Archive | February, 2011

Foreclosure and too big to Fail – Bank Of America vs Wikileaks

28 Feb

TBR News February 20, 2011
Feb 20 2011
The Voice of the White House
Washinigton, D.C., February 20, 2011: “The most hated person today in Washington is Julian Assange, head of the WikiLeaks

An overall view of the Bank of America material now held by WikiLeaks reveals that starting in 2008, the Bank of America acquired Countrywide Mortgage, a very aggressive mortgage company that specialized in creating fraudulent loans to individuals that were unable to make continuing payments on their mortgages. Countrywide then sold these fraudulent mortgages to larger banking houses like Bank of America, JP Morgan Chase, Goldman Sachs and others. The results of this takeover of Countrywide? The Bank of America now has over 1.3 mortgage holders in foreclosure.

Bank of America was subsequently sued by California, Illinois and eight other states over its predatory lending policies. The bank was forced to produce a settlement of over $8.4 billion in loan relief plans for those victims holding Countrywide mortgages.

In June of 2010, Bank of America had to pay out $108 million because of a suit by the Federal Trade Commission (FTC) for “having extracted excessive fees” from their borrowers facing foreclosure. In August of 2010, Bank of America was forced to pay out $600 million to settle shareholder lawsuits which claimed that Bank of America’s Countrywide Mortgage had “concealed the riskiness” of its lending standards. In June of 2010, the State of Illinois once more had to sue the Bank of America for “racial discrimination” in its lending practices. The WikiLeaks documentation shows thousands of in-house emails circulating among top Bank of American personnel showing with shocking clarity that the bank was not only fully cognizant of the illegality of their actions but were, in fact, continuing these actions because of the assurance of protection by “senior American legislators and officials.”

Additional material in the WikiLeaks fundus concerns the brokerage house of Merrill Lynch which Bank of America acquired for $50 billion in January of 2009. The aforesaid “senior American legislators and officials: quicklyi loaned the Bank of America $20 billion in loans to facilitate this purchase. Subsequently, it was revealed that Merrill Lynch had lost over $16 billion at the end of 2008 but had paid out over $4 billion in bonuses to all the top Merrill Lynch personnel. In sum, the Merrill Lynch people, secure in the knowledge of a connived Federal bailout, took the funds for personal gain. The WikiLeaks documents clearly show all of this in detail, complete with boasting emails on the part of the recipients of the monies.

As another aspect of this enormous financial scandal furthered purely for gain, corporate and personal, the Bank of America has been the instigator of the so-called “robo-signing” scandal As a single example of this illegal conduct, in February of 2010, a Bank of American employee testified on deposition that they had personally signed over 8,000 official foreclosure documents without ever reading any of them. This is a clearcut violation of the law but there are so many such examples of this, not limited to the Bank of America alone, that there is not sufficient space to list them all. The WikiLeaks documents clearly show that these illegal actions were fully known to senior Bank of America officials and that extensive cover-ups were ordered from the very top levels of that bank.

WikiLeaks documentation shows clearly that the “senior American legislators and officials.” Who connived with the Bank of America include the leadership of the Federal Reserve, top Congressional leaders (mostly Republican) and even senior members of the White House staff, both in the Bush and Obama administrations.
With this pending dam collapse release to the public, it is no wonder that the government itself, the officials of the Bank of America and the U.S. Chamber of Commerce, the most powerful, arch-conservative business cabal would all join forces in an attempt to discredit or permanently silence Assange and his organization.

The front organization, HBGary Federal, a specialist in computer manipulations, was hired by the U.S. Chamber of Commerce and the Bank of America to attempt to plant false information with WikiLeaks, double-heading frantic government attempts to get Assange physically into their hands. When WiliLeaks struck back and, in turn, infiltrated the government and private sector’s attempts to infiltrate them, it was discovered that HBGary Federal was involved with Stuxtnet, a very sophisticated computer virus developed by Israeli and American experts and designed to infiltrate and destroy computer systems deemed “unacceptable” to Washington.

Bank of American officials have been warning Washington that if they crash, the damage to the American ecnomoy wouild be catastrophic because of their size and pervasiveness and this message has resonated very clearly in official circles, prompting frantic but clumsy attacks on Assange and his organization.”

Find Your Home’s Pooling And Servicing Agreement

28 Feb

Critical Information: How to Find Your Home’s Pooling And Servicing Agreement

February 28th, 2011 • Foreclosure

The pooling and servicing agreement (PSA) is a contract that should govern the terms under which trillions of dollars-worth of equity in the land of the United States of America was flung around the world. These contracts should govern how disputes over ownership and interest in the land that was the United States of America should be resolved. Pretty simple stuff, right? I mean if I’m a millionaire big shot New York Lawyer working for big shot billionaire Wall Street Investors and banks, then I’d do my job as a lawyer to make sure the contract was right and that all the i’s were dotted and the t’s were crossed right?

But that’s not at all what’s happened. In our scraggly street level offices, far below the big fancy marble encased towers of American law and finance, simple dirt lawyers defending homeowners started actually reading these contracts. We ask lots of questions about just what all those fancy words in their big shot contracts mean. Invariably, the big shot lawyers and the foreclosure mills tell us, “Don’t you worry about all them words you scraggly, simple dirt lawyer. Those words aren’t important to you.”

But increasingly judges recognize that the words really do mean something. Take note of the following statements from the recent Ibanez Ruling:

I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets.

The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the under-lying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments.

The Ibanez decision underscores the fact that it is important for all of us to know and understand how the pooling and servicing agreements directly impact what is occurring in the courtroom. And for assistance with understanding the PSA and how to find it, more commentary from Michael Olenick at Legalprise:

Overview of PSA’s

Securitized loans are built into securities, which happen to look and function virtually identically to bonds but are categorized and called securities because of some legal restrictions on bonds that nobody seems to know about.

The securities start with one or more investment banks, called the Underwriter (should be called the Undertaker), that seems to disappear right after cashing in lots of fees. They create a prospectus that has different parts of the security that they are proposing. Each of these parts is called a tranche. There are anywhere from a half-dozen to a couple dozen tranches. Each one is considered riskier.

Each tranche is actually a separate sub-security, that can and is traded differently, but governed by the same PSA, listed in the Prospectus. Similar tranches from multiple loans were often bundled together into something called a Collateralized Debt Obligation, or CDO. So besides the MBS there might also be one or more CDO’s made up of, say, one middle tranche of each MBS. Each tranche is considered riskier, usually based a combination of the credit-scores of the people in the tranche and the type of loans (ex: full/partial/no doc, traditional/interest-only/neg am, first or secondary lien, etc…).

CDO’s were eligible for a type of “insurance” in case their price went down called a Credit Default Swap, or CDS (also known as “synthetic CDO’s”). There was actually no need to own the CDO to buy the
insurance and many companies purchased the insurance, that paid out handsomely. [That’s what the AIG bailout was for, because they didn’t keep adequate reserves to pay out the insurance policies.]

Later, investors could also purchase securities made up of multiple CDO’s, much the same way that CDO’s were made up of tranches of multiple MBS’s. These were called “CDO’s squared.” Not surprisingly,
there were also a few “CDO’s cubed,” CDO’s of CDO’s squared. CDO’s were virtually all written offshore so little is known about who owns them, except that they were premised on the idea that since there was
collateralized mortgage debt at their base they could not collapse. Their purpose was to spread the various of risks of mortgages which, back then, meant prepayment of high interest debt and default.

Investors were actually way more obsessed with prepayment because they thought the whole country could not default; to make sure of that MBS’s and all their gobbly gook were spread around the country; you
can see where in the prospectus. They were almost more concerned with geographic dispersion than credit dispersion.

After that it’s the servicers/trustee/document custodian scheme we’re all familiar with. OK .. with that too-strange-to-make-up explanation means let’s dive into how to find one’s loan:

1. Find the security name: it will be a year (usually the year of origination), a dash, two letters, then a number. It will be somewhere in one of your filings. For this we’ll use a random First Franklin loan, 2005-FF1. [Note; they would just sequentially number them, so the first security First Franklin floated in 2005 would be FF1, then FF2, etc…]
2. Go to the SEC’s new search engine:
3. Click the first link, Company or fund name…
4. Choose the radio button marked “contains” and type in the ticker; that is 2005-FF1
5. There will be multiple filings but one of them will be marked 424B5. Click that, it’s the prospectus.

If you really want to have fun, and want to know what happened after 2008 when these all disappeared, type the ticker (again, 2005-FF1) into the full text link from the first search page. There you’ll see lots and lots of filings as pieces and parts of the security are blasted everywhere. To track yours you have to find which tranche you ended up in. Sometimes it’s in the filing but, if not, you can usually figure it out from the prospectus if you know basic origination info (credit-score, type of loan, where the house is, etc…); some even list loan amounts.

One warning on those secondary filings, servicers and trusts both break them out as assets. How one loan can be reported as an asset in two places is a mystery, but considering this doesn’t even cover the CDO’s and CDS’s dual reporting doesn’t seem to strange. You’ll see your loan keep wandering through the financial system, with one exception (next paragraph), right up to the present day. You can even see how much the investment banks thinks that its worth over time since they report out both original amount and fair market value.

The exception — when your loan really does disappear — is when it was eaten up by the Federal Reserve’s Toxic Loan Asset Facility, TALF. But you can look that up to and see how the government purchased your
loan for full-price, when investors on the open market were only willing to pay a few cents on the dollar. If your loan went to TALF you can find it in the spreadsheet here: Your loan will be in the top spreadsheet and the genuine lender in the bottom.

Now they have to admit it they violated the law and will be liable for Billions

26 Feb

BofA, Wells, Citi see foreclosure probe fines

By Joe Rauch and Clare Baldwin
CHARLOTTE, N.C./NEW YORK | Fri Feb 25, 2011 9:20pm EST
CHARLOTTE, N.C./NEW YORK (Reuters) – Bank of America, Citigroup and Wells Fargo — three of the biggest banks in the United States — said they could face fines from a regulatory probe into the industry’s foreclosure practices.
The statements, made in regulatory filings on Friday, are the most direct admission yet from major banks that they could have to pay significant amounts of money to settle probes and lawsuits alleging that they improperly foreclosed on homes.
Bank of America Corp (BAC.N), the largest U.S. bank by assets, said the probe could lead to “material fines” and “significant” legal expenses in 2011.
Wells Fargo & Co (WFC.N), the largest U.S. mortgage lender, said it is likely to face fines or sanctions, such as a foreclosure moratorium or suspension, imposed by federal or state regulators. It said some government agency enforcement action was likely and could include civil money penalties.
Citigroup Inc (C.N) said it could pay fines or set up principal reduction programs.
The biggest U.S. mortgage lenders are being investigated by 50 state attorneys general and U.S. regulators for foreclosing on homes without having proper paperwork in place or without having properly reviewed paperwork before signing it.
The bad documentation threatens to slow down the foreclosure process and invalidate some repossessions.
Sources familiar with discussions among federal authorities have said they could seek as much as $20 billion in total from lenders to settle the foreclosure probe, which began last fall.
Analysts said the acknowledgment of potential foreclosure liabilities highlights the continuing struggles of the largest U.S. banks after the world financial crisis.
“Are they trying? Sure, but this is not an easy fix and these kinds of problems are going to hang around the banks for years,” said Matt McCormick, a portfolio manager with Cincinnati-based Bahl & Gaynor Investment Counsel.
McCormick said he has sold nearly all of his U.S. bank holdings because of concerns over foreclosures and other losses.
Beyond direct fines due to regulators, banks may also end up paying government-controlled mortgage giants Freddie Mac and Fannie Mae for the foreclosure delays.
Bank of America said it recorded $230 million in compensatory fees in the fourth quarter that it expects to owe the government mortgage companies.
The bank said its projected costs for settlements for all legal matters it is facing, including mortgage issues, could be $145 million to $1.5 billion beyond what it has already reserved.
Wells Fargo said that in the worst-case scenario, as of the end of 2010, it could have to pay $1.2 billion more than it has set aside to cover legal matters.
Citigroup said it could face up to about $4 billion more in losses from all sorts of lawsuits, including but not limited to those relating to mortgages and foreclosures.
Wells Fargo said in October that it plans to amend 55,000 foreclosure filings nationwide, amid signs that documentation for some foreclosures was incomplete or incorrect. Other banks made similar moves.
Other banks echoed the concern over foreclosures in a wave of annual report filings with the Securities and Exchange Commission on Friday.
Atlanta-based SunTrust said it expects regulators may issue a consent order, which will require the largest mortgage lenders to fix problems with their foreclosure processes, and potentially levy fines.
Wells Fargo shares closed 3.1 percent higher at $32.40 on the New York Stock Exchange. Bank of America shares closed 1.6 percent higher at $14.20 and Citi shares closed 0.2 percent higher at $4.70, also on the New York Stock Exchange.
(Reporting by Joe Rauch, Clare Baldwin and Maria Aspan; Editing by Gary Hill)

Arizona’s Republican Dominated Senate Passing Chain of Title Bill, 28-2 Bankers Apoplectic

26 Feb

Frankly, I don’t know where to begin. There’s just so much to say. It’s like a cornucopia of… well, lots of stuff to say. Bankers everywhere must be walking in circles, muttering to themselves, perhaps breaking out in hives. And I have to imagine that banking industry lobbyists are in some kind of trouble with their masters today, with phones being slammed down after CEOs have screamed:

“Damn it, how could you have let this happen? We gave you an open checkbook filled with blank checks… and you couldn’t even scare off, or buy off, the Arizona Senate… the Republican controlled Senate? And you call yourselves lobbyists?”

You see, the Arizona State Senate has passed Senate Bill 1259, sponsored by Michele Reagan, which would require the lenders that didn’t originate a loan to produce the full chain of title, or risk the foreclosure sale being voided. The bill now goes to the House for a vote, but with the Senate having passed it by an overwhelming margin of 28-2, it would seem that its passage is a fait accompli.

According to the Arizona Senate’s FACT SHEET FOR S.B.1259, foreclosures; proof of ownership, the Bill’s purpose is as follows:

“Provides a chain of ownership during foreclosure proceedings and allows reimbursement of lawyer fees for injunctions or court cases that fail to prove ownership.”

Well, I’ll be a monkey’s uncle. A Republican dominated Senate, you say?

You don’t say. Are you sure?

Quite sure.

So, are these Republicans in any way related to the Republicans in Washington D.C. or is the word “Republican” pronounced differently in Arizona and there’s no relation between the two groups?

(That was originally intended to be a rhetorical question, but if anyone feels capable of actually answering it, please… by all means… write to me… because I’m so confused.)

And attorneys fees to be awarded to the victor as well? Well, I’ll say… so, very good then. That means that homeowners who believe there is cause for a challenge to the servicer’s chain of title assertions, will have a much easier time finding and funding their legal representation, I would think that would be the case, anyway, don’t quote me…. or, no… go ahead and quote me, why the heck not?

And, in a related story… Arizona’s foreclosure defense plaintiff’s attorneys have been spotted across the state dancing in the streets with some of the state’s distressed homeowners. Many observers of this admittedly unusual phenomenon claim that for the most part, the attorneys and homeowners were doing the Hokey Pokey, with several people reporting that after rolling down their windows as they drove by, they heard the dancers exclaim: “That’s what it’s all about!”

The Senate’s S.B. 1259 FACT SHEET also listed five key “Provisions” of the bill:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

3. Stipulates that failure to properly record the summary document that demonstrates evidence of title for the foreclosing beneficiary as of the date of the trustee’s sale will result in a voidable sale.

4. Allows any person with an interest in the trust property to file an action to void the trustee’s sale for failure to comply and is entitled to an award of attorney fees and damages, to include an award of attorney fees for any injunction or other provisional remedy related to the claim.

5. Becomes effective on the general effective date.

So, get this… I’m as curious as the bankers must be as to how in the world something like this happened. I mean, I’ve been accusing our country’s politicians of perpetual kowtowing to the banking lobby, and of having no first hand knowledge of what’s going on in real life, as far as the foreclosure crisis goes… and then the Arizona’s political types go and pass something like this? I mean… go figure, right?

So… how did it happen?

Well, funny story… it seems that State Senator Michele Reagan, a Republican of all things, who was first elected to serve in the Arizona House of Representatives in 2002, and in 2010 was elected to the Arizona State Senate… and who is Vice-Chairman of the Banking and Insurance Committee, and Chairman of the Committee on Economic Development and Jobs Creation… well it seems that she and her husband were sued by their servicer, Texas-based Colonial Savings FA, when they sent the bank a letter last July stating that they were planning to rescind their loan due to violations of the Truth in Lending Act or TILA .

According to Bloomberg’s story on the bill’s passage:

“They claim that the bank failed to disclose certain fees, and that the underwriter of their loan inflated their income by 12%, which violates the Truth in Lending Act.”

Colonial Savings then asked the court to declare that the couple were not entitled to rescind the loan, it should go without saying.

Reagan and her husband, David Gulino filed their own counter claim type lawsuit, in which they argued that they were manipulated into accepting an adjustable-rate mortgage, and that Colonial Savings, in true servicer-style, won’t tell them who owns their loan.

According to Bloomberg, Janet Walter, a spokeswoman for Colonial Savings, declined to comment, so I see no point in ringing her myself. And, Reagan’s attorney Beth Findsen, who told Bloomberg that she also helped write the bill, said the following:

“It makes Michele mad that the bank servicers will not disclose to a borrower the true noteholders,”

Findsen said. “She was taken aback that such basic information was not readily available.”

And I can imagine she would be taken aback. I know I would be… and in fact was… when I was first exposed to the problems being caused by Servicers, and I remain taken aback to this day.

Again, quoting from the Bloomberg story…

“If you foreclose on somebody you should have to tell them who owns the property,” Michele Reagan, who sponsored Senate Bill 1259, said in a telephone interview. “People have the right in this country to face their accusers.”

I like the way she thinks, don’t you? Even though, if I were to be picky about it, I’m not entirely sure that the reason for passing a law that requires the banksters to produce or report on all of the specific beneficiaries comprised in the Chain of Title has anything to do with our right to confront one’s accuser, as described in the Sixth Amendment to the U.S. Constitution, but if that’s what works, then let’s by all means run with it.

Strong opposition to the bill’s passage is coming from the Arizona Bankers Association, the Arizona Trustees Association, and Merscorp Inc., three great tastes that taste great together. MERS, in case you’ve been incarcerated in a Turkish prison over this past year, is an industry-owned organization that maintains a database containing more than 50% of all mortgages, that claims to be able to represent the trustees that conduct foreclosure auctions on behalf of lenders. Many vehemently disagree.

Paul Hickman, chief executive officer of the Arizona Bankers Association in Phoenix, showed up in the Bloomberg article, to issue the banking industry’s standard WARNING & THREAT package… the one they draw like a gun every time anything might change that affects them in any way.

“If Arizona passes this, it will be the only state in the union that will require a production of chain of title. States that pass these types of laws will be riskier environments to lend in and more difficult environments to get a loan in.”

Or, in other words… pass this bill and none of you in AZ will ever buy a home again because there will be no credit available to you. Hickman didn’t add the popular refrain about how the change will also paralyze the housing market, which will derail the recovery and basically end the world as we know it. Oooooo… scary bedtime stories for legislators.

And by the way, Mr. Hickman… the whole chain of title thing is already the law in Arizona and elsewhere. This new law just requires your membership to follow the existing laws and actually make sure the chain of title is not destroyed by banker incompetence or blatant disregard for the law.

So, why would your banker buddies having to follow the law transform a geographic locale into a “riskier environment?” Riskier for whom, exactly? Just tell the bankers that they may have to work past three and actually care about doing things in compliance with the law from now on, and everything will be fine… see… risk gone. Happy now?

Also, appearing alongside Hickman, the president of the Arizona Trustees Association in Phoenix, Richard Chambliss… I prefer to call him “Dick,” echoed the industry’s message as well:

“Reagan’s bill has both technical and conceptual problems, and could add to uncertainty over title.

Lenders that don’t file mortgage assignments with county recorders offices could face borrower challenges if the bill passes, even though the assignments weren’t required by state law.”

Dick Chambliss went on… sounding to me like he was getting a bit hot under the collar as he did…

“Is this bill intended to punish the lenders and screw up the process or address the problem that needs to be solved?”

Actually, two out of three, Dicky my boy… it’s definitely intended to punish the lenders, although nowhere near as severely as they should be punished, and now that we can all see how it upsets you and your peer group, we’re more confident than ever that it will also go a long way towards solving a couple of key problems inherent to the foreclosure crisis to-date as a result of servicer practices…

1. That servicers and lenders will actually have to follow the laws related to the chain of title, and therefore won’t be bringing fraudulent documents into court anymore.

2. That servicers that haven’t followed the laws and therefore that have broken the chain of title will now have an incentive to modify loans, instead of perpetuating illegal foreclosures.

But, look at the bright side… think of the money you’ll save on robo-signers, depositions, the creation of garbage alonges… you’ll come out ahead, I just know it.

Dick had yet another question to pose…

“What is it accomplishing by requiring that the history from the birth of the deed of trust to 20 assignments down the road have to be fully identified?”

Ooohh.. ohoo… I know this one, can I answer this one?

It’s a law to make sure that bankers tell the truth and follow our state and federal laws when foreclosing on someone’s home. Is that not an easy thing to see and understand? Even the banksters see the writing on the proverbial wall this time out, which is undoubtedly why they are so distressed at the prospect of the bill passing the House of Representatives and becoming law in Arizona.

See what I mean? Doesn’t “Dick” fit him better than Richard. For sure, right? I don’t even know the guy and I can tell from the way he talks that he’s definitely a “Dick”.

With Arizona being a non-judicial foreclosure state, meaning that property can be legally repossessed there without a court order, the banksters are not used to being asked such questions related to foreclosure and therefore are likely to be nowhere near as prepared to create fraudulent documents as they have been in the judicial foreclosure states where they appear to have a rich history of forgery going back many years.

Most mortgages that were originated during the last ten years were securitized and therefore supposedly assigned to trusts, with “pass-through certificates” entitling their holders to receive a percentage of the payment streams generated by the mortgages in the pool offered for sale to investors. As a result, many, many of these loans were sold more than three times before ever getting into the trust, assuming they ever arrived.

Banks using the Merscorp’s system typically don’t file assignments because the says that the ownership information is tracked electronically, whatever that actually means. Numerous judges don’t agree, most notably of late, Federal Bankruptcy Court Judge Grossman in New York whose opinion a few weeks ago, although non-binding for several reasons, removed all uncertainty as the argument as to whether MERS should be allowed to foreclose. He says, clearly… not a chance.

Walter E. Moak, who is apparently a bankruptcy attorney in Chandler, Arizona, was quoted in the Bloomberg story, saying that this Arizona legislation would make it easier for borrowers to negotiate loan workouts, and depending on the details, I might even agree. But, then the story quotes this bankruptcy lawyer as saying something that I would have to take issue with…

“Servicers often reject modification requests because the borrower doesn’t meet investor guidelines, even as they refuse to identify the investors,” Moak said.

“The person who has decision-making power is not the servicer, it’s the investors,” he said.

I realize that servicers say this a lot… I realize that many people believe this to be the case… I know that intellectually it may even makes sense … and I’ll even allow for some small percentage of cases where this statement is accurate to whatever degree… BUT… for the most part, Mr. Moak’s statements are at best incomplete, and in many instances wrong.

When a servicer tells a homeowner that they are unable to modify their loan due to something about not meeting investor guidelines or because the investor said they won’t modify loans… well, I’m sorry Mr. Moak, but assuming the loan has been securitized… it’s almost never true. At least nine times out of ten, they’re just plain old lying… or shall we say they’re embroidering… or perhaps we should call it, embellishing… no, let’s go back to just plain lying.

Pooling and Servicing Agreements, in the vast majority of cases, do not prohibit servicers from modifying a loan that is at risk of imminent default, and besides that… servicers don’t have a relationship with the investors… they report to a Master Servicer, who in turn reports to a Trustee, and that trustee could theoretically contact investors, but even that is extremely unlikely as the investors we’re talking about are often pension plans, insurance companies and sovereign wealth funds… not exactly the kind of investors you just pick up the phone and call… and then you would have to reach some sort of a majority… I mean… it’s just a ridiculous proposition.

Georgetown Law Professor, Adam Levitin, in conjunction with Tara Twomey of National Consumer Law Center, two of the country’s leading experts in the intricacies of mortgage servicing as related to loan modifications, have just published a 90-page research paper that represents “the first comprehensive overview of the residential mortgage servicing business,” and although the subject is nothing if not complex, some things are clear.

(I actually know Tara from the judicial conference held last April for the 9th Circuit judges… she and I were on the same panel speaking to the judges about the foreclosure crisis and the impacts of securitization.)

From the Levitin/Twomey research paper on mortgage servicing:

Mortgage servicing has begun to receive increased scholarly, popular, and political attention as a result of the difficulties faced by financially distressed homeowners when attempting to restructure their mortgages amid the home foreclosure crisis. In particular, the mortgage servicing industry has been identified as a central factor in the failure of the various government loan modification programs.

No one has a firm sense of the frequency of contractual limitations to modification for PLS. A small and unrepresentative sampling by Credit Suisse indicates that nearly all PLS PSAs permit modification when a loan is in default or default is reasonably foreseeable. Almost 60% of the sampled PSAs had no other restrictions to modification. Of the PSAs with additional restrictions, 27% capped loan modifications at 5% of the loan pool, either by count or balance.

The PSA sets forth two exceptions to this general limitation on loan modification. First, for defaulted loans, the PSA provides that the servicer may write down principal or extend the term of the loan. Thus, it appears that the servicer may write down the principal on a defaulted or distressed loan or may extend the term of the loan.

Look, the fact is that servicers lie all the time to the homeowners who apply to have their loans modified, and I’ve got a front row seat to that behavior almost every single day. They want to foreclose because they make more money when they foreclose, and if they can say something to get a homeowner to give up, they will… and they do… all the time. I can’t count the number of times when I’ve told a homeowner to not give up and the result has been a modified loan.

If a servicer tells me that the sky is blue, I go outside and check for myself… and that’s all I have to say about that.

See why I have to check for myself?

Here’s the conslusion from the Levitin/Twomey paper…


This Article presents the first comprehensive overview of the residential mortgage servicing business and shows that mortgage servicing suffers from an endemic principal-agent conflict between investors and servicers.

Securitization separates the ownership interest in a mortgage loan and the management of the loan. Securitization structures incentivize servicers to act in ways that do not track investors‘ interests, and these structures limit investors‘ ability to monitor servicer behavior. Monitoring proxies, such as ratings agencies and trustees, are themselves subject to perverse incentives and are limited in their ability to monitor servicer behavior.

As a result, servicers are frequently incentivized to foreclose on defaulted loans rather than restructure the loan, even when the restructuring would be in the investors‘ interest. The costs of this principal-agent conflict are not borne solely by MBS investors. The principal-agent conflict in residential mortgage servicing also has an enormous negative externality for homeowners, communities, and the housing market.

The principal-agent problem in residential mortgage servicing could be addressed by restructuring servicing compensation. Other types of securitizations use measures that mitigate the principal-agent conflict between servicers and investors.

There are costs to applying these measures to residential mortgage securitization, which are likely to be borne partly by borrowers in the form of higher mortgage costs. Yet, correcting the principal agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.

And if I can wrap that conclusion up in a tidy little package with a bow on top, it says that it’s the mortgage servicers who are letting our nation down and causing unfathomable amounts of pain to our country’s homeowners across all socio-economic demographic segments.

The Bloomberg story also quoted Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City, who said that he thought the legislation would, “test the completeness and accuracy of bank records. The law could also have the unintended consequence of pushing more lenders to modify loans rather than face a voided sale.”

“I like it because it forces the financial institution into providing information about who owns loans and rebuild transparency,” Peterson said. “It makes it significantly more difficult to foreclose if they don’t have good records of the history of ownership of the loan.”


1. In its simplest form, this is a bill that would create a law that would say that bankers have to follow our existing laws before foreclosing on someone’s home. And yet the bankers don’t like it and say that if they were forced to follow our laws, we would have a harder time getting loans.

2. And to that I would say: Fine… if we have a harder time getting loans, then it occurs to me that we’ll owe less money and you bankers will have a harder time making as much money. So who’s really going to suffer here if this becomes a law?

3. Bankers argued throughout the last 20 years that no laws should restrict sub-prime lending because then lower income Americans wouldn’t have access to credit, which is a lot like saying that poor neighborhoods need access to LOAN SHARKS.

4. Why wouldn’t every state in the country have a law like this one on the books? It’s a law that makes banks follow the law. How could that be a bad thing? I’d like to encourage everyone to write to their state representatives and tell them that you want them to enact such a law.

5. The only reason this bill is being pushed through the Arizona legislature is that one of that state’s senators actually tried to rescind her own predatory loan and found out first hand what it’s like to have to deal with a servicer. Is she an irresponsible borrower? I don’t hear anyone calling her names, asking her if she’s living beyond her means. WHY NOT?

6. What should we do, wait for more of our elected representatives to fall fare enough down the economic ladder so that they too have the experience of dealing with a servicer? And only then we should stop the pain and suffering being caused by the foreclosure crisis. I’ve said it before, but our elected representatives have long-since forgotten what it’s like to not be rich. They need to be reminded…

I have a call in to Sen. Michele Reagan’s office in Phoenix and I hope to hear back from her. But until I do, there’s only one thing that’s making me feel uneasy about S.B. 1259… and here it is…

Remember the first and second provisions I listed, from the FACT SHEET:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

Yeah, well you see the 800lb. gorilla now, right? Is this bill saying that all the bankers will be required to do under the new law is type up a list of what shouldn’t happen but didn’t… without having to prove anything? Because if that’s the case, then I just wasted a huge amount of time writing about something that will soon be proven useless, and I’m not happy about that possibility at all.

I mean, typing up a chronology of what was supposed to happen and when, even though it didn’t… strikes me as being much easier than having a robo-signer sign 10,000 lost note affidavits each month

So, all I can say is… I’m going to find out for sure tomorrow by talking to the Senator’s office, and until then I’m going to pretend that I never even noticed that little issue, and pray like hell that this isn’t just another Charlie Brown run at that same stupid football.

From the Bloomberg article:

fraud shouldn’t pay

25 Feb

Do you want to get more involved in fighting for a fair economy? Do you want to stop the big banks from profiting from their crimes? From faith-based to community-based, we have more than 30 groups in over a dozen states working locally and nationally on this issue and they would love to hear from you! Check out the list below (organized by state) to learn and connect with the group best for you.

Week of Feb. 21: Join the delegations of homeowners and community leaders delivering the Crime Shouldn’t Pay petition to the Attorneys Generals this week! 9 states are participating, including: California, Connecticut, Florida, Hawaii, Iowa, Massachusetts, Michigan, New York, North Carolina and Ohio. If you live in one of these states and want to join, scroll down below. Groups working on organizing the delegation in your state will be marked with a red star. * Call or email the group to get exact time and location information. Let them know, “I want to join the petition delegation this week.”


* Alliance of Californians for Community Empowerment (State-wide)
* Los Angeles: 213-863-4548
Sacramento: 916-288-8829
Oakland/Bay Area: 510-269-4692
San Jose: 408-549-1230
San Mateo: 650-515-3155
San Diego: 619-754-9407

* PICO California (State-wide)
Sacramento, CA
(916) 447-7959

* Contra Costa Interfaith Sponsoring Committee
Contra Costa County, CA
(925) 313-0206

Inland Congregations United for Change
San Bernardino & Riverside Counties, CA
(909) 383-1134

L.A. Voice
Los Angeles, CA
(213) 384-7404

* Oakland Community Organizations
Oakland, CA
(510) 639-1444

Peninsula Interfaith Action
San Mateo County, CA
(650) 592-9181

Colorado Progressive Coalition (State-wide)
Offices in Denver, Greeley, and Pueblo, CO
Denver: 303-866-0908
Greeley: 970-378-6560

* PICO United Florida (State-wide)
Orlando, FL
(407) 241-0605

Federation of Congregations United to Serve
Orange County, FL
(407) 849-5031

Congregations for Community Action
Melbourne & Palm Bay, FL
(321) 254-1595


* Iowa Citizens for Community Improvement (State-wide)
Des Moines, IA

Idaho Community Action Network
Boise, ID

Illinois People’s Action (State-wide)
Bloomington, IL

Lakeview Action Coalition
Chicago, IL

South Austin Coalition Community Council
Chicago, IL

Sunflower Community Action (State-wide)
Wichita, KS

* Alliance to Develop Power (State-wide)
Springfield, MA

Brockton Interfaith Community
Brockton, MA
(508) 587-9550

* Massachusetts Communities Action Network (State-wide)
Boston, MA
(617) 822-1499

Maine Peoples Alliance (State-wide)
Offices in Portland, Bangor, and Lewiston, ME
Portland: 207-797-0967
Bangor: 207-990-0672
Lewiston: 207-782-7876


Michigan Organizing Project (State-wide)
Kalamazoo, MI

Harriet Tubman Center
Detroit, MI
(313) 549-0421

Take Action Minnesota (State-wide)
Saint Paul, MN

Grass Roots Organizing (State-wide)
Mexico, MO

Communities Creating Opportunity
Kansas City, MO
(816) 444-5585

Montana Organizing Project (State-wide)
Missoula and Billings, MT

Progressive Leadership Alliance of Nevada (State-wide)
Las Vegas and Reno, NV
Las Vegas V:

New York
Northwest Bronx Community & Clergy Coalition
Bronx, NY

Brooklyn Congregations United
Brooklyn, NY
718 287-4334

People United for Sustainable Housing
Buffalo, NY

* Syracuse United Neighbors
Syracuse, NY

* Citizens United For Action (State-wide)
Cincinnati, OH

Northeast Ohio Alliance for Hope
Cleveland, OH

Working In Neighborhoods Action Organizing Project (State-wide)
Cincinnati, OH

Oregon Action (State-wide)
Portland and Medford, OR
Portland: 503-282-6588
Medford: 541-772-4029

Washington Community Action Network (State-wide)
Seattle, WA
206-389-0050 begin_of_the_skype_highlighting 206-389-0050

Litigation with HUD and FHA Insured Mortgage Loans and Foreclosure

25 Feb

When a mortgage is insured or guaranteed by the Federal Housing Administration (FHA), an agency overseen by the Department of Housing and Urban Development (HUD), servicing companies must follow HUD servicing guidelines. Some of these regulations involve the foreclosure process on a such a property, and failure to follow the guidelines may be used by homeowners to defend their foreclosure in court.

The following is a list and brief description of some of the court cases that have involved HUD and FHA loans that were improperly serviced, ones that were decided in favor of homeowners, and ones in which borrowers facing foreclosure were denied claims. Knowing some of the background of these cases may help homeowners decide if their loan is being properly serviced, or if it is worth their time to apply for an FHA loan.

One of the requirements to foreclose on a HUD loan is that the servicer must attempt to hold a face-to-face meeting with the homeowners before three payments have been missed. In Banker’s Life v. Denton, homeowners raised the failure to hold the meeting as a defense against foreclosure. Also, the servicer did not send the request for the meeting via certified mail or attempt to visit the borrowers at the property. The court found for the owners in this case.

Notices of default must also be sent to delinquent borrowers in accordance with the HUD regulations. In Federal National Mortgage Ass’n v. Moore, homeowners raised the argument that the lender had not sent out a notice of default that was in compliance with HUD’s regulations. The notice sent, according to the borrowers, was not valid because it was on a form that was not “approved by the Secretary” of HUD and was not sent in a timely manner as the regulations require.

Since these two cases had been decided, HUD’s regulations have changed, but the language of the preforeclosure servicing, including notice requirements and review guidelines, have remained the same. In fact, another court case, Mellon Mortgage Co. v. Larios, decided that the requirements are the same now as they were before the statue was revised. Lenders failing to comply with these guidelines can still be used as a defense against foreclosure.

The face-to-face meeting with homeowners is also an important aspect of foreclosing on a mortgage backed by HUD. The minimum requirement to comply with this regulation is visiting the borrowers at home and sending at least one letter via certified mail. The issue came up in Washington Mutual Bank v. Mahaffey, and the lender was denied summary judgment because it had not sent the letter, even though someone had been sent to the property to visit the homeowners.

Of course, this is not to imply that every homeowner will win a case and successfully defend against foreclosure. Courts have also ruled against borrowers who raised issues regarding servicing. In Miller v. G.E. Capital Mortgage Servs., Inc., the court ruled that private citizens have no right to sue for violations of HUD’s loss mitigation provisions. The law, according to the court, is meant to focus on regulation of lenders — not creating rights for borrowers facing foreclosure.

Also, courts have found that the language included in deeds of trust insured by the FHA are not negotiated contractual terms. Instead, they are imposed by the FHA on both the borrowers and lenders, and the borrowers may not raise defenses in relation to breach of contract if lenders fail to follow the FHA guidelines. This case was decided in Wells Fargo Home Mortgage, Inc. v. Neal. If the homeowners and mortgage company can not bargain for that aspect of the contract, there can be no breach of the contract.

Homeowners, their loss mitigation professionals, and their foreclosure attorneys should become aware of some of the issues involved with HUD loans if they have a mortgage insured by the FHA or are considering taking advantage of the new government programs. While some protections may be offered to borrowers, others seem to be taken away by the courts if there is a question about a foreclosure. Knowing the issues through previously-decided court cases can help educate borrowers.

The FHA Short Refinance Option—Help For Non-FHA Borrowers

25 Feb

Starting September 7, 2010, the FHA offers help to qualifying non-FHA borrowers who are “underwater” on their home loans. The FHA Short Refinance option is open to those who are current on their existing mortgage—but the lender must agree to forgive at least 10% of the unpaid principal on the original note to bring the combined loan-to-value ratio to a maximum 115%. The new FHA-guaranteed loan must have a loan-to-value ratio of no more than 97.75%.

Non-FHA borrowers who meet these guidelines and additional credit qualifications (see below) are allowed to apply to refinance into new FHA-insured home loan. The program is not open-ended—the original FHA press release announcing the start date of the FHA Short Refinance option says the program is expected to help as many as four million homeowners through the end of 2012.

The FHA press release says the FHA Short Refinance program is voluntary and “requires the cooperation of all lien holders”. This program is not automatically open to any homeowner who is underwater on a conventional home loan; as stated previously, there is a requirement that the borrower be current on all mortgage payments. They must also qualify for the FHA Short Refinance program by having a credit score of 500 or better and meet other typical FHA loan

FHA Short Refinancing is only for borrowers who are underwater on properties that are considered the borrower’s primary residence, and is intended only for those with non-FHA guaranteed home loans. A borrower said to be “underwater” on a conventional home loan is basically stuck with a property that isn’t worth as much as the amount owed on the note—usually because of declining property values.

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