $50,000.00 in costs in conducting a non-judicial foreclosure on the property, maintaining, rehabilitating, insuring, and reselling the property to a third party. Freddie Mac places this loss higher at $58,759.00.

Accordingly, the anticipated recovery through foreclosure on a net present value basis is $325,000.00 or less and the recovery under the proposed loan modification at $330,000.00 exceeds the net present recovery through foreclosure of $325,000.00 by over $5,000.00. Thus, California Civil Code 2823.6 would mandate a modification to the new terms.

This new law remains in effect until January 1, 2013. Restructuring your mortgage will stop foreclosure and lower mortgage payments. Depending on your circumstances, you may also be able to lower your interest rate, as well. Visit the “Get Started” page to find out if you can benefit from this new California law and avoid foreclosure.

I HAVE A PLAN If the foreclosure has occured and you are now facing Eviction I HAVE A PLAN

The next thing you can expect is a knock on your door. It will be the friendliest guy or gal that you would ever want to meet. Its the real estate agent with orders to get you out of the house. They may offer you cash for keys or whatever remember they are not your friend they have one purpose and one purpose only. TO GET YOU AND YOUR FAMILY OUT.
They may say things like don’t worry we can get you back in the house and you can buy it back. I had one Realtor promise that the people could buy back the house they just needed to move out over the weekend and the lender would work things out for them. They did only to find the Marshall had posted the house and nobody could get back in except a 3 hour period to get their stuff to the curb. Don’t let it happen to you.

In California tenants have 60 days and former owners 3 days before an eviction can be stated.

Step 1 send the party that gives you this notice a rental agreement showing someone as being a tenant in the house. (This will get you Sixty days)

Step 2 File a lawsuit for fraud and improper sale in that 2923.5 was not complied with prior to sale. sample-bank-final-complaint1
Step 3 File a Lis Pendenslisp-for-client

Step 4 Make motion to consolidate eviction with Superior court case.galejacksonconsolidation Alternative to Step 4 would be to apply for a temporary restraining order to hold the eviction till Fraud Case determined. Alternative to step 4 actually a Step 5 would be a motion in the unlawful detainer court for a stay of the judgment till the outcome of the Fraud case.

What will this do?

In the worst case it will keep you in your house and you may have to post a bond equaling the reasonable rental value of your house. Let me take that back just remember Judges have the power and the can disregard the law and the constitution and put you out without even a trial. This is the extreme and some days are extreme. The lenders lawyers are in front of that judge all the time, but as a whole you can expect a fair minded judge.

In the best case you could be in your house without having to post a bond and you will be offered the house back at today’s value and a low rate of interest.

San Marcos California Foreclosure mess thier Modification department is outsourced to India

by nowaq
(san marcos ca usa)

My mortgage is being service by Option One Mortgage co. It started with 6.14% and first reset 1-01-07 to 9.14%. I was behind on my payment on the first resetting I called Option to make arrangement payment but I was told that I’m not qualified bec. I’ve been late a month only and loan mod. is only for people who are behind for more than 2 mos. In my situation, a mortgage of $3655 plus a second mortgage loan of $378 is hard to come up with for 2 mos. Third mo. came I called again asking for loan modification but this time, I was dealing with people from India telling me to sell my house because I can’t afford it. I explained to him whats going on my side and requested to talk mitigation officer but this person said that he is the mitigation officer. I hung up on him. I received a notice of default after that. I have a sheriff sale on 8-07-07 but filed Bk 13 so I can keep my house and hoping that things will get better soon and be on track again. Don’t deal with sales rep. from other countries. Demand to talk with US reps that at least know whats going on here. Maybe if I was dealing with US reps. I was able to do loan mod. and not to go thru this foreclosure and BK. I’m hoping also that these mortgage cos. learned their lesson of not using sales reps from other countries. My situation was doable at the beginning but once past 2 mos. My loan reset again last 7-01-07 to 11.14% and by 1-01-08 it will be 13.14%. Also, if you have hard time paying with your credit card bills, don’t use debt settlement cos. The only time they can start negotiating for you is when you are in collection, they wont tell you up front. They will only tell you that it has to be bad in order to get better.

My plan for Loan Modifications i.e. Attorney loan mod

Recent Loan Modification studies have shown that a large percentage of traditional loan modifications put the borrowers more upside down than when they started.
Unfortunately many loan mods are leaving people with higher monthly payments. In many loan modifcation the money you did not pay gets tacked on to the back of the loan… Increasing your loan balance and making you more upside down. This is why over 50% of all loan mods are in default. They are not fixing the problem they are just postponing it.

Before you go into default on your loans at the advice of some former subprime loan seller, make sure you understand that absent finding some legal leverage over the lender you have a good chance of seeing your payments going up.

Our Loan Modification program includes

1. Upside Down Analysis

2. Qualified Written Request and offer of Loan Modification

3. Letter informing lender of clients election to pursue remedies carved out by recent California Law under 2923.6 and or Federal Programs under the Truth in lending Act and the Fair Debt collection practices Act.

4. Letter Disputing debt (if advisable)

5. Cease and Desist letters (if advisable)

6. Follow up, contact with negotiator, and negotiation by an attorney when needed.
By now many of you have read about all the Federal Governments Loan Modification Programs. Others have been cold called by a former loan brokers offering to help you with your Loan Modification. Its odd that many of the brokers who put people into these miserable loans are now charging people up front to get out of the them.

Before you spend thousands of dollars with someone, do an investigation:

1. Is the person licensed by the California Department of Real Estate? Or, the California State Bar?

2. Are your potential representatives aware that have to be licensed according to the DRE?

3. Are they asking you for money up front? They are violating the California Foreclosure Consultant act if they are neither CA attorneys nor perhaps Real Estate brokers in possesion of a no opinion letter from the California Department of Real Estate? Note… if a Notice of Default has been filed against your residence only attorneys acting as your attorney can take up front fees. Don’t fall for “attorney backed” baloney. Are you retaining the services of the attorney or not? Did you sign a retainer agreement ?

4. If your potential representative is not an attorney make sure he or she is a Real Estate Broker capable of proving their upfront retainer agreement has been given a no opinon letter by the DRE. (As of November 2008 – only 14 non attorney entites have been “approved by the DRE.)

5. If somone says they are attorney backed – ask to speak with the attorney. What does attorney backed mean? From what we have seen it is usually a junk marketing business being run by someone who can not get a proper license to do loan modifications.

6. Find out how your loan modification people intend to gain leverage over the lender.

7. If you are offered a loan audit or a Qualfied Written Request under RESPA letter – will an attorney be doing the negotiating against the lender? Will you have to hire the attorney after you pay for your loan audit? Doesn’t that put cart before the horse?

8. Will it do you any good to have a loan audit done if you later have to go out and retain an attorney. You want to retain their services of an attorney before you pay for the audit. The loan audit is the profit center; negotiation takes time.
9. What kind of results should you expect?

10. Who will be doing your negotiating?

11. Will the Loan Modification request go out on Legal Letterhead?

12. How much will you have to pay? Are you looking for a typical loan mod result or are you looking to leverage the law in the hopes of getting a better than average loan mod result.

13. What if your are not satisfied with the loan modification offered by the lender?

14. Should you go into default on both loans prior to requesting a loan modification? Why? What happens if the loan mod does not work out to your satisfaction? (very important question.)

15. Will an attorney review the terms of your loan modification with you? Will you have to waive your anti-deficiency protections if you sign your loan modification paperwork? Will an attorney help you leverage recent changes in California law in an attempt to get a substantial reduction in the principle?

TRO Granted v Downey Savings


fighting the good fight

Hi & Thank You for all that you are doing,

We sent a letter to the Trustee company (Quality Loan Service) alerting them that they did not comply with Oregon statutes because they did not properly record the Trustee’s Notice of Sale in BOTH of the counties that the property is located in. The foreclosure auction scheduled for Tuesday 01/20/2009 was subsequently “Cancelled” by the Trustee company.

We know that we can expect them to re-file a new Trustee’s Notice of Sale. All the foreclosure paperwork dating back to 2004 (‘yes … we have been fighting the good fight’) and the original loan documents that were signed at closing state “Mortgage Electronic Registration Systems Inc., as NOMINEE for Lime Financial”. My questions are:
1. If Lime Financial is out of business and no longer exists (according to their representatives via phone) who will MERS act as Nominee for?
2. We know that Lime Financial sold/securitized the loan to “US Bank N,A. as Trustee for the Registered Holders of Home Equity Asset Trust 2005-1”. Are they now the benficiary?
3. What actions (from A-Z) should we be taking NOW if our all consuming goal is to obtain “quiet title” and be mortgage free?

Any and all help that you can provide is sincerely appreciated.

Greg Lisa


2923.6 complaint


Firm pursuing foreclosure might not be your lender


Figuring out which company to deal with during a foreclosure can be daunting. Even if the original mortgage was with a company recognized by the borrower, that company may not be the one acting against the borrower in court.

For example: Wells Fargo filed more than 3,600 foreclosure lawsuits in Iowa from January 2005 to February 2008, more than any other company identified in Iowa court data. But the company could be taking legal action because it processed payments for another mortgage company or acted as a trustee for investors – not because it’s the original lender.

Two company names that often appear on Iowa foreclosures – Deutsche Bank and Mortgage Electronic Registration System, or MERS – can be even more puzzling to borrowers.

Deutsche Bank, a global financial services firm with headquarters in Germany, may be listed as a loan’s owner of record, but it likely doesn’t have an actual stake in foreclosure proceedings. The firm acts as a trustee for investors holding mortgage-backed securities.

A loan winds up in a mortgage- backed security after it is sold by the company that originated the note. An investment bank pools that loan with others. It then sells securities, which represent a portion of the total principal and interest payments on the loans, to investors such as mutual funds, pension funds and insurance companies.

MERS, meanwhile, is neither the servicer nor the lender. Companies pay the firm to represent them and track loans as they change hands.

So while MERS should be able to point borrowers to the appropriate contact in a foreclosure proceeding, Deutsche Bank urges borrowers to contact loan servicers instead.

A tip for borrowers facing a foreclosure action: Make sure the company bringing the foreclosure action has the legal right to do so.

University of Iowa law professor Katherine Porter led a national study of 1,733 foreclosures and found that 40 percent of the creditors filing the lawsuits did not show proof of ownership. The study will be published later this year.

Companies, she said, have been “putting the burden on the consumer – who is bankrupt – to try to decide whether it’s worth it to press the issue.”

Max Gardner III, a bankruptcy attorney in North Carolina and a national foreclosure expert, said the trend is spreading to other states. “You have to prove in North Carolina that you have the original note,” he said. “Judges have not (asked for) that very often, until the last five or six months.”

MERS and Deutsche Bank faced court challenges last year over whether they had legal standing to bring a foreclosure action, with mixed results.

A federal judge in Florida ruled in favor of MERS, dismissing a class-action lawsuit that claimed the company did not have the right to initiate foreclosures. But a federal judge in Ohio ruled against Deutsche Bank, dismissing 14 foreclosure lawsuits after Deutsche Bank couldn’t provide proof of ownership. The Ohio attorney general has not been successful in getting state judges to follow suit.

In Iowa, attorneys and lending experts say they haven’t seen similar rulings against Deutsche Bank

Unlawful detainer law and forclosure law colide

The Lender has already foreclosed on your house at the time they bring a Unlawful Detainer action against you. The Unlawful Detainer is just an eviction and not a foreclosure proceeding. If you want to stop the eviction, you have to claim that they have no right to evict because of a defective deed due to fact that they are not true lender, etc.

A qualified exception to the rule that title cannot be tried in an unlawful detainer proceeding [see Evid Code § 624; 5.45[1][c]] is contained in CCP § 1161a. By extending the summary eviction remedy beyond the conventional landlord-tenant relationship to include purchasers of the occupied property, the statute provides for a narrow and sharply focused examination of title.

A purchaser of the property as described in the statute, who starts an unlawful detainer proceeding to evict an occupant in possession,must show that he or she acquired the property at a regularly conducted sale and thereafter “duly perfected” the title [CCP § 1161a; Vella v. Hudgins (1977) 20 C3d 251, 255, 142 CR 414, 572 P2d 28 ]. To this limited extent, as provided by the statute, title
may be litigated in the unlawful detainer proceeding [ Cheney v. Trauzettel (1937) 9 C2d 158, 159, 69 P2d 832 ].

CCP § 1161
1. In General; Words and Phrases
Term “duly” implies that all of those elements necessary to valid sale exist. Kessler v. Bridge (1958, Cal App Dep’t Super Ct) 161 Cal App 2d Supp 837, 327 P2d 241, 1958 Cal App LEXIS 1814.
Title that is “duly perfected” includes good record title, but is not limited to good record title. Kessler v. Bridge (1958, Cal App Dep’t Super Ct) 161 Cal App 2d Supp 837, 327 P2d 241, 1958 Cal App LEXIS 1814.

Title is “duly perfected” when all steps have been taken to make it perfect, that is, to convey to purchaser that which he has purchased, valid and good beyond all reasonable doubt. Kessler v. Bridge (1958, Cal App Dep’t Super Ct) 161 Cal App 2d Supp 837, 327 P2d 241, 1958 Cal App LEXIS 1814.
The purpose of CCP 1161a, providing for the removal of a person holding over after a notice to quit, is to make clear that one acquiring ownership of real property through foreclosure can evict by a summary procedure. The policy behind the statute is to provide a summary method of ouster where an occupant holds over possession after sale of the property. Gross v. Superior Court (1985, Cal App 1st Dist) 171 Cal App 3d265, 217 Cal Rptr 284, 1985 Cal App LEXIS 2408.


HOEPA audit checklist


What Is Predatory Lending?

Predatory Lending are abusive practices used in the mortgage industry that strip borrowers of home equity and threaten families with bankruptcy and foreclosure.

Predatory Lending can be broken down into three categories: Mortgage Origination, Mortgage Servicing; and Mortgage Collection and Foreclosure.

Mortgage Origination is the process by which you obtain your home loan from a mortgage broker or a bank.

Predatory lending practices in Mortgage Origination include:
# Excessive points;
# Charging fees not allowed or for services not delivered;
# Charging more than once for the same fee
# Providing a low teaser rate that adjusts to a rate you cannot afford;
# Successively refinancing your loan of “flipping;”
# “Steering” you into a loan that is more profitable to the Mortgage Originator;
# Changing the loan terms at closing or “bait & switch;”
# Closing in a location where you cannot adequately review the documents;
# Serving alcohol prior to closing;
# Coaching you to put minimum income or assets on you loan so that you will qualify for a certain amount;
# Securing an inflated appraisal;
# Receiving a kickback in money or favors from a particular escrow, title, appraiser or other service provider;
# Promising they will refinance your mortgage before your payment resets to a higher amount;
# Having you sign blank documents;
# Forging documents and signatures;
# Changing documents after you have signed them; and
# Loans with prepayment penalties or balloon payments.

Mortgage Servicing is the process of collecting loan payments and credit your loan.

Predatory lending practices in Mortgage Servicing include:
# Not applying payments on time;
# Applying payments to “Suspense;”
# “Jamming” illegal or improper fees;
# Creating an escrow or impounds account not allowed by the documents;
# Force placing insurance when you have adequate coverage;
# Improperly reporting negative credit history;
# Failing to provide you a detailed loan history; and
# Refusing to return your calls or letters.

Mortgage Collection & Foreclosure is the process Lenders use when you pay off your loan or when you house is repossessed for non-payment

Predatory lending practices in Mortgage Collection & Foreclosure include:
# Producing a payoff statement that includes improper charges & fees;
# Foreclosing in the name of an entity that is not the true owner of the mortgage;
# Failing to provide Default Loan Servicing required by all Fannie Mae mortgages;
# Failing to follow due process in foreclosure;
# Fraud on the court;
# Failing to provide copies of all documents and assignments; and
# Refusing to adequately communicate with you.

CTX Mortgage Company, LLC / CTX Mortgage / Centex HomesCTX Mortgage Company / Centex Homes Predatory Lending Bait and Switch? Maitland Central Florida

September 2005, we signed a purchase contract and made a $12,000 deposit for a Centex Town Home in Oviedo, Florida. The builder’s mortgage company, CTX Mortgage, offered $3,000 in incententives so we decided to use them. We were given a Good Faith Estimate and interest rate of 6.25% but were told we could not lock in because it was too far off from the closing.

By late November 2005, we had heard nothing from CTX, so we contacted them to lock in a rate. We were again told that we needed to wait until the closing date was determined. We were given three new Good Faith Estimates with rates between 6.840% – 7.090% and were told they were the best CTX could offer, but we were approved for all three scenarios. We decided to shop around and received a Good Faith Estimate with a rate of 6.625% from Wells Fargo. A few days later, Centex contacted us to schedule the closing. We told them we were going to use Wells Fargo but were told that we could not change lenders after the completion of the framing inspection, which took place on October 21, 2005. We reviewed the contract and found a page this to be true. So we agreed to proceed with CTX but complained about the rate increases on the good faith estimates. Our file was transferred to a new loan officer, Jennifer Powell. According to her, our original loan officer had never ran our credit and we were not approved for any of the good faith estimates she provided to us.

Our closing was scheduled for Dec 28, 2005. Between December 8th and December 27th, we received five different good faith estimates from Jennifer (6.75% on December 8th, 7.75% on December 20th, 7.99% on December 21st, 9.125% on December 22th, and 9.375% on December 28th). Jennifer said my ‘low income’ made me high risk, which caused the rates to jump. We told Jennifer that the significant rate increase made the mortgage payments completely unaffordable for us and pleaded with her to either allow us to seek other financing or cancel the contract. She said either take the rate they gave us or lose our deposit of $12,000. We did not want to close on the property, but were not prepared to walk away empty-handed, so we asked for a loan program that would allow us to refinance without penalty. This is what made the rates jump up to 9.375% and 13.550% (an 80/20 loan).

The closing documents were not made available to us until 6:30 p.m. the night before our closing. We stayed in their office to review everything and noticed that my income on the application that CTX had prepeared was double my true income. We asked Jennifer why this was and she told us that in order to get approval, my income had to be ?stated?, meaning my income would not be verified by the lender. Please note in the above paragraph that we were told the rates were high because of my ‘low income’. After the closing, CTX immediately sold our loans, even before the first payment was due. There is only one reason why they offer mortgages and that is to rip people off!!!!

We have struggled for the past year and now have two liens against our property and our credit is ruined! We believe that what CTX Mortgage did is termed Predatory Lending. They tricked us, showing us good rates until it was too late for us to change lenders. We have two young daughters, a 5 year-old and a 3 month-old, and we are in jeopardy of losing our home. We are going to file a complaint with any and all agencies we can but would really like to hear from anyone else who has had this problem. I don’t know how these people sleep at night!

Oviedo, Florida

Click here to read other Rip Off Reports on CENTEX (CAVCO HOMES)

RESPA violations Washington Mutual wants to depublish

RESPA: Washington Mutual (i) charged hundreds of dollars in “underwriting fees” when the underwriting fee charged by Fannie Mae and Freddie Mac to WAMU was only $20 and (ii) marked up the charges for real estate tax verifications and wire transfer fees. The court followed Kruse v. Wells Fargo Home Mortgage (2d Cir. 2004) 383 F.3d 49, holding that marking up costs, for which no additional services are performed, is a violation of RESPA. Such a violation of federal law constitutes an unlawful business practice under California’s Unfair Competition Law (“UCL”) and a breach of contract. Plaintiffs also stated a cause of action for an unfair business practice under the UCL based on the allegation that WAMU led them to believe they were being charged the actual cost of third-party services.mckell_v_washingtonmutual

Usury is comming back as a viable cause of action

Loans (Photo credit: zingbot)

USURY: The trial court improperly granted a motion for summary judgment on the basis that the loan was exempt from the usury law.

1. The common law exception to the usury law known as the “interest contingency rule” provides that interest that exceeds the legal maximum is not usurious when its payment is subject to a contingency so that the lender’s profit is wholly or partially put in hazard. The hazard in question must be something over and above the risk which exists with all loans – that the borrower will be unable to pay.
2. The court held that the interest contingency rule did not apply to additional interest based on a percentage of the sale price of completed condominium units because the lender was guaranteed additional interest regardless of whether the project generated rents or profits.
3. The loan did not qualify as a shared appreciation loan, permitted under Civil Code Sections 1917-1917.006, because the note guaranteed the additional interest regardless of whether the property appreciated in value or whether the project generated profits.
4. The usury defense may not be waived by guarantor of a loan. (No other published case has addressed this issue.)wri_opportunityloans_v_cooper

Never sign a stack of papers…

FORGERY: This criminal case involves a conviction for forgery of a deed of trust. [NOTE: The crime of forgery can occur even if the owner actually signed the deed of trust. The court pointed out that “forgery is committed when a defendant, by fraud or trickery, causes another to execute a document where the signer is unaware, by reason of such trickery, that he is executing a document of that nature.” people_v_martinez

Here is a novel Idea Buy at the Trustee’s Sale and then Cancel Check… Yes this is a real case

1. A bidder at a trustee’s sale may not challenge the sale on the basis that the lender previously obtained a decree of judicial foreclosure because the doctrine of election of remedies benefits only the trustor or debtor.
2. A lender’s remedies against a bidder who causes a bank to stop payment on cashier’s checks based on a false affidavit asserting that the checks were lost is not limited to the remedies set forth in CC Section 2924h, and may pursue a cause of action for fraud against the bidder.
(The case contains a good discussion (at pp. 25 – 26) of the procedure for stopping payment on a cashier’s check by submitting an affidavit to the issuing bank.) californiagolf_v_cooper

Trustee Sale the trustee may have to pay your lawyer!!!

1. The statutorily required mailing, publication, and delivery of notices in nonjudicial foreclosure, and the performance of statutory nonjudicial foreclosure procedures, are privileged communications under the qualified, common-interest privilege, which means that the privilege applies as long as there is no malice. The absolute privilege for communications made in a judicial proceeding (the “litigation privilege”) does not apply.
2. Actions seeking to enjoin nonjudicial foreclosure and clear title based on the provisions of a deed of trust are actions on a contract, so an award of attorney fees under Civil Code Section 1717 and provisions in the deed of trust is proper.
3. An owner is entitled to attorney fees against the trustee who conducted trustee’s sale proceedings where the trustee did not merely act as a neutral stakeholder but rather aligned itself with the lender by denying that the trustor was entitled to relief.kachlon_v_markowitz

Forbearance ageement in writing

LOAN MODIFICATION: Because a note and deed of trust come within the statute of frauds, a Forbearance Agreement also comes within the statute of frauds pursuant to Civil Code section 1698. Making the downpayment required by the Forbearance Agreement was not sufficient part performance to estop Defendants from asserting the statute of frauds because payment of money alone is not enough as a matter of law to take an agreement out of the statute, and the Plaintiffs have legal means to recover the downpayment if they are entitled to its return. In addition to part performance, the party seeking to enforce the contract must have changed position in reliance on the oral contract to such an extent that application of the statute of frauds would result in an unjust or unconscionable loss, amounting in effect to a fraud.secrest_v_securitynationalmortgage

2008 Foreclosures Up 81%

Austin Kilgore | 01.15.09

Foreclosure filings were up 81 percent in 2008, according to RealtyTrac’s 2008 U.S. Foreclosure Market Report.

There were 3,157,806 foreclosure filings — default notices, auction sale notices, and bank repossessions — reported on 2,330,483 U.S. properties during the year, an 81 percent increase in total properties from 2007 and a 225 percent increase in total properties from 2006, the report said.

The huge increase means one in 54 homes received at least one foreclosure filing during the year.

December 2008’s foreclosure filings were up 17 percent from November 2008, and up more than 40 percent from December 2007. Despite the December spike, foreclosure activity in the fourth quarter of 2008 was down 4 percent from the third quarter, but still up 40 percent from the fourth quarter of 2007.

“State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth quarter numbers overall, but that effect appears to have worn off by December,” RealtyTrac CEO James Saccacio said. “The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners.”

Saccacio believes new legislation that prolongs the foreclosure process hasn’t done anything to prevent foreclosure filings, it’s only delayed them.

A new California law requires lenders to provide written notice of their intent to initiate foreclosure proceedings 30 days prior to issuing a notice of default (NOD). After the law was enacted, NOD filings dropped more than 50 percent from 44,278 in August to 21,665 in September. But just three months later, the number of filings jumped 122 percent, to more than 42,000 in December.

“Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami,” Saccacio said. “And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners.”

The states with the top ten foreclosure rates in 2008 were Nevada, Florida, Arizona, California, Colorado, Michigan, Ohio, Georgia, Illinois, and New Jersey.

California had the greatest number of foreclosure filings, up 110 percent from 2007. Florida, Arizona, Ohio, Michigan, Illinois, Texas, Georgia, Nevada and New Jersey filled out the rest of the top ten in total foreclosures.
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Countrywide RICO Lawsuit Claims Price Gouging

Countrywide RICO Lawsuit Claims Price Gouging
Austin Kilgore | 01.14.09

Countrywide required customers to hire one of its subsidiary companies to obtain appraisals without providing the proper disclosure forms, and overcharged them for the appraisals, according to allegations in a Racketeering Influenced and Corrupt Practices Act (RICO)-based class-action lawsuit filed in U.S. District Court in Seattle this week.

The suit, filed by a group of homeowners in Washington state, alleges Countrywide forced homeowners to use its subsidiary company LandSafe to obtain appraisals without providing an affiliated business arrangement disclosure that notifies customers that Countrywide owned the appraisal company, as is required by the Real Estate Settlement Procedures Act (RESPA).

“As we investigated Countrywide for our clients, it was immediately obvious that Countrywide is a well-oiled operation,” said Steve Berman, managing partner and lead attorney at Hagens Berman Sobol Shapiro, the law firm that filed the lawsuit. “Unfortunately, the company’s efficiencies are focused on soaking every penny from consumers and independent appraisers in ways we believe violate the law.”

The suit further alleges LandSafe would outsource the appraisals for as little as $140, but then charge customers like Washington residents Carol and Gregory Clark, plaintiffs in the case, as much as $410 for the service.

In 2007, The Clarks refinanced their mortgage with Countrywide, the nation’s largest mortgage company, and now, a subsidiary of Bank of America. The suit represents them and seeks to represent all homeowners that purchased new or refinance mortgages through Countrywide and LandSafe.

Because of its dominance in the market and ownership of LandSafe, Countrywide, the suit claims, had excessive influence on the appraisal process that took away from the independent verification of properties’ value, and that hundreds of thousands of homeowners are victims of this scheme.

The suit also said Countrywide blacklisted appraisers that refused to work for the fee schedule set by LandSafe, putting them on its “Field Review List,” a database of appraisers Countrywide refused to use unless the mortgage broker also submits a report from a second appraiser.

“When you control the entire appraisal process, including your hands around the necks of appraisers financially speaking, you have a lot of influence,” Berman said.

A spokesperson for Bank of America said the company had not been served with a copy of the lawsuit, but that the company thinks the suit has no merit.
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Cramdown’s A’Comin’ Mid 2009

First lien residential mortgage loan cramdowns will soon be coming to a bankruptcy court near you. Although we haven’t seen the bill yet, Dick Durbin’s office announced today that he, Chuck (“Bank Run”) Schumer and Chris Dodd, had cut a deal with Citigroup on a bill that would permit such cramdowns in Chapter 13 bankruptcy proceedings. According to The Wall Street Journal, which broke the story, this “marks a surprising change of direction by the financial-services industry.”

Banks have consistently fought such legislation, saying cramdowns would raise borrowing costs for all home buyers and jam courts with homeowners who wouldn’t otherwise declare bankruptcy.

“This is the breakthrough we’ve been waiting for, to have a major financial institution support this legislation will create an incentive for others to come our way,” Sen. Durbin said in an interview. “I want to congratulate Citi for being open-minded about this [and] playing a major leadership role.”

The WSJ also reports other “open-minded” financial institutions support the bill, but did not identify them.

Frankly, as described by the WSJ, the bill doesn’t sound as bad as many might have feared, even though it goes beyond what the banking industry has been willing to support in the past.

The Democrats’ proposal allows judges to force major reductions in home loans, after homeowners certify that they have attempted to contact their lenders about a mortgage reduction before bankruptcy proceedings begin. They do not however have to have engaged in negotiations with their banks.

The cramdown bill would apply to all mortgage loans, including but not limited to subprime loans, written any time prior to the bill’s date of enactment. It allows judges the ability to lower principal or interest rate, extend the term of the loan, or any combination of the three. “Cramdown” refers to the ability of judges to lower a mortgage principal so that it is equivalent to the current market value of a home.

In a concession to lenders, if a lender is found to have violated the Truth in Lending Act during bankruptcy proceedings, the institution would be subject to fines, but would not have to forgive the loan, as is the case currently. Major violations would still be subject to full sanctions under the law. The TILA provisions would pre-empt any state lending laws.

I’m certain that many bankers who do not have the heft of major Mastodons like Citi and BofA will be critical. I can admit to a bit of mystification myself as to the fact that the cramdown right will apply only to loans made prior to the date of passage of the legislation. I thought the argument for extending cramdowns to first mortgage loans was to deal with those awful subprime and “exotic” loans made when real estate values were as high as the lenders and borrowers who based their lending decisions upon those values ever rising. Why not single out specific types of loans? Also, why not pick an effective date that is at least no later than mid-2008? Good arguments can be made that an even earlier date should be selected. You’re going to effectively “rewrite” some conventional home mortgage loans that were initially prudently underwritten, to the disadvantage of the lender. That’s done with second loans, auto loans, and commercial loans, but the lenders of those types of loans set pricing based upon the knowledge that there’s the risk that cramdown could occur. That’s not the case for first mortgage loans. Is that “fair,” in light of the fact that the Democrats who support this bill are all about “fairness”?

We’ll be interested to see the effect of this legislation on pricing of loans and loan servicing on pre-effective date mortgage loans. I wonder if prospective purchasers will drive harder bargains on bulk purchases of such loans from the FDIC due to this risk? You think?

At least the cramdown will not apply first loans going forward. Of course, any lender with a brain in his head has to assume that if Congress did it once, Congress could very well do it again, and price the risk accordingly. Moreover, this is likely not only to make first mortgage loans more expensive, but add even more impetus to restrictive underwriting standards. While many people believe that’s not a bad effect, let’s ask them again in a few years. As I observed when Durbin first started this push, the same folks who scream for cramdowns will be some of the first complaining that lenders aren’t making enough loans to those with poor credit, who will likely be members of various classes of the perpetually aggrieved, and supporters of Senator Durbin and the rest of the Gang of Three.

California Cramdowns Coming 2009!

There were only 800,000 bankruptcy filings in the United States in 2007, according to the National Bankruptcy Research Center.

And while there is little hard data as to how many of these involve homeowners, some evidence suggests that about half the cases do. In one metro area, Riverside, Calif., 62% of 2007 bankruptcies involved home owners with outstanding balances. And not all of these would qualify for cram downs.

“These bills have means tests,” Harnick said. “If you can afford to pay your mortgage, you don’t qualify. If you can’t afford to pay even after the mortgage balance is reduced, you’re not eligible.”

And Adam Levitin, a law professor at Georgetown University contends that cram-downs would add little to the costs of new mortgages.

He examined historical mortgage rates during periods when judges were allowed to reduce mortgage balances, and concluded that the impact on interest rates would probably come to less than 15 basis points – 0.15 of a percentage point.

“The MBA numbers are just baloney,” said Levitin.

However, even though the direct impact on borrowers would be limited, permitting cram-downs could indirectly give borrowers more leverage in dealing with lenders, according to Bruce Marks, founder and CEO of the Neighborhood Assistance Corporation of America (NACA).

Mortgage borrowers could force lenders to negotiate loan restructurings by threatening to file for bankruptcy and have the judges do it for them.

Some people with credit-card debt already win concessions from credit card lenders by threatening bankruptcy, where the debt may be discharged.

“I consider this one of the most important pieces of legislation before Congress right now,” said Marks.

Will it become law?

As to the previous attempt to pass cramdown legislation the conventional wisdom was “We believe it will be very difficult to stop this legislation and we put the initial odds of enactment at 60%,” said Jaret Seiberg of the Stanford Group, a policy research company, in a press release assessing the new bills.

Now that it is being reintroduced in a “New Congress” and “New President” I believe Cramdowns will become law.

This will allow borrowers the leverage they need to negotiate with their own predator.

The Cramdown legislation was reintroduced in Congress on monday Jan 5,2009

“California Cramdown” California Civil Code Section 2923.6

(a) The Legislature finds and declares that any duty
servicers may have to maximize net present value under their pooling
and servicing agreements is owed to all parties in a loan pool, not
to any particular parties, and that a servicer acts in the best
interests of all parties if it agrees to or implements a loan
modification or workout plan for which both of the following apply:
(1) The loan is in payment default, or payment default is
reasonably foreseeable.
(2) Anticipated recovery under the loan modification or workout
plan exceeds the anticipated recovery through foreclosure on a net
present value basis.
(b) It is the intent of the Legislature that the mortgagee,
beneficiary, or authorized agent offer the borrower a loan
modification or workout plan if such a modification or plan is
consistent with its contractual or other authority.
(c) This section shall remain in effect only until January 1, 2013,
and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2013, deletes or extends that date.

Citi Supports Cramdowns

Cram downs are the legal tern to force the lender to accept the loan back at the present value of the house thus selling the house back to the homeowner at the present market value.

Congressmen want cramdown legislation included in recovery package

January 8, 2009

By MortgageDaily.com staff

Senate Democrats have found an ally in Citigroup Inc. for their proposed legislation to allow bankruptcy judges to modify mortgages. Citi’s endorsement follows an endorsement by U.S. homebuilders — though it is in opposition to the position taken by the country’s mortgage bankers.

Citi has agreed to support the cramdown legislation, according to an announcement from U.S. Rep. John Conyers (D-Mich.) and U.S. Senators Dick Durbin (D-Ill.), Chris Dodd (D-Conn.) and Chuck Schumer (D-N.Y.) The legislators said Citi’s support of the bill increases the chance it will be included in the economic recovery package currently being drafted by Congress.

In the press release, Dodd — who is Chairman of the Senate Banking Committee — vowed to support the bill’s inclusion in the recovery package.

The bill, originally introduced by Conyers in 2007, was reintroduced on Tuesday. Changes to the original legislation include only allowing existing mortgages, making borrowers prove that they attempted to contact their servicers before filing bankruptcy, and limiting the invalidation of claims only to major violations of the Truth in Lending Act.

“I have been working on this matter ever since the mortgage crisis began in 2007 and am pleased that we have been able to reach agreement today,” Conyers stated.

The announcement indicated that more than 8 million borrowers are currently at risk of foreclosure.

The move by Citi is a departure from the position usually taken by mortgage bankers.

“We were surprised by the suddenness of the announcement,” the Mortgage Bankers Association said in its own statement. “We remain opposed to bankruptcy cramdown legislation because of the destabilizing effect it will have on an already turbulent mortgage market.”

In October 2007, MBA Chairman David G. Kittle testified before the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law that cramdowns could increase mortgage rates by as much as 2 percent.

The trade group went on to say in today’s statement that Citi’s agreement does nothing to protect FHA and VA guarantee programs. MBA also wants the bill to have a sunset date, be run through the normal legislative process and be applicable only to subprime loans.

As it sought a massive government financing package, Citi originally approached Schumer last month about endorsing the legislation. Other financial institutions already have quietly offered their support to Schumer for the legislation, the statement said.

“The support of one of the county’s biggest lenders will hopefully spur other lenders to act,” Durbin said in the statement.

In addition, the National Association of Home builders has reportedly thrown its support behind bankruptcy cramdowns.

“We now have a real chance to pass this legislation quickly,” Schumer added.

Countrywide settles but what abouts the rest of thier loans?

Countrywide Financial Corp. has agreed to make loan modifications for about 395,000 U.S. mortgage holders and pay $150 million into a foreclosure relief fund to settle predatory lending complaints filed by various states, including Kentucky.

About 2,500 Kentucky borrowers will be offered loan restructuring under the settlement, Kentucky Attorney General Jack Conway’s office said in a news release.

The subprime lender, which was bought last year by Bank of America, has agreed to restructure more than $252 million of outstanding debt owed by Kentuckians, Conway’s office said in the release.

“This mandatory loan modification program will provide immediate relief to Kentucky borrowers who are facing foreclosure,” Conway said in the release. “The goal is to help these borrowers remain in their homes into the future with an affordable mortgage loan.”

Kentucky will receive about $1.6 million of the $150 million of the foreclosure relief funding, Conway’s office said in the release.

The settlement resolves allegations that Countrywide used “unfair and deceptive practices” in its loan origination and servicing business, Conway’s office said in the release. It added that many Kentucky borrowers were sold mortgage loans that were unaffordable, leading to increased defaults and foreclosures.

Countrywide settled the case without admitting any wrongdoing. It denied all allegations.

The restructuring program will cover borrowers with subprime loans, including adjustable rate loans with initial “fixed” rates and pay-option adjustable rate mortgages.

Eligible mortgage holders will receive a letter from Conway’s office and Bank of America.

To be eligible, a customer must:

• Hold a Countrywide-originated mortgage, secured by owner-occupied property;

• The first payment must have been due between Dec. 21, 2004, and Dec. 31, 2007;

• The loan has to have been foreclosed or more than 120 days delinquent on Oct. 8, 2008; and

• Six or fewer payments must have been made during the life of the loan.

As a part of the settlement, Countrywide and Bank of America Monday filed an Assurance of Voluntary Compliance with Franklin Circuit Court in Frankfort, Ky.

Under the voluntary “best practices” agreement, Countrywide agreed to suspend foreclosure sales on loans likely to qualify for the program. It also agreed to establish an early identification and contact program for borrowers who have trouble making monthly payments and discontinue offering pay option adjustable rate mortgages.

In addition to those practices, Countrywide will waive loan modification fees and drop prepayment penalties on subprime and pay option ARM loans. It also will set up a fund to assist borrowers who do not qualify for loan modification.

Countrywide agreed to set aside $8.5 million to establish a separate fund to help borrowers who lost their homes through foreclosure in which the borrower was sold a subprime or pay option ARM loan and the borrower defaulted within six months after closing or at the time the interest rate reset.

Bankruptcy Judges to modify mortgages!! This is what we have been waiting for!!

Bill Would Allow Judges to Modify Mortgages
Austin Kilgore | 01.07.09

Illinois Sen. Dick Durbin introduced legislation Monday that would give bankruptcy judges the authority to modify mortgages on a debtor’s primary residence to help curb foreclosures.

The bill would prevent millions of foreclosures, Durbin, the second-ranking Democrat in the U.S. Senate, said in a statement.

“For nearly two years, we’ve heard dire predictions about the housing crisis and its effects on the economy. Sadly, they have not only come true, but have been far worse than anyone imagined,” Durbin’s statement said. “The question that faces us now is this: after committing over one trillion dollars in taxpayer money to address the financial crisis, why don’t we take a step that would indisputably reduce foreclosures and that would cost taxpayers nothing?”

As written, the “Helping Families Save Their Homes in Bankruptcy” act would allow judges to:

– Extend the length of repayment to lower monthly payments
– Replace variable interest rates with fixed rates
– Waive the bankruptcy counseling requirement for homeowners facing foreclosure to get homeowners in court faster
– Allow judges to waive prepayment penalties
– Maintain debtors’ legal claims against predatory lenders while in bankruptcy

Durbin first introduced the bill in fall of 2007, but it failed under opposition from President George W. Bush and Republican lawmakers.

In his statement, Durbin said his plan will not cost taxpayers anything, and the resulting fewer foreclosures would help municipalities maintain property tax revenue and reduce demand on law enforcement departments that execute foreclosures and are responsible for patrolling neighborhoods with abandoned properties.

The proposed bill would let bankruptcy judges rewrite home loans the same way they do other debt, including vacation and farm homes, but critics are concerned changes to the bankruptcy laws would hurt the availability of credit.

“The bills will increase the cost of borrowing for a home, at the exact moment we need home sales to restart,” Steve Bartlett, president of the Financial Services Roundtable, told Reuters.

Michigan Democrat John Conyers introduced a similar bill in the House of Representatives this week, and Durbin is also working to get the bill’s language included in the upcoming economic stimulus package.
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Eviction and Due Process

I. Jurisdiction: State of California
II. Elements of Due Process.
Section 6(k) of the United States Housing Act of 1937 (42U.S.C. 1437d(k), as amended by section 503(a) of the NationalAffordable Housing Act of 1990, Pub. L. 101-625, approvedNovember 28, 1990),provides that:
For any grievance concerning an eviction or termination of tenancy that involves any criminal activity that threatens the health, safety, or right to peaceful enjoyment of the premises of other tenants or employeesof the public housing agency or any drug-related criminal activity on or near such premises, the agency may . . . exclude from its grievance procedure any such grievance, in any jurisdiction which requires that prior to eviction, a tenant be given a hearing in court
which the Secretary determines provides the basic elements of due process . . . .

The statutory phrase, “elements of due process,” is defined by HUD at 24 CFR 966.53(c) as:
. . . an eviction action or a termination of tenancy in a State or local court in which the following procedural safeguards are required:
(1) Adequate notice to the tenant of the grounds for terminating the tenancy and for eviction;
(2) Right of the tenant to be represented by counsel
(3) Opportunity for the tenant to refute the evidence presented by the public housing agency (PHA) including
the right to confront and cross-examine witnesses and CALIFORNIA DUE PROCESS DETERMINATION
to present any affirmative legal or equitable defense which the tenant may have; and
(4) A decision on the merits.

HUD’s determination that a State’s eviction procedures satisfy this regulatory definition is called a “due process determination.” The present due process determination is based upon HUD’s analysis of the laws of the State of California to determine if an eviction action for unlawful detainer under those laws require a hearing which comports with all of the regulatory “elements of due process,” as defined in 966.53(c).

HUD finds that the requirements of California law governing an action for unlawful detainer in the superior, municipal and justice courts include all of the elements of basic due process,as defined in 24 CFR 966.53(c). This conclusion is based upon requirements contained in the California Civil Procedure Code (CCP), the California Civil Code (CC), case law and court rules.

III. Overview of California Eviction Procedures.
CCP 1161 defines unlawful detainer to include evictions because of (1) termination of tenancy at will; (2) possession after default in rent; (3) failure to perform conditions of lease; (4) subletting, waste, nuisance and unlawful use; and (5) failure to quit after notice. This determination will focus on the use of an unlawful detainer action for those evictions which may be excluded from a PHA’s grievance procedure pursuant to a HUD due process determination (i.e., evictions for drug-related criminal activity or criminal activity that threatens a tenant’sor a PHA employee’s health or safety). Thus, the analysis will consider unlawful detainer evictions because of failure to perform conditions of the lease or because of unlawful use.
The California Constitution, Art. 6, Section 10, provides, inter alia: “Superior Courts have original jurisdiction in all causes except those given by statute to other trial courts.”
California statute gives such original jurisdiction to municipal and justice courts in most residential eviction cases. CCP 86 provides:
(a) Each municipal and justice court has original
jurisdiction of civil cases and proceedings as follows . . .
i n all proceedings in forcible entry or forcible or
unlawful detainer where the whole amount of damages claimed
is twenty-five thousand dollars ($25,000) or less . . . .
Owners, including PHA’s, may bring unlawful detainer actions
in municipal or justice court, or if recovery of over $25,000 is
being sought, superior court. Actions in these courts are
subject to the requirements of the CCP.
IV. Analysis of California Eviction Procedures for Each of the
Regulatory Due Process Elements.
A. Adequate notice to the tenant of the grounds for
terminating the tenancy and for eviction
(24 CFR 966.53(c)(l)).
As the first step in an eviction for breach of a lease
covenant or condition other than rent, or for violation of a
covenant or condition prohibiting use of the premises for an
unlawful purpose (CCP Section 161(2)(3)(4)), the landlord must
give three days’ notice of the termination of tenancy to the
tenant. After this notice, a verified complaint is filed
pursuant to CCP Section 1166. The complaint:
must set forth the facts on which (the plaintiff) seeks
to recover, and describe the premises with reasonable
certainty, and may set forth therein any circumstances
of fraud, force, or violence which may have accompanied
the alleged forcible entry or forcible or unlawful
detainer . . . . Upon filing the complaint, a summons
must be issued thereon.
Pursuant to CCP Section 1167, the summons and complaint in
an action for unlawful detainer are issued and served and
returned in the same manner as a summons in a civil action
“except that when the defendant is served, the defendant’s
response shall be filed within five days after the complaint is
served upon him or her, instead of the usual 30 days . . . .”
The shorter response period is required because unlawful detainer
actions are summary proceedings and has been held not to deny due
process in Deal v. Municipal Court (Tilbury), 204 Cal. Rptr. 79
(157 Cal. App. 3rd 991)(1984).
Procedures for service are prescribed by CCP 1162. The
complaints and summons required by CCP 1162 may be served by
(a) delivering a copy to the tenant personally; (b) leaving a
copy with a person of suitable age and discretion at either the
place of residence or usual place of business; (c) or by posting.
In addition to the above notice requirements, California
Health and Safety Code, Section 34331, in the Housing Authorities
Law, provides that:
In the operation or management of housing projects, an
authority shall not do any of the following: (a) Evict
any tenant without reasonable cause unless the tenant
has been given a written statement of such cause . . . .
B. Right to be represented by counsel
(24 CFR 966.53(c)(2)).
Statutes and court rules governing actions in superior,
municipal and justice courts include references to counsel, and
assume the right to be represented by counsel, e.g., California
Court Rule 376 (motion to be relieved as counsel), CCP 284
(change of attorney), CCP 283 (authority: attorneys and
counselors at law). CCP 1014 provides that “a defendant
appears in an action when he answers, demurs . . . or when an
attorney gives notice of appearance for him.”
C. Opportunity for the tenant to refute the evidence
presented by the PHA, including the right to confront
and cross-examine witnesses (24 CFR 966.53(c)(3)).
Under CCP 2002 the testimony of witnesses is taken in
three modes: (1) affidavit, (2) deposition and (3) oral
examination. Oral examination is defined under CCP 2005 as an
“examination in the presence of the jury or tribunal which is to
decide the fact or act upon it, the testimony being heard by the
jury or tribunal from the lips of the witness.” Section 773 of
the California Evidence Code provides that a witness examined by
one party may be cross-examined upon any matter within the scope
of the direct examination by each other party to the action in
such order as the court directs.
D. Opportunity to present any affirmative legal or
equitable defense which the tenant may have
(24 CFR 966.53(c)(3)).
CCP 1170 provides that “on or before the day fixed for his
appearance the defendant may appear and answer or demur.”
CCP 431.30(b) provides that “the answer to a complaint shall
contain: (1) the general or specific denial of the material
allegation of the complaint . . . (2) a statement of any new
matter constituting a defense.”
In summary the rule:
. . . is that a defense normally permitted because it
arises out of the subject matter of the original suit
is generally excluded in an unlawful detainer action if
such defense is extrinsic to the narrow issue of
possession, which the unlawful detainer procedure seeks
speedily to resolve. Fn. omitted. ‘ No . . .
California decision, however, prohibits a tenant from
interposing a defense which does directly relate to the
issue of possession and which, if established, would
result in the tenant’s retention of the premises.
(emphasis added) Fn. omitted (Green v. Superior
Court (1974) 10 Cal. 3d 616, 632-633, 111 Cal. Rptr.
704, 517 P. 2d 1168).
Deal v. Municipal Court (Tilbury), 204 Cal. Rptr. 79 (157
Cal. App. 3rd 991)(1984) noted that under the California Rules of
Court, the mandatory form of answer “contains the affirmative
defenses now recognized in California.” Deal was cited with
approval in Lynch & Freytaq v. Cooper, 267 Cal. Rptr. 189, 192
(1990): “. . . the constitutionality of these summary procedures
is based on their limitation to the single issue of right to
possession and incidental damages.”
E. A decision on the merits (24 CFR 966.53(c)(4)).
Section 632 of the CCP provides for courts in non-jury
trials to “issue a statement of decision explaining the factual
and legal basis for its decision as to each of the principal
controverted issues at trial upon the request of any party
appearing at the trial . . . .” In jury trials the jury’s
verdict must be made on the basis of the facts and the law.
CCP 592 states that ” i n actions for the recovery of . . .
real property . . . with or without damages . . . an issue of
fact must be tried by a jury unless a jury trial is waived.”
Where issues of law and fact both exist, the former must be
disposed of first by the court.
V. Conclusion.
California law governing an unlawful detainer action in the
superior, municipal and justice courts requires that the tenant
have the opportunity for a pre-eviction hearing in court which
provides the basic elements of due process as defined in 24 CFR
966.53(c) of the HUD regulations.
By virtue of this determination under section 6(k) of the
U.S. Housing Act of 1937, a PHA in California may evict a tenant
pursuant to a superior, municipal or justice court decision. For
such evictions, the PHA is not required to first afford the
tenant the opportunity for an administrative hearing on an
unlawful detainer action that involves any criminal activity that
threatens the health, safety, or right to peaceful enjoyment of
the premises of other tenants or employees of the PHA or any
drug-related criminal activity on or near such premises.

wamu predatory lender WWW.wamufraud.com

Washington Mutual Bank (WAMU) has now been added to the list of possible predatory lending practices. If you were to look back at what unhappy customers had to say about Washington Mutual you might be alarmed. For years now this lending institutions appears to be getting away with breaking several laws and no one has done anything about it. JP Morgan is the current owner of WAMU and who knows why they would bail out a bank that takes advantage of people in all walks of life, even the elderly.

Here are some disturbing things about WAMU:

It appears Washington Mutual commits Fraud by:
1) Non-Disclosure and False Disclosure,
2) violating RESPA by never answering letters of dispute (qualified written requests),
3) violating CA Civil Code 2943 by not supplying a Payoff Demand Statement requested by mail,
3) illegal accounting that doesn’t follow Generally Accepted Accounting Principles
4) Predatory Practices, such as forced escrows, & logging payments weeks after receipt,
5) Giving primarily “Liar’s Loans” (no document loans), where they know most people can’t qualify otherwise,
6) Refusing to do Loan Workouts, & failing to contact HUD for client help & signoffs,
7) often combining all of the above to foreclose on whole neighborhoods nationwide.

Washington Mutual appears to have explicitly broken 4 Federal Laws:
1) 15 USC § 1601 et seq.: Truth in Lending requires that banks disclose all details of the transaction
2) 12 USC § 1831n(2)(A): Requires banks to follow “Uniform accounting principles consistent with GAAP”
3) 12 USC § 2605 RESPA: requires that banks acknowledge & respond to a “qualified written request”.
4) 15 USC § 1611 Whoever willfully and knowingly (1) gives false or inaccurate information or fails to provide information which he is required to disclose under the provisions of this subchapter or any regulation.

Source: http://wamufraud.com/ – find many complaints and more at this site.

Recent article as to lender liability litigation

Current Trends in Residential Mortgage Litigation

BYLINE: Daniel A. Edelman*; *DANIEL A. EDELMAN is the founding partner of Edelman & Combs, of Chicago, Illinois, a firm that represents injured consumers in actions against banks, mortgage companies, finance companies, insurance companies, and automobile dealers. Mr. Edelman or his firm represented the consumer in a number of the cases discussed in this article.


Borrowers Have Successfully Sued Based on Allegations of Over-escrowing, Unauthorized Charges and Brokers’ Fees, Improper Private Mortgage Insurance Procedures, and Incorrectly Adjusted ARMS. The Author Analyzes Such Lending Practices, and the Litigation They Have Spawned.


This article surveys current trends in litigation brought on behalf of residential mortgage borrowers against mortgage originators and servicers. The following types of litigation are discussed:(i) over-escrowing; (ii) junk charges; (iii) payment of compensation to mortgage brokers and originators by lenders; (iv) private mortgage insurance; (v) unauthorized servicing charges; and (vi) improper adjustments of interest on adjustable rate mortgages. We have omitted discussion of abuses relating to high-interest and home improvement loans, a subject that would justify an article in itself.1

OVER-ESCROWING In recent years, more than 100 class actions have been brought against mortgage companies complaining about excessive escrow deposit requirements.

Requirements that borrowers make periodic deposits to cover taxes and insurance first became widespread after the Depression. There were few complaints about them until the late 1960s, probably because until that time many lenders used the ”capitalization” method to handle the borrowers’ funds. Under this method, escrow disbursements were added to the principal balance of the loan and escrow deposits were credited in the same manner as principal payments. The effect of this ”capitalization” method is to pay interest on escrow deposits at the note rate, a result that is fair to the borrower. When borrowers could readily find lenders that used this method, there was little ground for complaint.

The ”capitalization” method was almost entirely replaced by the current system of escrow or impound accounts in the 1960s and 1970s. Under this system, lenders require borrowers to make monthly deposits on which no interest is paid. Lenders use the deposits as the equivalent of capital by placing them in non-interest-bearing accounts at related banks or at banks that give ”fund credits” to the lender in return for custody of the funds.2 Often, surpluses greatly in excess of the amounts actually required to make tax and insurance payments as they came due are required. In effect, borrowers are required to make compulsory, interest-free loans to their mortgage companies.

One technique used to increase escrow surpluses is ”individual item analysis.” This term describes a wide variety of practices, all of which create a separate hypothetical escrow account for each item payable with escrow funds. If there are multiple items payable from the escrow account, the amount held for item A is ignored when determining whether there are sufficient funds to pay item B, and surpluses are required for each item. Thus, large surpluses can be built up. Individual item analysis is not per se illegal, but can readily lead to excessive balances.3

During the 1970s, a number of lawsuits were filed alleging that banks had a duty to pay interest on escrow deposits or conspired to eliminate the ”capitalization” method.4 Most courts held that, in the absence of a statute to the contrary, there was no obligation to pay interest on escrow deposits.5 The only exception was Washington. Following these decisions, some 14 states enacted statutes requiring the payment of interest, usually at a very low rate.6

Recent attention has focused on excessive escrow deposits. In 1986, the U.S. District Court for the Northern District of Illinois first suggested, in Leff v. Olympic Fed. S & L Assn.,7 that the aggregate balance in the escrow account had to be examined in order to determine if the amount required to be deposited was excessive. The opinion was noted by a number of state attorneys general, who in April 1990 issued a report finding that many large mortgage servicers were requiring escrow deposits that were excessive by this standard.8 The present wave of over-escrowing cases followed.

Theories that have been upheld in actions challenging excessive escrow deposit requirements include breach of contract,9 state consumer fraud statutes,10 RICO,11 restitution,12 and violation of the Truth in Lending Act (”TILA”).13 Claims have also been alleged under section 10 of the Real Estate Settlement Procedures Act (”RESPA”),14 which provides that the maximum permissible surplus is ”one-sixth of the estimated total amount of such taxes, insurance premiums and other charges to be paid on dates . . . during the ensuing twelve-month period.” However, most courts have held that there is no private right of action under section 10 of RESPA.15 Most of the overescrowing lawsuits have been settled. Refunds in these cases have totalled hundreds of millions of dollars.

On May 9, 1995, in response to the litigation and complaints concerning over-escrowing, HUD issued a regulation implementing section 10 of RESPA.16 The HUD regulation: 1. Provides for a maximum two-month cushion, computed on an aggregate basis (i.e., the mortgage servicer can require the borrower to put enough money in the escrow account so that at its lowest point it contains an amount equal to two months’ worth of escrow deposits); 2. Does not displace contracts if they provide for smaller amounts; and 3. Provides for a phase-in period, so that mortgage servicers do not have to fully comply until October 27, 1997.

Meanwhile, beginning in 1990, the industry adopted new forms of notes and mortgages that allow mortgage servicers to require escrow surpluses equal to the maximum two-month surplus permitted by the new regulation. However, loans written on older forms of note and mortgage, providing for either no surplus 17 or a one-month surplus, will remain in effect for many years to come. ”JUNK CHARGES” AND RODASH In recent years, many mortgage originators attempted to increase their profit margins by breaking out overhead expenses and passing them on to the borrower at the closing. Some of these ”junk charges” were genuine but represented part of the expense of conducting a lending business, while others were completely fictional. By breaking out the charges separately and excluding them from the finance charge and annual percentage rate, lenders were able to quote competitive annual percentage rates while increasing their profits.

Most of these charges fit the standard definition of ”finance charge” under TILA.18 A number of pre-1994 judicial and administrative decisions held that various types of these charges, such as tax service fees,19 fees for reviewing loan documents,20 fees relating to the assignment of notes and mortgages,21 fees for the transportation of documents and funds in connection with loan closings,22 fees for closing loans,23 fees relating to the filing and recordation of documents that were not actually paid over to public officials,24 and the intangible tax imposed on the business of lending money by the states of Florida and Georgia,25 had to be disclosed as part of the ”finance charge” under TILA.

The mortgage industry nevertheless professed great surprise at the March 1994 decision of the U.S. Court of Appeals for the Eleventh Circuit in Rodash v. AIB Mtge. Co.,26 holding that a lender’s pass-on of a $ 204 Florida intangible tax and a $ 22 Federal Express fee had to be included in the finance charge, and that Martha Rodash was entitled to rescind her mortgage as a result of the lender’s failure to do so. The court found that ”the plain language of TILA evinces no explicit exclusion of an intangible tax from the finance charge,” and that the intangible tax did not fall under any of the exclusions in regulation Z dealing with security interest charges.27 Claiming that numerous loans were subject to rescission under Rodash, the industry prevailed upon Congress and the Federal Reserve Board to change the law retroactively through a revision to the FRB Staff Commentary on regulation Z28 and the Truth in Lending Act Amendments of 1995, signed into law on September 30, 1995.29 The amendments:

1. Exclude from the finance charge fees imposed by settlement agents, attorneys, escrow companies, title companies, and other third party closing agents, if the creditor neither expressly requires the imposition of the charges nor retains the charges;30 2. Exclude from the finance charge taxes on security instruments and loan documents if the payment of the tax is a condition to recording the instrument and the item is separately itemized and disclosed (i.e., intangible taxes);31 3. Exclude from the finance charge fees for preparation of loan-related documents;32 4. Exclude from the finance charge fees relating to pest and flood inspections conducted prior to closing;33 5. Eliminate liability for overstatement of the annual percentage rate. 6. Increase the tolerance or margin of error;34 7. Provide that mortgage servicers are not to be treated as assignees.35 The constitutionality of the retroactive provisions of the Amendments is presently under consideration.

The FRB Staff Commentary amendments dealt primarily with the question of third-party charges, and provided that they were not finance charges unless the creditor required or retained the charges.36

The 1995 Amendments substantially eliminated the utility of TILA in challenging ”junk charges” imposed by lenders. However, ”junk charges” are also subject to challenge under RESPA, where they are used as devices to funnel kickbacks or referral fees or excessive compensation to mortgage brokers or originators. This issue is discussed below.

”UPSELLING,” ”OVERAGES,” AND REFERRAL FEES TO MORTGAGE ORIGINATORS A growing number of lawsuits have been brought challenging the payment of ”upsells,” ”overages,” ”yield spread premiums,” and other fees by lenders to mortgage brokers and originators.

During the last decade it became fairly common for mortgage lenders to pay money to mortgage brokers retained by prospective borrowers. In some cases, the payments were expressly conditioned on altering the terms of the loan to the borrower’s detriment by increasing the interest rate or ”points.” For example, a lender might offer brokers a payment of 50 basis points (0.5 percent of the principal amount of the loan) for every 25 basis points above the minimum amount (”par”) at which the lender was willing to make the loan. Industry publications expressly acknowledged that these payments were intended to ”compensate[] mortgage brokers for charging fees higher than what the borrower would normally pay.”37 In other instances, brokers were compensated for convincing the prospective borrower to take an adjustable-rate mortgage instead of a fixed-rate mortgage, or for inducing the purchase of credit insurance by the borrower. 38

In the case of some loans, the payments by the lender to the broker were totally undisclosed. In other cases, particularly in connection with loans made after the amendments to regulation X discussed below, there is an obscure reference to the payment on the loan documents, usually in terms incomprehensible to a lay borrower. For example, the HUD-1 form may contain a cryptic reference to a ”yield spread premium” or ”par plus pricing,” often abbreviated like ”YSP broker (POC) $ 1,500.”39

The burden of the increased interest rates and points resulting from these practices is believed to fall disproportionately on minorities and women.40 These practices are subject to legal challenge on a number of grounds.

Breach of Fiduciary Duty Most courts have held that a mortgage broker is a fiduciary. One who undertakes to find and arrange financing or similar products for another becomes the latter’s agent for that purpose, and owes statutory, contractual, and fiduciary duties to act in the interest of the principal and make full disclosure of all material facts. ”A person who undertakes to manage some affair for another, on the authority and for the account of the latter, is an agent.”41

Courts have described a mortgage loan broker as an agent hired by the borrower to obtain a loan.42 As such, a mortgage broker owes a fiduciary duty of the ”highest good faith toward his principal,” the prospective borrower.43 Most fundamentally, a mortgage broker, like any other agent who undertakes to procure a service, has a duty to contact a variety of providers and attempt to obtain the best possible terms.44

Additionally, a mortgage broker ”is ‘charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal’s decision’.”45 The duty to disclose extends to the agent’s compensation. 46 Thus, a broker may not accept secret compensation from adverse parties.47

Furthermore, the duty to disclose is not satisfied by the insertion of cryptic ”disclosures” on documents. The obligation is to ”make a full, fair and understandable explanation” of why the fiduciary is not acting in the interests of the beneficiary and of the reasons that the beneficiary might not want to agree to the fiduciary’s actions.48

The industry has itself recognized these principles. The National Association of Mortgage Brokers has adopted a Code of Ethics which requires, among other things, that the broker’s duty to the client be paramount. Paragraph 3 of the Code of Ethics states:

In accepting employment as an agent, the mortgage broker pledges himself to protect and promote the interest of the client. The obligation of absolute fidelity to the client’s interest is primary.

Thus, a lender who pays a mortgage broker secret compensation may face

liability for inducing the broker to breach his fiduciary or contractual duties, fraud, or commercial bribery.

Mail/Fraud/ Wire Fraud/ RICO The payment of compensation by a lender to a mortgage broker without full disclosure is also likely to result in liability under the federal mail and wire fraud statutes and RICO. It is well established that a scheme to corrupt a fiduciary or agent violates the mail or wire fraud statute if the mails or interstate wires are used in furtherance of the scheme.49

Real Estate Settlement Procedures Act Irrespective of whether the broker or other originator of a mortgage is a fiduciary, lender payments to such a person may result in liability under section 8 of RESPA,50 which prohibits payments or fee splitting for business referrals, if the payments are either not fully disclosed or exceed reasonable compensation for the services actually performed by the originator.

Prior to 1992, the significance of section 8 of RESPA was minimized by restrictive interpretations. The Sixth Circuit Court of Appeals held that the origination of a mortgage was not a ‘’settlement service” subject to section 8.51 In addition, cases construing the pre-1992 version of implementing HUD regulation X required a splitting of fees paid to a single person.52 Finally, the payment of compensation in secondary market transactions was excluded from RESPA, and there was no distinction made between genuine secondary market transactions and ”table funded” transactions, where a mortgage company originates a loan in its own name, but using funds supplied by a lender, and promptly thereafter assigns the loan to the lender.53

In 1992, RESPA and regulation X were amended to close each of these loopholes. The amendments did not have practical effect until August 9, 1994, the effective date of the new regulation X.54

First, RESPA was amended to provide expressly that the origination of a loan was a ‘’settlement service.” P.L. 102-550 altered the definition of ‘’settlement service” in Section 2602(3) to include ”the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans).” This change and a corresponding change in regulation X were expressly intended to disapprove the Sixth Circuit’s decision in United States v. Graham

Mtge. Corp.55

Second, regulation X was amended to exclude table funded transactions from the definition of ‘’secondary market transactions.” Regulation X addresses ”table funding” in sections 3500.2 and 3500.7. Section 3500.2 provides that ”table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. A table-funded transaction is not a secondary market transaction (see Section 3500.5(b)(7)).” Section 3500.5(b)(7) exempts from regulation by RESPA fees and charges paid in connection with legitimate ‘’secondary market transactions,” but excludes table funded transactions from the scope of legitimate secondary market transactions. Under the current regulation X, RESPA clearly applies to table funded transactions.56 Amounts paid by the first assignee of a loan to a ”table funding” broker for ”rights” to the loan — i.e., for the transfer of the loan by the broker to the lender — are now subject to examination under RESPA.57

Third, any sort of payment to a broker or originator that does not represent reasonable compensation for services actually provided is prohibited. 58

Whatever the payment to the originator or broker is called, it must be reasonable. Another mortgage industry publication states: [A]ny amounts paid under these headings [servicing release premiums or yield spread premiums] must be lumped together with any other origination fees paid to the broker and be subjected to the referral fee/ market value test in Section 8 of RESPA and Section 3500.14 of Regulation X. If the total of this compensation exceeds the market value of the services performed by the broker (excluding the value of the referral), then the compensation does not pass the test, and both the broker and the lender could be subject to the civil and criminal penalties contained in RESPA.59

Normal compensation for a mortgage broker is about one percent of the principal amount of the loan. Where the broker ”table funds” the loan and originates it in its name, an extra .5 percent or one percent may be appropriate.60 This level of reasonableness is recognized by agency regulations. For example, on February 28, 1996, in response to allegations of gouging by brokers on refinancing VA loans, the VA promulgated new regulations prohibiting mortgage lenders from charging more than two points in refinanced transactions.61

The amended regulation makes clear that a payment to a broker for influencing the borrower in any manner is illegal. ”Referral” is defined in Section 3500.14(f)(1) to include ”any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge attributable in whole or in part to such settlement service or business. . . .” The amended regulation also cannot be evaded by having the borrower pay the originator. An August 14, 1992 letter from Frank Keating, HUD’s General Counsel, states unequivocally: ”We read ‘imposed upon borrowers’ to include all charges which the borrower is directly or indirectly funding as a condition of obtaining the mortgage loan. We find no distinction between whether the payment is paid directly or indirectly by the borrower, at closing or outside the closing. . . . I hereby restate my opinion that RESPA requires the disclosures of mortgage broker fees, however denominated, whether paid for directly or indirectly by the borrower or by the lender.”

Thus, ”yield spread premiums,” ‘’service release fees,” and similar payments for the referral of business are no longer permitted. The new regulation was specifically intended to outlaw the payment of compensation for the referral of business by mortgage brokers, either directly or through the imposition of ”junk charges.” Thus, it provides that payments may not be made ”for the referral of settlement service business” (Section 3500.14(b)).

The mortgage industry has recognized that types of fees that were once viewed as permissible in the past are now ”prohibited and illegal.” The legal counsel for the National Second Mortgage Association acknowledged: ”Even where the amount of the fee is reasonable, the more persuasive conclusion is that RESPA does not permit service release fees.” ”Also, if . . . the lender is ‘table funding’ the loan, he is violating RESPA’s Section 8 anti-kickback provisions.”62

In the first case decided under the new regulation, Briggs v. Countrywide Funding Corp.,63 the U. S. District Court for the Middle District of Alabama denied a motion to dismiss a complaint alleging the payment of a ”yield spread premium” by a lender to a broker in connection with a table funded transaction. Plaintiffs alleged that the payment violated RESPA as well as several state law doctrines. The court acknowledged that RESPA applied to the table funded transactions and noted that whether or not disclosed, the fees could be considered illegal.

Truth in Lending Act Implications Many of the pending cases challenging the payment of ”yield spread premiums” and ”upselling” allege that the payment of compensation to an agent of the lender is a TILA ”finance charge.” The basis of the TILA claims is that the commission a borrower pays to his ”broker” is a finance charge because the ”broker” is really functioning as the agent of the lender. The claim is not that the ”upsell” payment made by the lender to the borrower’s broker is a finance charge.

Decisions under usury statutes uniformly hold that a fee charged to the borrower by the lender’s agent is interest or points.64 The concept of the ”finance charge” under TILA is broader than, but inclusive of, the concept of ”interest” and ”points” at common law and under usury statutes. Regulation Z specifically provides that the ”finance charge” includes any ”interest” and ”points” charged in connection with a transaction.65 Therefore, if the intermediary is in fact acting on behalf of the lender, as is the case where the intermediary accepts secret compensation from the lender or acts in the lender’s interest to increase the amount paid by the borrower, all compensation received by the intermediary, including broker’s fees charged to the borrower, are finance charges.

Unfair and Deceptive Acts and Practices The pending ”upselling” cases also generally allege that the payment of compensation to the mortgage broker violates the general prohibitions of most state ”unfair and deceptive acts and practices” (”UDAP”) statutes. The violations of public policy codified by the federal consumer protection laws create corresponding state consumer protection law claims.66

Civil Rights and Fair Housing Laws The Department of Justice brought two cases in late 1995 alleging that the disproportionate impact of ”overages” and ”upselling” on minorities violated the Fair Housing Act67 and Equal Credit Opportunity Act.68 Both cases alleged disparate pricing of loans according to the borrower’s race and were promptly settled.69 Other investigations are reported to be pending.70 The principal focus of enforcement agencies appears to be on the civil rights implications of overages.71

It is likely that such a practice would also violate 42 U.S.C. Section 1981.While Section 1981 requires intentional discrimination, a lender that decides to take advantage of the fact that other lenders discriminate by making loans to minorities at higher rates is also engaging in intentional discrimination. In Clark v. Universal Builders,72 the Seventh Circuit held that one who exploits and preys on the discriminatory hardship of minorities does not occupy a more protected status than the one who created the hardship in the first instance; that is, a defendant cannot escape liability under the Civil Rights Act by asserting it merely ”exploited a situation crated by socioeconomic forces tainted by racial discrimination.”73

PRIVATE MORTGAGE INSURANCE LITIGATION Another group of pending lawsuits is based on claims of misrepresentation of or failure to disclose the circumstances under which private mortgage insurance (”PMI”) may be terminated. PMI insures the lender against the borrower’s default — the borrower derives no benefit from PMI. It is generally required under a conventional mortgage if the loan to value ratio exceeds about 80 percent.74 Approximately 17.4 percent of all mortgages have PMI.75

Standard form conventional mortgages provide that if PMI is required it maybe terminated as provided by agreement. Most servicers and investors have policies for terminating PMI. However, the borrower is often not told what the policy is, either at the inception of the mortgage or at any later time. As a result, people pay PMI premiums unnecessarily. Since there is about $ 460 billion in PMI in force,76 this is a substantial problem. The failure accurately and clearly to disclose the circumstances under which PMI may be terminated has been challenged under RICO and state consumer fraud statutes.

UNAUTHORIZED SERVICING CHARGES Another fertile ground of litigation concerns the imposition of charges that are not authorized by law or the instruments being serviced. The collection of modest charges is a key component of servicing income.77 For example, many mortgage servicers impose charges in connection with the payoff or satisfaction of mortgages when the instruments either do not authorize the charge or affirmatively prohibit it.

The imposition of payoff and recording charges has been challenged as a breach of contract, as a deceptive trade practice, as a violation of RICO, and as a violation of the Fair Debt Collection Practices Act (”FDCPA”).78 In Sandlin v. State Street Bank,79 the U. S. District Court for the Middle District of Florida held that the imposition of a payoff statement fee is a violation of the standard form ”uniform instrument” issued by the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, and when imposed by someone who qualifies as a ”debt collector” under the FDCPA,80 violates that statute as well.81 However, attempts to challenge such charges under RESPA have been unsuccessful, with courts holding that a charge imposed subsequent to the closing is not covered by RESPA.82

ADJUSTABLE RATE MORTGAGES Adjustable rate mortgages (”ARMs”) were first proposed by the Federal Home Loan Bank Board in the 1970s. They first became widespread in the early 1980s. At the present time, about 25 to 30 percent of all residential mortgages are adjustable rate mortgages (”ARMs”).83

The ARM adjustment practices of the mortgage banking industry have been severely criticized because of widespread errors.84 Published reports beginning in 1990 indicate that 25 to 50 percent of all ARMs may have been adjusted incorrectly at least once.85 The pattern of misadjustments is not random: approximately two-thirds of the inaccuracies favor the mortgage company.86

Grounds for legal challenges to improper ARM adjustments include breach of contract, TILA,87 the Uniform Consumer Credit Code,88 RICO,89 state unfair and deceptive practices statutes,90 failure to properly respond to a ”qualified written request” under section 6(e) of RESPA,and usury.91

Substantial settlements of ARM claims have been made by Citicorp Mortgage,92 First Nationwide Bank,93 and Banc One.94 On the other hand, several cases have rejected borrower claims that particular ARM adjustment actions violated the terms of the instruments. For example, a Connecticut case held that a mortgage that provided for an interest rate tied to the bank’s current ”market rate” was not violated when the bank failed to take into account the rate that could be obtained through the payment of a ”buydown.”95 A Pennsylvania case held that the substitution of one index for another that had been discontinued was consistent with the terms of the note and mortgage.96

A major issue in ARM litigation is whether what the industry erroneously terms ”undercharges” — the failure of the servicer to charge the maximum amount permitted under the terms of the instrument — can be ”netted” or offset against overcharges — the collection of interest in excess of that permitted under the terms of the instrument. Fannie Mae has taken the position that ”netting” is appropriate.97

The validity of this conclusion is questionable. First, nothing requires a financial institution to adjust interest rates upward to the maximum permitted, and there are in fact often sound business reasons for not doing so. On the other hand, the borrower has an absolute right not to pay more than the instrument authorizes. Thus, what the industry terms an ”undercharge” is simply not the same thing as an ”overcharge.”

Second, the upward adjustment of interest rates must be done in compliance with TILA. An Ohio court held that failure to comply made the adjustment unenforceable.98 ”Where a bank violates the Truth-in-Lending Act by insufficient disclosure of a variable interest rate, the court may grant actual damages. . . . If the actual damage is the excess interest charge over the original contract term, the court may order the mortgage to be recalculated at its original terms, and refuse to enforce the variable interest rate provisions.”99

Third, if the borrower is behind in his payments, ”netting” may violate state law requiring the lender to proceed against the collateral before undertaking other collection efforts. A decision of the California intermediate appellate court concluded that the state’s ”one-action rule” had been violated when a lender obtained an offset of interest overcharges against amounts owed by the borrower under an ARM.100

1. E.g., G. Marsh, Lender Liability for Consumer Fraud Practices of Retail

Dealers and Home Improvement Contractors, 45 Ala. L. Rev. 1 (1993); D. Edelman, Second Mortgage Frauds, Nat’l Consumer Rights Litigation Conference 67 (Oct. 19-20, 1992).

2. The lender would deposit the escrow funds in a non-interest-bearing account at a bank which made loans to the lender. The lender would receive a ”funds credit” against the interest payable on its borrowings based on the value of the escrow funds deposited at the bank.

3. Aitken v. Fleet Mtge. Corp., 1991 U.S.Dist. LEXIS 10420 (ND Ill., July 30,1991), and 1992 U.S.Dist. LEXIS 1687 (ND Ill., Feb. 12, 1992); Attorney General v. Michigan Nat’l Bank, 414 Mich. 948, 325 N.W.2d 777 (1982); Burkhardt v. City Nat’l Bank, 57 Mich.App. 649, 226 N.W.2d 678 (1975).

4. See generally, Class Actions Under Anti-Trust Laws on Account of Escrow and Similar Practices, 11 Real Prop., Probate & Trust Journal 352 (Summer 1976).

5. Buchanan v. Century Fed. S. & L. Ass’n, 306 Pa. Super. 253, 452 A.2d 540(1982), later opinion, 374 Pa. Super. 1, 542 A.2d 117 (1986); Carpenter v. Suffolk Franklin Savs. Bank, 370 Mass. 314, 346 N.E.2d 892 (1976); Brooks v. Valley Nat’l Bank, 113 Ariz. 169, 548 P.2d 1166 (1976); Petherbridge v. Prudential S. & L. Ass’n, 79 Cal.App.3d 509, 145 Cal.Rptr. 87 (1978); Marsh v. Home Fed. S. & L. Ass’n, 66 Cal.App.3d 674, 136 Cal.Rptr. 180 (1977); LaThrop v. Bell Fed. S. & L. Ass’n, 68 Ill.2d 375, 370 N.E.2d 188 (1977); Sears v. First Fed. S. & L. Ass’n, 1 Ill.App.3d 621, 275 N.E.2d 300 (1st Dist. 1973); Durkee v. Franklin Savings Ass’n, 17 Ill.App.3d 978, 309 N.E.2d 118 (2d Dist. 1974); Zelickman v. Bell Fed. S. & L. Ass’n, 13 Ill.App.3d 578, 301 N.E.2d 47 (1st Dist. 1973); Yudkin v. Avery Fed. S. & L. Ass’n, 507 S.W.2d 689 (Ky. 1974); First Fed. S. & L. Ass’n of Lincoln v. Board of Equalization of Lancaster County, 182 Neb. 25, 152 N.W.2d 8 (1967); Kronisch v. Howard Savings Institution, 161 N.J.Super. 592, 392 A.2d 178 (1978); Surrey Strathmore Corp. v. Dollar Savings Bank of New York, 36 N.Y.2d 173, 366 N.Y.S.2d 107, 325 N.E.2d 527 (1975); Tierney v. Whitestone S. & L. Ass’n, 83 Misc.2d 855, 373 N.Y.S.2d 724 (1975); Cale v. American Nat’l Bank, 37 Ohio Misc. 56, 66 Ohio Ops.2d 122 (1973); Richman v. Security S. & L. Ass’n, 57 Wis.2d 358, 204 N.W.2d 511 (1973); In re Mortgage Escrow Deposit Litigation, 1995 U.S.Dist. LEXIS 1555 (ND Ill. Feb. 8, 1995).

6. National Mortgage News, Nov. 11, 1991, p. 2.

7. Leff v. Olympic Fed. S & L Ass’n, 1986 WL 10636 (ND Ill 1986).

8. Overcharging on Mortgages: Violations of Escrow Account Limits by the Mortgage Lending Industry: Report by the Attorneys General of California, Florida, Iowa, Massachusetts, Minnesota, New York & Texas (24 Apr 1990).

9. Leff v. Olympic Fed. S. & L. Ass’n, n. 7 supra; Aitken v. Fleet Mtge.Corp., 1992 U.S.Dist. LEXIS 1687 (ND Ill., Feb. 12, 1992); Weinberger v. Bell Federal, 262 Ill.App.3d 1047, 635 N.E.2d 647 (1st Dist. 1994); Poindexter v. National Mtge. Corp., 1995 U.S.Dist. LEXIS 5396 (ND Ill., April, 24, 1995); Markowitz v. Ryland Mtge. Co., 1995 U.S.Dist. LEXIS 11323 (ND Ill. Aug. 8, 1995); Sanders v. Lincoln Service Corp., 1993 U.S.Dist. LEXIS 4454 (ND Ill. Apr. 9, 1993); Cairns v. Ohio Sav. Bank, 1996 Ohio App. LEXIS 637 (Feb. 22, 1996). See generally, GMAC Mtge. Corp. v. Stapleton, 236 Ill.App.3d 486, 603 N.E.2d 767 (1st Dist. 1992), leave to appeal denied, 248 Ill.2d 641, 610 N.E.2d 1262 (1993).

10. Leff v. Olympic Fed. S. & L. Ass’n, n. 7 supra; Aitken v. Fleet Mtge. Corp., n.9 supra; Poindexter v. National Mtge. Corp., n.9 supra; Sanders v. Lincoln Service Corp., n. 9 supra.

11. Leff v. Olympic Fed. S. & L. Ass’n, Aitken v. Fleet Mtge. Corp., n.9 supra; Robinson v. Empire of America Realty Credit Corp., 1991 U.S.Dist. LEXIS 2084 (ND Ill., Feb. 20, 1991); Poindexter v. National Mtge. Corp., n. 9 supra. 12. Poindexter v. National Mtge. Corp., n. 9 supra.

13. Martinez v. Weyerhaeuser Mtge. Co., 1995 U.S.Dist. LEXIS 11367 (ND Ill. Aug. 8, 1995). The theory is that the excessive portion of the escrow deposit is a finance charge.

14. 12 U.S.C. Section 2609.

15. State of Louisiana v. Litton Mtge. Co., 50 F.3d 1298 (5th Cir. 1995); Allison v. Liberty Savings, 695 F.2d 1086, 1091 (7th Cir. 1982); Herrman v. Meridian Mtge. Corp., 901 F.Supp. 915 (ED Pa. 1995); Campbell v. Machias Savings Bank, 865 F.Supp. 26, 31 (D.Me. 1994); Michels v. Resolution Trust Corp., 1994 U.S.Dist. LEXIS 6563 (D.Minn. Apr. 13, 1994); Bergkamp v. New York Guardian Mortgagee Corp., 667 F.Supp. 719, 723 (D.Mont. 1987). Contra, Vega v. First Fed. S. & L. Ass’n, 622 F.2d 918, 925 (6th Cir. 1980).

16. 24 C.F.R. 3400.17, issued at 60 FR 24734.17. The pre-1990 ”uniform instrument” issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation did not provide for any surplus. The pre-1990 FHA form and the VA form provided for a one-month surplus.

18. The finance charge includes ”any charge, payable directly or indirectly by the consumer, imposed directly or indirectly by the creditor, as an incident to or a condition of the extension of credit.” regulation Z, 12 C.F.R. 226.4(a). The definition is all-inclusive: any charge that meets this definition is a finance charge unless it is specifically excluded by TILA or regulation Z. R. Rohner, The Law of Truth in Lending, section 3.02 (1984). There are exclusions from the finance charge which apply only in mortgage transactions. 12 C.F.R. 226.4(c)(7). However, the exclusions require that the charges be bona fide and reasonable in amount, id., and the exclusions are narrowly construed to protect consumers from underdisclosure of the cost of credit. Equity Plus Consumer Fin. & Mtge. Co. v. Howes, 861 P.2d 214, 217 (NM 1993). See also In re Celona, 90 B.R. 104 (Bankr.ED Pa. 1988), aff’d 98 B.R. 705 (Bankr. ED Pa. 1989). ”[O]nly those charges specifically exempted from inclusion in the ‘finance charge’ by statute or regulation may be excluded from it.” Buford v. American Fin. Co., 333 F.Supp. 1243, 1247 (ND Ga. 1971). 19. In re Souders, 1992 U.S.Comp.Gen. LEXIS 1075 (Sept. 29, 1992); In re Barry, 1981 U.S.Comp.Gen. LEXIS 1262 (April 16, 1981); In re Bayer, 1977 U.S.Comp.Gen. LEXIS 2116 (Sept. 19, 1977); In re Wahl, 1974 U.S.Comp.Gen. LEXIS 1610 (Oct. 1, 1974); In re Ray, 1973 U.S.Comp.Gen. LEXIS 1960 (March 13, 1973). A tax service fee represents the purported cost of having someone check the real estate records annually to make sure that the taxes on the property securing the loan are shown as having been paid.

20. In re Celona, 90 B.R. 104, 110-12 (Bankr. E.D.Pa. 1988), aff’d, 98 B.R. 705 (ED Pa. 1989) (lender violated TILA by passing on $ 200 fee charged by attorney to review certain documents without including fee in ”finance charge”); Abel v. Knickerbocker Realty Co., 846 F.Supp. 445 (D.Md. 1994) (lender violated TILA because ”origination fee” of $ 290 excluded from ”finance charge”); Brodo v. Bankers Trust Co., 847 F.Supp. 353 (ED Pa. 1994) (lender violated TILA by imposing charge for preparing TILA disclosure documents without including them in the ”finance charge”).

21. Cheshire Mtge. Service, Inc. v. Montes, 223 Conn. 80, 612 A.2d 1130 (1992) (lender violated TILA by imposing fee for assigning the mortgage when it was sold on the secondary market without including it in the ”finance charge”); In re Brown, 106 B.R. 852 (Bankr. E.D.Pa. 1989) (same); Mayo v. Key Fin. Serv., Inc., 92-6441-D (Mass.Super.Ct., June 22, 1994) (same).

22. In re Anibal L. Toboas, 1985 U.S.Comp.Gen. LEXIS 854 (July 19, 1985) (”The relevant part of Regulation Z expressly categorizes service charges and loan fees as part of the finance charge when they are imposed directly or indirectly on the consumer incident to or as a condition of the extension of credit. The finance charge, therefore, is not limited to interest expenses but includes charges which are imposed to defray a lender’s administrative costs. [citation] A messenger service charge paid to the mortgage lender may not be reimbursed because it is part of the lender’s overhead, a charge for which is considered part of the finance charge under Regulation Z.”); In re Schwartz, 1989 U.S. Comp. Gen. LEXIS 55 (Jan. 19, 1989) (”a messenger service charge or fee is part of the lender’s overhead, a charge which is deemed to be a finance charge and not reimbursable”).

23. Decision of the Comptroller General No. B-181037, 1974 U.S.Comp.Gen. LEXIS 1847 (July 16, 1974) (loan closing fee was part of the finance charge under TILA); Decision of the Comptroller General, No. B-189295 1977, U.S. Comp.Gen. LEXIS 2230 (Aug. 16, 1977) (same); In the Matter of Real Estate Expenses — Finance Charges, No. B-179659, 54 Comp. Gen. 827, 1975 U.S.Comp.Gen. LEXIS 180 (April 4, 1975) (same).

24. Abbey v. Columbus Dodge, 607 F.2d 85 (5th Cir. 1979) (purported $ 37.50 ”filing fee” that creditor pocketed was a finance charge); Therrien v. Resource Finan. Group. Inc., 704 F.Supp. 322, 327 (DNH 1989) (double-charging for recording and discharge fee and title insurance premium constituted undisclosed finance charges).

25. Decision of the Comptroller General, B-174030, 1971 U.S. Comp. Gen. LEXIS 1963 (Nov. 11, 1971).

26. 16 F.3d 1142 (11th Cir. 1994).

27. Id. at 1149.

28. 60 FR 16771, April 3, 1995.

29. See Jean M. Shioji, Truth in Lending Act Reform Amendments of 1995, Rev. of Bank. and Finan. Serv., Dec. 13, 1995, Vol. 11, No. 21; at 235. 30. P.L. 104-29, sections 2(a), (c), (d), and (e), to be codified at 15 U.S.C. 1605(a), (c), (d) and (e).

31. P.L. 104-29, section 2(b), to be codified at 15 U.S.C. 1605(a)(6). 32. The amendment broadened the language in 15 U.S.C. 1605(e)(2), which previously excluded ”fees for preparation of a deed, settlement statement, or other documents.”

33. P.L. 104-29, sections 2(a), (c), (d), and (e), to be codified at 15 U.S.C. 1605(a), (c), (d) and (e).

34. P.L. 104-29, section 3(a), to be codified at 15 U.S.C. 1605(f)(2); P.L. 104-29, section 4(a), to be codified at 15 U.S.C. 1649(a)(3); P.L. 104-29, section 8, to be codified at 15 U.S.C. 1635(i)(2); 15 U.S.C. 1606(c). 35. P.L. 104-29, section 7(b), to be codified at 15 U.S.C. 1641(f). The apparent purpose of this provision was to alter the result in Myers v. Citicorp Mortgage, 1995 U.S.Dist. LEXIS 3356 (MD Ala., March 14, 1995). 36. The amendments were applied to existing transactions in Hickey v. Great W. Mtge. Corp., 158 F.R.D. 603 (ND Ill. 1994), later opinion, 1995 U.S. Dist. LEXIS 405 (ND Ill., Jan. 3, 1995), later opinion, 1995 U.S. Dist. LEXIS 3357 (ND Ill., Mar. 15, 1995), later opinion, 1995 U.S. Dist. LEXIS 4495 (ND Ill., Apr. 4, 1995), later opinion, 1995 U.S. Dist. LEXIS 6989 (ND Ill., May 1, 1995); and Cowen v. Bank United, 1995 U.S.Dist. LEXIS 4495, 1995 WL 38978 (ND Ill., Jan. 25, 1995), aff’d, 70 F.3d 937 (7th Cir. 1995).

37. Jonathan S. Hornblass, Fleet Unit Discontinues Overages on Loans to the Credit-Impaired, American Banker, June 9, 1995, p. 8. See also, Kenneth R. Harney, Loan Firm to Refund $ 2 Million in ‘Overage’ Fees, Los Angeles Times, Nov. 6, 1994, part K, p. 4, col. 1 (”Yield spread premiums” or ”overages” are paid ”to brokers when borrowers lock in or sign contracts at rates or terms that exceed what the lender would otherwise be willing to deliver”); Ruth Hepner, Risk-based loan rates may rate a look, Washington Times, Nov. 4, 1994, p. F1 (such fees are paid to mortgage brokers ”to bring in borrowers at higher-than-market rates and fees”); Jonathan S. Hornblass, Focus on Overages Putting Home Lenders in Legal Hot Seat, American Banker, May 24, 1995, p. 10 (giving examples of how the fees affect the borrower).

38. The extra fees — known in the trade as overages or yield-spread premiums — typically are paid to local mortgage brokers by large lenders who purchase their home loans. The concept is straightforward: If a mortgage company can deliver a loan at higher than the going rate, or with higher fees, the loan is worth more to the large lender who buys it. For every rate notch above ”par” — the lender’s standard rate — the lender will pay a local originator a bonus. Kenneth R. Harney, Suit Targets Extra Fees Paid When Mortgage Rate Inflated, Sacramento Bee, Aug. 13, 1995, p. J1.

39. Prior to 1993, according to industry experts, back-end compensation of this type rarely was disclosed to consumers. More recently, however, some brokers and lenders have sharply limited the size of the fees and disclosed them. They often appear as one or more line items on the standard HUD-1 settlement sheets used for closings nationwide. Id.

40. Jonathan S. Hornblass, Focus on Overages Putting Home Lenders In Legal Hot Seat, American Banker, May 24, 1995, p. 10; K. Harney, U. S. Probes Higher Fees for Women, Minorities, Los Angeles Times, Sept. 24, 1995, p. K4. 41. In re Estate of Morys, 17 Ill.App.3d 6, 9, 307 N.E.2d 669 (1st Dist. 1973).

42. Wyatt v Union Mtge. Co., 24 Cal.3d 773, 782, 157 Cal.Rptr. 392, 397, 598 P.2d 45 (1979); accord: Pierce v. Hom, 178 Cal. Rptr. 553, 558 (Ct. App. 1981) (mortgage broker has duty to use his expertise in real estate financing for the benefit of the borrower); Allabastro v. Cummins, 90 Ill.App.3d 394, 413 N.E.2d 86, 82 (1st Dist. 1980); Armstrong v. Republic Rlty. Mgt. Corp., 631 F.2d 1344 (8th Cir. 1980); In re Dukes, 24 B.R. 404, 411-12 (Bankr. ED Mich. 1982) (”the fiduciary, Salem Mortgage Company, failed to provide the borrower-principal with any sort of estimate as to the ultimate charges until a matter of minutes before the borrower was to enter into the loan agreement”); Community Fed. Savings v. Reynolds, 1989 U.S. Dist. LEXIS 10115 (N.D.Ill., Aug. 18, 1989); Langer v. Haber Mortgages, Ltd., New York Law Journal, August 2, 1995, p. 21 (N.Y. Sup.Ct.). See also, Tomaszewski v. McKeon Ford, Inc., 240 N.J.Super. 404, 573 A.2d 101 (1990) Browder v, Hanley Dawson Cadillac Co., 62 Ill.App.3d 623, 379 N.E.2d 1206 (1st Dist. 1978) Fox v. Industrial Cas. Co., 98 Ill.App.3d 543, 424 N.E.2d 839 (1st Dist. 1981); Hlavaty v. Kribs Ford Inc., 622 S.W.2d 28 (Mo.App. 1981), and Spears v. Colonial Bank, 514 So.2d 814 (Ala. 1987) (Jones, J., concurring), dealing with the duty of a seller of goods or services who undertakes to procure insurance for the purchaser. See generally 12 Am Jur 2d, Brokers, Section 84.

43. Wyatt v. Union Mtge. Co., 24 Cal.3d 773, 782, 157 Cal.Rptr. 392, 397, 598 P.2d 45 (1979).

44. Brink v. Da Lesio, 496 F.Supp. 1350 (D.Md. 1980), modified, 667 F.2d 420 (4th Cir. 1981)

45. Wyatt v Union Mtge. Co., 24 Cal.3d 773, 782, 157 Cal.Rptr. 392, 397, 598 P.2d 45 (1979).

46. Martin v. Heinold Commodities, Inc. 139 Ill.App.3d 1049, 487 N.E.2d 1098. 1102-03 (1st Dist. 1985), aff’d in part and rev’d in part, 117 Ill.2d 67, 510 N.E.2d 840 (1987), appeal after remand, 240 Ill.App.3d 536, 608 N.E.2d 449 (1st Dist. 1992), aff’d in part and rev’d in part, 163 Ill.2d 33, 643 N.E.2d 734 (1994).

47. An agreement between a seller and an agent for a purchaser whereby an increase in the purchase price was to go to the agent unbeknownst to the purchaser, constitutes fraud. Kuntz v. Tonnele, 80 N.J.Eq. 372, 84 A. 624, 626 (Ch. 1912). The buyer may sue both his agent and the seller. Id. 48. Starr v. International Realty, Ltd., 271 Or. 296, 533 P.2d 165, 167-8 (1975).

49. Bunker Ramo Corp. v. United Business Forms, Inc., 713 F.2d 1272 (7th Cir. 1983); Hellenic Lines, Ltd. v. O’Hearn, 523 F.Supp. 244 (SDNY 1981); CNBC, Inc. v. Alvarado, 1994 U.S.Dist. LEXIS 11505 (SDNY 1994). Shushan v. United States, 117 F.2d 110, 115 (5th Cir. 1941), United States v. George, 477 F.2d 508, 513 (7th Cir. 1973); Formax, Inc. v. Hostert, 841 F.2d 388, 390-91 (Fed. Cir. 1988); United States v. Shamy, 656 F.2d 951, 957 (4th Cir. 1981); United States v. Bruno, 809 F.2d 1097, 1104 (5th Cir. 1987); United States v. Isaacs, 493 F.2d 1124, 1150 (7th Cir. 1974); United States v. Mandel, 591 F.2d 1347, 1362 (4th Cir. 1979); United States v. Keane, 522 F.2d 534, 546 (7th Cir. 1975); United States v. Barrett, 505 F.2d 1091, 1104 (7th Cir. 1974); GLM Corp. v. Klein, 684 F.Supp. 1242, 1245 (SDNY 1988); United States v. Procter & Gamble Co., 47 F.Supp. 676, 678-79 (D.Mass. 1942); United States v. Aloi, 449 F.Supp. 698, 718 (EDNY 1977); United States v. Fineman, 434 F.Supp. 189, 195 (EDPa. 1977). 50. U.S.C. Section 2607.

51. United States v. Graham Mtge. Corp., 740 F.2d 414 (6th Cir. 1984). 52. Durr v. Intercounty Title Co., 826 F.Supp. 259, 262 (ND Ill. 1993), aff’d, 14 F.3d 1183 (7th Cir. 1994); Campbell v. Machias Savings Bank, 865 F.Supp. 26, 31 n. 5 (D.Me. 1994); Mercado v. Calumet Fed. S. & L. Ass’n, 763 F.2d 269, 270 (7th Cir. 1985); Family Fed. S. & L. Ass’n v. Davis, 172 B.R. 437, 466 (Bankr. DDC 1994); Adamson v. Alliance Mtge. Co., 677 F.Supp. 871 (ED Va. 1987), aff’d, 861 F.2d 63 (4th Cir. 1988); Duggan v. Independent Mtge. Corp., 670 F.Supp. 652, 653 (ED Va. 1987).

53. The Alabama Supreme Court described the ”table funding” relationship as

follows: Under this arrangement, the mortgage broker or correspondent lender performs all of the originating functions and closes the loan in the name of the mortgage broker with funds supplied by the mortgage lender. The mortgage broker depends upon ”table funding,” the simultaneous advance of the loan funds from the mortgage lender to the mortgage broker. Once the loan is closed, the mortgage broker immediately assigns the mortgage to the mortgage lender. The essence of the table funding relationship is that the mortgage broker identifies itself as the creditor on the loan documents even though the mortgage broker is

not the source of the funds. (Emphasis added). Smith v. First Family Financial Services Inc., 626 So.2d 1266, 1269 (Ala. 1993). 54. 57 FR 49607, Nov. 2, 1992; 57 FR 56857, Dec. 1, 1992; 59 FR 6515, Feb. 10, 1994.

55. N. 51 supra. In conjunction with amending regulation X, the Department of Housing and Urban Development made the following statement regarding the Sixth

Circuit’s interpretation of RESPA and regulation X: HUD has consistently taken the position that the prohibitions of Section 8 of RESPA (12 U.S.C. 2607) extended to loan referrals. Although the making of a loan is not delineated as a ‘’settlement service” in Section 3(3) of RESPA (12 U.S.C. 2602(3)), it has always been HUD’s position, based on the statutory language and the legislative history, that the section 3(3) list was not an inclusive list of all settlement services and that the origination, processing and funding of a mortgage loan was

a settlement service. In U.S. v. Graham Mortgage Corp., 740 F.2d 414 (6th Cir. 1984), the Sixth Circuit Court of Appeals stated that HUD’s interpretation that the making of a mortgage loan was a part of the settlement business was unclear for purposes of criminal prosecution, and based and the rule of lenity, overturned a previous conviction. In response to the Graham case, HUD decided to amend its regulations to state clear and specifically that the making and

processing of a mortgage loan was a settlement service. Accordingly, HUD restates its position unequivocally that the originating, processing, or funding

of a mortgage loan is a settlement service in this rule. 57 F.R. 49600(Nov. 2, 1992).

56. Table Funding Rebuffed Again, National Mortgage News, Feb. 21, 1994, p. 6; HUD May Grant Home Equity Reprieve, Thomson’s International Bank Accountant, Dec. 13, 1993, p. 4; HUD Wants Expansion of Mortgage Broker Fee Disclosure, National Mortgage News, p. 25 (Sept. 14, 1992).

57. Table Funding, Fee Rulings Near, Banking Attorney, Dec. 13, 1993, vol. 3, no. 47, p. 5; Table Funding to Be Disclosed, International Bank Accountant, Dec. 13, 1993, vol. 93, no. 47, p. 4.

58. The current version of regulation X, 24 C.F.R. Section 3500.14, provides,

in part, as follows: Prohibition against kickbacks and unearned fees. (a)Section 8 violation. Any violation of this section is a violation of section 8 of RESPA (12 U.S.C. Section 2607) and is subject to enforcement as such under

Section 3500.19(b). . . (b) No referral fees. No person shall give and no person shall accept any fee, kickback, or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a settlement service involving a federal-related mortgage loan shall be

referred to any person. (c) No split of charges except for actual services performed. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally-related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable. Nor may the prohibitions of this Part be avoided by creating an arrangement wherein the purchaser of services splits the fee. (Emphasis added)

59. Robert P. Chamness, Compliance Alert: What Changed the Face of the Mortgage Lending Industry Overnight?, ABA Bank Compliance, Spring 1993, p. 23. Accord, Heather Timmons, U.S. Said to Plan Crackdown on Referral Fees, American Banker, Dec. 20, 1995, p. 10. (”Section 8 [of RESPA] has prompted close scrutiny of back-end points, mortgage fees paid to a broker by the lender after closing. Federal attorneys are concerned that some lenders are improperly hiding referral fees in the rates charged to consumers . . . .”); HEL Lenders May Be Sued on Broker Referrals, National Mortgage News, April 3, 1995, p. 11 supra, (”there no longer is any possible justification for paying back-end points . . . [because] the very essence is that the compensation is paid for referral”).

60. Mary Sit, Mortgage Brokers Can Help Borrowers. Boston Globe, Oct. 3, 1993, p. A13; Jeremiah S. Buckley and Joseph M. Kolar, What RESPA has Wrought: Real Estate Settlement Procedures, Savings & Community Banker, Feb. 1993, vol. 2, no. 2, p. 32.

61. 61 F.R. 7414 (February 28, 1996). See also Kenneth Harney, Nation’s Housing: VA Eyes Home-Loan Abuses, Newsday p. D02 (Mar. 15, 1996). See also See Leonard A. Bernstein, RESPA Invades Secondary Mortgage Financing, New Jersey Lawyer, Aug. 1, 1994. HUD Stepping Up RESPA Inspections, American Banker Washington Watch, May 3, 1993.

62. HEL Lenders May Be Sued on Broker Referrals, National Mortgage News, April 3, 1995, p. 11.

63. 95-D-859-N (MD Ala., Mar. 8, 1996),

64. Fowler v. Equitable Trust Co., 141 U.S. 384 (1891); In re West Counties Construction Co., 182 F.2d 729, 731 (7th Cir. 1950) (”Calling the $ 1,000 payment to Walker a commission did not change the fact that it was an additional charge for making the loan”); Union Nat’l Bank v. Louisville, N. A & C. R. Co., 145 Ill. 208, 223, 34 N.E. 135 (1893) (”There can be no doubt that this payment, though attempted to be disguised under the name of ‘commission, was in legal effect an agreement to pay a sum additional to the [lawful rate of interest], as the consideration or compensation for the use of the money borrowed, and is to be regarded as, to all intents and purposes, an agreement for the payment of additional interest”); North Am. Investors v. Cape San Blas Joint Venture, 378 So.2d 287 (Fla. 1978); Feemster v. Schurkman, 291 So.2d 622 (Fla.App. 1974); Howes v. Curtis, 104 Idaho 563, 661 P.2d 729 (1983); Duckworth v. Bernstein, 55 Md.App. 710, 466 A.2d 517 (1983); Coner v Morris S. Berman, Unltd., 65 Md.App. 514, 501 A.2d 458 (1985) (violation of state secondary mortgage and finders’ fees laws); Julian v Burrus, 600 S.W.2d 133 (Mo.App. 1980); DeLee v. Hicks, 96 Nev. 462, 611 P.2d 211(1980); United Mtge. Co. v. Hilldreth, 93 Nev. 79, 559 P.2d 1186 (1977); O’Connor v Lamb, 593 S.W.2d 385 (Tex.Civ.App. 1979) (purported broker was the actual lender); Terry v. Teachworth, 431 S.W.2d 918 (Tex.Civ.App. 1968); Durias v. Boswell, 58 Wash.App. 100, 791 P.2d 282 (1990) (broker’s fee is interest where broker is agent of lender; factors relevant to determining agency include lender’s reliance on broker for information concerning creditworthiness of borrower, preparation of documents necessary to close and adequately secure the loan, and performing recordkeeping functions; not relevant whether lender knew of broker’s fee, as Washington law provides that where broker acts as agent for both borrower and lender, it is deemed lender’s agent for purposes of usury statute); Sparkman & McLean Income Fund v. Wald, 10 Wash.App. 765, 520 P.2d 173 (1974); Payne v Newcomb, 100 Ill. 611, 616-17 (1881) (where intermediary was agent of lender, fees exacted by the intermediary on borrowers made loans usurious); Meers v. Stevens, 106 Ill. 549, 552 (1883) (borrower approaches A for loan, A directs borrower to B, a relative, who makes the loan in the name of A and charges a ”commission” for procuring it; court held transaction was an ”arrangement to charge usury, and cover it up under the claim of commissions); Farrell v. Lincoln Nat’l Bank, 24 Ill.App.3d 142, 146, 320 N.E.2d 208 (1st Dist. 1974) (”if a fee is paid to a lender’s agent for making the loan, with the lender’s knowledge, the amount of the fee is treated as interest for the purposes of determining usury”).

65. 12 C.F.R. Section 226.4(b)(1), (3).

66. FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244-45 (1972); Cheshire Mtge. Service, Inc. v. Montes, 223 Conn. 80, 107, 612 A.2d 1130 (1992) (court found a TILA violation to violate the Connecticut Unfair Trade Practices Act because the violation of TILA was contrary to its public policy of accurate loan disclosure).

67. 42 U.S.C. Section 3601 et seq.

68. 15 U.S.C. Section 1691 et seq.

69. Consent decree, United States v. Security State Bank of Pecos, WD Tex., filed Oct. 18, 1995; consent decree, United States v. Huntington Mortgage Co., ND Ohio, filed Oct. 18, 1995.

70. Bank Said to Face Justice Enforcement Action, Mortgage Marketplace, Mar. 25, 1996, v. 6, no. 12, p. 5.

71. M. Hill, Banks Revise Overage Lending Policies, Cleveland Plain Dealer, July 14, 1994, p. 1C; Jonathan S. Hornblass, Focus on Overages Putting Home Lenders in Legal Hot Seat, American Banker, May 24, 1995, p. 10; John Schmeltzer, Lending investigation expands; U.S. wants to know if minorities are paying higher fees, Chicago Tribune, May 19, 1995, Business section, p. 1. 72. 501 F.2d 324, 330-31 (7th Cir. 1974).

73. See also DuFlambeau v. Stop Treaty Abuse-Wisconsin, Inc., 41 F.3d 1190, 1194 (7th Cir. 1994). See Mescall v. Burrus, 603 F.2d 1266 (7th Cir. 1979); Ortega v. Merit Insurance Co., 433 F.Supp. 135 (ND Ill. 1977) (plaintiff’s allegations that a de facto system of discriminatory credit insurance pricing exists, and that defendant is exploiting this system is sufficient to withstand the defendant’s motion to dismiss); Stackhouse v. DeSitter, 566 F.Supp. 856, 859 (N.D.Ill. 1983) (”Charging a black buyer an unreasonably high price for a home where a dual housing market exists due to racial segregation also violates this section . . .”).

74. John D’Antona Jr., Lenders requiring more mortgage insurance, Pittsburgh Post-Gazette, Feb. 18, 1996, p. J1.

75. Duff & Phelps Credit Rating Co. report on the private mortgage insurance industry, Dec. 7, 1995. The figure is for 1994.

76. No Bump in December MI Numbers, National Mortgage News, Feb. 5, 1996, p. 2. The figure is as of the end of 1995.

77. Charting the Two Paths to Profitability, American Banker, September 13, 1994, p. 11; Tallying Up Servicing Performance in 1993, Mortgage Banking, June 1994, p. 12.

78. 15 U.S.C. Section 1692 et seq.

79. 1996 U.S.Dist.LEXIS 3430 (MD Fla., Feb. 23, 1996). 80. One who regularly acquires and attempts to enforce consumer obligations that are delinquent at the time of acquisition qualifies as an FDCPA ”debt collector” with respect to such obligations. Kimber v. Federal Fin. Corp., 668 F.Supp. 1480, 1485 (M.D.Ala. 1987); Cirkot v. Diversified Systems, 839 F.Supp. 941 (D.Conn. 1993); Coppola v. Connecticut Student Loan Foundation, 1989 U.S.Dist. LEXIS 3415 (D.Conn. 1989); Commercial Service of Perry v. Fitzgerald, 856 P.2d 58 (Colo.App. 1993).

81. The FDCPA defines as a ”deceptive” practice — (2) The false representation of — (A) the character, amount, or legal status of any debt; or 15 U.S.C. Section 1692e. The FDCPA also prohibits as an ”unfair” practice the collection or attempted collection of ”any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. Section 1692f(1).

82. Bloom v. Martin, 865 F.Supp. 1377 (ND Cal. 1994), aff’d, 77 F.31 318 (9th Cir., 1996). See also, Siegel v. American S. & L. Ass’n, 210 Cal.App.3d 953, 258 Cal.Rptr. 746 (1989); and Goodman v. Advance Mtge. Corp., 34 Ill.App.3d 307, 339 N.E.2d 257 (1st Dist. 1981) (state statute construed to permit charge for recording release, at least where mortgage is silent).

83. John Lee, John Mancuso and James Walter, Survey: Housing Finance: Major Developments in 1990,” 46 Business Lawyer 1149 (May 1991).84. Nelson and Whitman, Real Estate Finance Law, Section 11.4 at 816.

85. Thrifts Paying Big Bucks for ARM Errors, American Banker — Bond Buyer, May 23, 1994, p. 8; J. Shiver, Adjustable-Rate Mortgage Mistakes Add Up, Los Angeles Times, Sept. 22, 1991, p. D3.

86. A Call To Arms on ARMs, Business Week, Sept. 6, 1993, p. 72. 87. Hubbard v. Fidelity Fed. Bank, 824 F.Supp. 909 (CD Cal. 1993). 88. The UCCC has been enacted in Colorado, Idaho, Iowa, Kansas, Maine, Oklahoma, Utah and Wyoming. It imposes the same disclosure obligations as TILA, but does not cap classwide statutory damages at the lesser of 1 percent of the net worth of the creditor or $ 500,000.

89. Michaels Building Co. v. Ameritrust Co., N.A., 848 F.2d 674 (6th Cir. 1988); Haroco, Inc. v. American Nat’l Bank & Trust Co., 747 F.2d 384 (7th Cir. 1984); Morosani v. First Nat’l Bank of Atlanta, 703 F.2d 1220 (11th Cir. 1983). 90. Systematic overcharging of consumers in and of itself constitutes an unfair practice violative of state UDAP statutes. Leff v. Olympic Federal, n. 7 supra (overescrowing); People ex rel. Hartigan v. Stianos, 131 Ill.App.3d 575, 475 N.E.2d 1024 (1985) (retailer’s practice of charging consumers sales tax in an amount greater than that authorized by law was UDAP violation); Orkin Exterminating Co., 108 F.T.C. 263 (1986), aff’d, 849 F.2d 1354 (11th Cir. 1988) (Orkin entered into form contracts with thousands of consumers to conduct annual pest inspections for a fixed fee and, without authority in the contracts, raised the fees an average of $ 40).

91. The usury claim is that charging interest at a rate in excess of that agreed upon by the parties is usury. See Howes v. Donart, 104 Idaho 563, 661 P.2d 729 (1983); Garrison v. First Fed. S. & L. Ass’n of South Carolina, 241 Va. 335, 402 S.E.2d 25 (1991). Each of these decisions arose in a state which had ”deregulated” interest rates with respect to some or all loans. There was no statutory limit on the rate of interest the parties could agree upon. However, in each case the court held that a lender that charged more interest than the parties had agreed to violated the usury laws.

92. Barbara Ballman, Citibank mortgage customers due refunds on rate ”maladjustments,” Capital District Business Review, Apr. 5, 1993, p. 2 ($ 3.27 million); Israel v. Citibank, N.A. and Citicorp Mortgage, Inc., No. 629470 (St. Louis County (Mo.) Circuit Court); Englard v. Citibank, N.A., Index No. 459/90 (N.Y.C.S.C. 1991).

93. Whitford v. First Nationwide Bank, 147 F.R.D. 135 (W.D.Ky. 1992). 94. ”A call to arms on ARMs,” Business Week, Sept. 6, 1993, p. 72. 95. Crowley v. Banking Center, 1994 Conn. Super. LEXIS 3026 (Nov. 29, 1994). 96. LeBourgeois v. Firstrust Savings Bank, 27 Phila. 42, 1994 Phila. Cty. Rptr. 15 (CP 1994).

97. Jacob C. Gaffey, Managing the risk of ARM errors, Mortgage Banking, Apr. 1995, p. 73.

98. Preston v. First Bank of Marietta, 16 Ohio App. 3d 4, 473 N.E.2d 1210, 1215 (1983).

99. Baxter v. First Bank of Marietta, 1992 Ohio App. LEXIS 5956 (Nov. 6, 1992).

100. Froland v. Northeast Savings, reported in Lender Liability News, Feb.20, 1996, and American Banker, Jan. 4, 1996, p. 11.

Charged minorities thousands of dollars more Hispanic’s borrower charges 55% more

GreenPoint Brokers Targeted by New York
HCI Mortgage, Consumer One Mortgage settle with attorney general
January 5, 2009

Two New York mortgage brokers have settled charges that they charged minorities thousands of dollars more in fees, while a third broker faces a lawsuit by the state and more brokers face investigations. The actions were prompted by an investigation into defunct wholesaler GreenPoint Mortgage Funding Inc.
HCI Mortgage and Consumer One Mortgage have entered an agreement with New York’s attorney general, a press release today said. Between the two companies, there are more than 20 branches throughout the state.
The two brokers will pay $665,000 in restitution to around 455 black and Hispanic borrowers, according to the announcement. The also agreed to establish a standard fee schedule, monitor pricing to minorities and report lending details to the state.
Both brokers are accused of charging minorities higher fees than similarly-situated White borrowers.
The attorney general conducted an investigation with the New York State Department of Banking into discriminatory practices by mortgage brokers. The investigation was triggered by the state’s investigation into GreenPoint Mortgage Funding Inc. after it found that Home Mortgage Disclosure Act data indicated discrimination had occurred on GreenPoint mortgages. GreenPoint, which was shut down by parent Capital One in August 2007, settled the charges in July for $1 million.
Statistical analyses conducted on loans originated by HCI found that black borrowers were charged around 46 percent more than similarly situated whites, which worked out to around $2,260. Hispanic borrowers saw fees that were an average of 55 percent higher, which worked out to $2,280.
“These customers were charged significantly higher fees for no reason other than being a minority — something that is explicitly against the law in New York State,” Attorney General Andrew Cuomo said in the statement.
In addition, the attorney general has filed a lawsuit in federal district court against U.S. Capital Funding LLC. A state investigation also found discriminatory practices at U.S. Capital, but the company refused to provide restitution to more than 100 minority borrowers — prompting the lawsuit by the attorney general.
U.S. Capital reportedly brokered 300 loans between January 2006 and July 2007, including around 100 mortgages for black and Hispanic borrowers. Minorities were allegedly charged 58 percent more than whites, costing them an average of $3,500 each.
“HCI Mortgage, Consumer One, and U.S. Capital Funding all did substantial business with GreenPoint,” the statement said. “The office is continuing its investigation into potential discriminatory pricing by other mortgage brokers.

National City Settles Class Action

National City Settles Class Action
Double late charges, partial payment rejection at issue
December 30, 2008

National City Mortgage Inc. has settled a West Virginia class-action lawsuit. The lender is accused of illegally returning partial payments and charging multiple late fees on rolling 30-day delinquencies.
The lawsuit was originally filed in July 2007 by James A. Muhammad in U.S. District Court for the Southern District of West Virginia. Included in the class are West Virginia borrowers whose loans were serviced by National City between July 2002 and July 2007.
Muhammad originally purchased his Charleston, Va., residence in December 2003, according to the complaint. The property was financed by National City — which also services the loan.
The plaintiff claims that he was late on one payment at some point prior to February 2005. But even though he was only late on a single payment, he alleges that National City continued to charge late fees. The borrower, however, remained one month delinquent for multiple months.
Then, in October 2005, Muhammad was short $28.48 on his monthly payment. Although the deficiency was added to the next payment, National City returned the original short payment — leading to more ongoing late charges.
Muhammad alleges the actions by the Miamisburg, Ohio-based lender violated its good faith obligations and the West Virginia Consumer Credit and Protection Act.
“The defendant has failed to credit payment against amounts due, rejected payments, assessed improper late fees and unnecessarily placed accounts in default,” the complaint states.
Borrowers on 747 West Virginia loans were charged multiple late fees on 2,763 occasions, according to court records. In addition, borrowers on 85 loans had their partial payments rejected on 96 occasions.
Without admitting any wrongdoing, National City agreed to a $700,000 settlement — which was approved by U.S. District Judge John T. Copenhaver Jr. on Dec. 19.
The settlement works out to $244.84 per occurrence of partial payment rejections and double late charges.

JAMES A. MUHAMMAD, individually and on behalf of all others similarly situated, Plaintiff, v. National City Mortgage Co., Defendant.
Civil Action No. 2:07-CV-0423, July 6, 2007 (U.S. District Court for the Southern District of West Virginia)

Lawyers Call Modification Efforts a Failure

Lawyers Call Modification Efforts a Failure
NACBA, Valparaiso University release report
December 19, 2008

An attorney trade group has released a report that calls the voluntary effort by U.S. mortgage servicers to modify loans a failure. The structure of loan securitizations, threat of litigation and lack of cooperation from junior lienholders are creating roadblocks. The group is calling for cramdown legislation and court-supervised modifications.
Voluntary modification programs have so far failed, according to newly updated research released Thursday by the National Association of Consumer Bankruptcy Attorneys. The data was presented by Professor Alan White from the Valparaiso University School of Law and based on an analysis of more than 3.5 million securitized subprime and Alt-A loans — of which around 300,000 were in foreclosure.
White said many modifications offer only temporary relief. Data reported by the industry include modifications that defer payment shock negative amortization.
The structure of mortgage securitizations creates multiple owners that make voluntary modification impossible, the report said.
In addition, the threat of investor lawsuits hinder a servicer’s motivation to modify. Conflicting interests of investors from different tranches create concerns over disparity in losses. The statement indicated one servicer has already been sued by investors (MortgageDaily.com reported earlier this month that Countrywide Financial Corp. was sued by mortgage-backed securities investors over proposed modifications to as much as $80 billion in securitized mortgages).
The statement said owners of piggyback second mortgages — which were made on one-third to one-half of subprime mortgages originated in 2006 — have no incentive to waive their rights, while first-mortgage holders are reluctant to make modifications that would free up income to make the second-mortgage payment. But the trade group had no recommendation.
One other roadblock to successful modifications is inadequate servicer staffing. The traditional collector mentality of pursuing foreclosure upon severe delinquency conflicts with a needed approach that addresses each situation on a case-by-case basis. Collectors are often paid incentives based on foreclosures.
“Despite a proliferation of voluntary programs, we are not seeing evidence of a meaningful number of sustainable loan modifications,” NACBA President Henry Sommer said in the statement.
The report found that principal reductions occurred in less than 10 percent of loan modifications. In fact, balances on more than half of loan modifications increase because of capitalization of unpaid interest and fees. The professor’s analysis found average mortgage loan amount of $210,000 was increased by an average of $10,800 in capitalized costs.
But during November, 10 percent of modified loans saw some principal canceled, jumping from less than 2 percent for the 12 months ended June 30. Litton Loan Servicing and Ocwen Loan Servicing accounted for most of these modifications. The two servicers also accounted for most of the 8 percent of modifications that saw some write-off of interest.
“The variations among servicers in the number and quality of modifications are enormous,” White wrote. “This variation suggests that not every servicer is doing the maximum possible to reach and work out terms with every defaulted borrower.”
Payment amounts were reduced on just 35 percent of voluntary modifications, while 45 percent of modifications resulted in higher payments.
The Hope for Homeowners Act, which was projected to help prevent 400,000 foreclosures, has only generated 312 applications and no loan modifications, the report said. In addition, the HOPE NOW alliance has produced few results, with principal reductions or payment decreases made on few loans.
Even the FDIC’s IndyMac streamlined modification program — which has reportedly resulted in 7,200 modifications — was criticized for not reducing principal “debt in any meaningful way.” And FDIC Chairman Sheila Bair’s recently announced program that guarantees half of loan losses if the payment is modified by at least 10 percent would likely see little interest because of similar problems inherent in other unsuccessful programs.
The association cited a projection from Credit Suisse of more than 8 million U.S. foreclosures during the next four years — a 16 percent foreclosure rate. Credit Suisse reportedly projects the subprime foreclosure rate to reach 59 percent.
White said the country’s $10.5 trillion in residential mortgage debt has soared 250 percent from 10 years ago. He recommended wiping out excess mortgage debt and de-leveraging borrowers.
The attorney trade group is calling for court-supervised modifications.
In addition, the press release quoted National Consumer Law Center staff attorney Alys Cohen as supporting the empowerment of bankruptcy courts to modify loans.
“Congress should lift the ban on judicial modification of primary residence mortgages, as part of the solution to stemming the tide of avoidable foreclosures and stabilizing the housing market and the broader economy,” Cohen said in the statement.

Subprime Lawsuits Increase

Subprime Lawsuits Increase

Lawsuits tied to the subprime meltdown continued to increase. The heightened activity reflected a surge in investors lawsuits and contract disputes.
During the third quarter, 131 new subprime-related lawsuits were filed in federal court, Navigant Consulting reported today. Activity increased from 121 new case filings reported in the second quarter.
Third-quarter 2008 volume was the third-highest on record.
Activity during the latest period was driven by a sharp increase in the number of securities lawsuits and contract disputes.
From January through September, 448 subprime-related lawsuits were filed, Navigant said. Year-to-date filings were more than 50 percent higher than the 294 subprime lawsuits filed during all of last year.
During the 21 months ended Sept. 30, Navigant said 742 subprime-related cases have been filed — already exceeding the 559 U.S. savings-and-loan cases filed in the early 1990s.
“The bottom line is that new cases continue to be filed much more rapidly than existing cases are being disposed,” Navigant executive Jeff Nielsen said in the announcement. “We are looking at a traffic jam that will take many years to untangle.”
But Navigant noted that a decrease in borrower class-action filings suggest the current wave of litigation may be maturing.

Motion to consolidate Superior Court case with Unlawful Detainer case(STAY IN HOUSE MOTION)




countrywide deal on 3.5 billion

In a nutshell, this settlement will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan. The loans covered by the settlement are among the riskiest and highest defaulting loans at the center of America’s foreclosure crisis. Assuming every eligible borrower and investor participates, this loan modification program will provide up to $3.5 billion to California borrowers as follows:

• Suspension of foreclosures for eligible borrowers with subprime and pay-option adjustable rate loans pending determination of borrower ability to afford loan modifications;

• Loan modifications valued at up to $3.4 billion worth of reduced interest payments and, for certain borrowers, reduction of their principal balances;

• Waiver of late fees of up to $33.6 million;

• Waiver of prepayment penalties of up to $25.6 million for borrowers who receive modifications, pay off, or refinance their loans;

• $27.9 million in payments to borrowers who are 120 or more days delinquent or whose homes have already been foreclosed; and

• Approximately $25.2 million in additional payments to borrowers who, in the future, cannot afford monthly payments under the loan modification program and lose their homes to foreclosure.

More specifically, the modification program covers subprime and pay-option adjustable-rate mortgage loans in which the borrower’s first payment was due between January 1, 2004 and December 31, 2007. The program will be available for loans in default that are secured by owner-occupied property and serviced by Countrywide Financial or one of its affiliates. In addition, the borrower’s loan balance must be 75% or more of the current value of the home, and the borrower must be able to afford adjusted monthly payments under the terms of the modification.

The terms of the modification will vary based on the type of loan, including:

• “Pay-option ARM loans,” in which loan balances increase each month if a borrower makes only a minimum payment. Borrowers may be eligible to have their principal reduced to 95% of their home’s current value and may also qualify for an interest-rate reduction or conversion to an interest-only payment.

• Subprime adjustable-rate loans, such as 2/28 loans. Borrowers may have their interest rate reduced to the initial rate. If the borrower still cannot afford it, the borrower may be eligible for further interest-rate reductions to as low as 3.5%.

• Subprime fixed loans. Borrowers may be eligible for interest-rate reductions.

• “Hope for Homeowners Program.” If they qualify, some borrowers may be placed in loans made through this federal program.

• Alt-A and prime loans. Borrowers who are in default, but have Alt-A and prime loans, may also be considered for modifications, depending on circumstances.

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