http://blogs.wsj.com/developments/2010/10/12/huds-donovan-national-foreclosure-moratorium-risks-going-too-far/?blog_id=36&post_id=16087
By Nick Timiraos
The Obama administration’s top housing official on Monday said that a national foreclosure moratorium to correct flawed legal filings risked exacerbating the mortgage crisis.
“Asking every single servicer in the country, in every single state, to stop their processes—which basically sweeps all servicers into the bucket of irresponsible servicers that clearly made mistakes—has a number of consequences,” said Shaun Donovan, the Secretary of the U.S. Department of Housing and Urban Development, in an interview.
Mr. Donovan said that servicers which have improperly signed off on affidavits “need to suffer consequences for their irresponsible actions” and correct their processes immediately. But in cases “where we have not found problems with particular servicers…we do have some risk of going too far,” he said.
One potential drawback of a national moratorium, he said, would be that servicers would focus more energy on reviewing technical procedures at the end of the foreclosure process at the expense of implementing loan modifications and other efforts that could prevent foreclosures from happening in the first place.
Mortgage servicers, including units of major banks such as Bank of America Corp., have suspended thousands of foreclosure proceedings across the country as a result of submitting fraudulent court documents.
The banks have argued that the problems are technical and stem from efforts to quickly process growing volumes of foreclosures. They say there’s no evidence that borrowers have been turned out of their homes without defaulting on a mortgage. But consumer advocates and state and federal lawmakers say the banks inability to follow legal procedures may be masking larger flaws in the foreclosure process.
Banking regulators and other federal agencies are in the process of conducting reviews of how mortgage servicers conduct foreclosures.
The most important thing federal officials can do, Mr. Donovan said, is to “move as quickly and comprehensively as possible” to correct errors and to give the market confidence that “the foreclosure process is working the right way.”
Tuesday, October 12, 2010
Are You Getting Screwed By Your Lender?
http://moneywatch.bnet.com/saving-money/blog/home-equity/are-you-getting-screwed-by-your-lender/2797/
Are you getting screwed by your lender? If you have a feeling your lender is screwing you when it comes to your monthly mortgage payments, don’t shrug it off. You might be right.
David I. Ginsburg, founder of Loantech, the oldest mortgage audit company in the country, says his company still finds a lot of mistakes during mortgage audits for clients and people are often overpaying on their mortgages.
“In the late eighties, mid nineties, we were finding mistakes about a third of the time,” Ginsburg says, “today, we still see around 15 to 20 percent of errors for adjustable rate mortgages (ARMs), fixed-rate mortgages and prepayments.”
The most mistakes, he says, are found with cash sitting in escrow accounts (also known as impound accounts on the West coast).
Escrow accounts typically hold the borrowers real estate property tax payments and homeowners insurance premiums. Lenders are allowed to hold up to a year’s worth of payments plus two months, but no more. Ginsburg says his company routinely finds that the borrower pays too much and/or the lender holds too much in the reserve account.
“We find overcharges 40 to 50 percent of the time in one or both of those areas,” Ginsburg says.
Mistakes Your Lender Might Be Making
Ginsburg says lenders typically make mistakes in three distinct errors:
Using the wrong index value. In terms of ARMs the index value can be incorrect if it’s off by one day. Your lender might not have looked back far enough to determine the correct rate.
Adding the wrong margin. The margin is the profit your lender packs onto your interest rate. The margin (of profit) might be 2 percent or 5 percent. But typically, if a mistake has been made it’s so small you might not even notice - but your pocketbook will. The difference between 2.75 and 2.65 could cost you a fortune over the life of the loan, and your lender might not event realize this mistake has been made.
Human error. From incorrect conversions of rates to accidentally inputting a wrong number, Ginsburg says human error occurs pretty often and results in systemic mistakes.
So how are you supposed to find out if your lender is screwing you? Ginsburg says a mortgage audit is the only way to figure it out, and not just because he’s selling them.
“It’s basically impossible for a homeowner to figure out if they’re paying the right amount on their own,” Ginsburg says, “It’s an incredibly complicated process and I wouldn’t wish it on my worst enemy.”
One thing you can do is look at your loan docs to figure out if you’re being charged the right amount and the right margin on your loan. I once caught a mistake that was just a quarter of a percentage higher than what we were supposed to get. It was a $200 per year mistake, but that would have cost me $6,000 over 30 years!
Still think you might be able to figure it all out on your own? Loantech completed an audit on the mortgage of Former Secretary of the Treasury Lloyd Bentsen (the Timothy Geitner of the ’90s). If he couldn’t figure it out, you probably won’t be able to either.
Loantech’s two most popular mortgage audits are the ArmCheck and the Forensic Mortgage Audit.
ArmCheck Mortgage Audit Report works for fixed-rate or adjustable-rate loans. This type of audit determines whether the lender has calculated rates, payment and loan balance correctly. If you think you’re being overcharged this is the type of audit you’re looking for.
Forensic Mortgage Audit or a “Custom Audit” looks for violations of federal laws on the day of settlement with your lender. This type of audit is very popular right now and is used by underwater homeowners and those homeowners in risk of foreclosure. They use this type of audit hoping to gain some leverage for when they’re negotiating with lenders to restructure or refinance their loan.
Mortgage audits can cost between $400 and $1000, and there are plenty of quality companies that do them. If you think your lender is screwing you, this is one way to find out. (They might not be, of course, and then you’d be out the cost of the audit - but at least you’ll sleep better.)
Are you getting screwed by your lender? If you have a feeling your lender is screwing you when it comes to your monthly mortgage payments, don’t shrug it off. You might be right.
David I. Ginsburg, founder of Loantech, the oldest mortgage audit company in the country, says his company still finds a lot of mistakes during mortgage audits for clients and people are often overpaying on their mortgages.
“In the late eighties, mid nineties, we were finding mistakes about a third of the time,” Ginsburg says, “today, we still see around 15 to 20 percent of errors for adjustable rate mortgages (ARMs), fixed-rate mortgages and prepayments.”
The most mistakes, he says, are found with cash sitting in escrow accounts (also known as impound accounts on the West coast).
Escrow accounts typically hold the borrowers real estate property tax payments and homeowners insurance premiums. Lenders are allowed to hold up to a year’s worth of payments plus two months, but no more. Ginsburg says his company routinely finds that the borrower pays too much and/or the lender holds too much in the reserve account.
“We find overcharges 40 to 50 percent of the time in one or both of those areas,” Ginsburg says.
Mistakes Your Lender Might Be Making
Ginsburg says lenders typically make mistakes in three distinct errors:
Using the wrong index value. In terms of ARMs the index value can be incorrect if it’s off by one day. Your lender might not have looked back far enough to determine the correct rate.
Adding the wrong margin. The margin is the profit your lender packs onto your interest rate. The margin (of profit) might be 2 percent or 5 percent. But typically, if a mistake has been made it’s so small you might not even notice - but your pocketbook will. The difference between 2.75 and 2.65 could cost you a fortune over the life of the loan, and your lender might not event realize this mistake has been made.
Human error. From incorrect conversions of rates to accidentally inputting a wrong number, Ginsburg says human error occurs pretty often and results in systemic mistakes.
So how are you supposed to find out if your lender is screwing you? Ginsburg says a mortgage audit is the only way to figure it out, and not just because he’s selling them.
“It’s basically impossible for a homeowner to figure out if they’re paying the right amount on their own,” Ginsburg says, “It’s an incredibly complicated process and I wouldn’t wish it on my worst enemy.”
One thing you can do is look at your loan docs to figure out if you’re being charged the right amount and the right margin on your loan. I once caught a mistake that was just a quarter of a percentage higher than what we were supposed to get. It was a $200 per year mistake, but that would have cost me $6,000 over 30 years!
Still think you might be able to figure it all out on your own? Loantech completed an audit on the mortgage of Former Secretary of the Treasury Lloyd Bentsen (the Timothy Geitner of the ’90s). If he couldn’t figure it out, you probably won’t be able to either.
Loantech’s two most popular mortgage audits are the ArmCheck and the Forensic Mortgage Audit.
ArmCheck Mortgage Audit Report works for fixed-rate or adjustable-rate loans. This type of audit determines whether the lender has calculated rates, payment and loan balance correctly. If you think you’re being overcharged this is the type of audit you’re looking for.
Forensic Mortgage Audit or a “Custom Audit” looks for violations of federal laws on the day of settlement with your lender. This type of audit is very popular right now and is used by underwater homeowners and those homeowners in risk of foreclosure. They use this type of audit hoping to gain some leverage for when they’re negotiating with lenders to restructure or refinance their loan.
Mortgage audits can cost between $400 and $1000, and there are plenty of quality companies that do them. If you think your lender is screwing you, this is one way to find out. (They might not be, of course, and then you’d be out the cost of the audit - but at least you’ll sleep better.)
In foreclosure controversy, problems run deeper than flawed paperwork
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/06/AR2010100607227.html
In foreclosure controversy, problems run deeper than flawed paperwork
By Brady Dennis and Ariana Eunjung Cha
Washington Post Staff Writers
Thursday, October 7, 2010; 12:01 AM
Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.
Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.
These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."
The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.
For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can't afford and waiting for the foreclosure process to begin anew.
For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.
For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again. Attorney General Eric H. Holder Jr. said Wednesday he is looking into the allegations of improper foreclosures, and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, said he plans to hold hearings on the issue.
At the core of the fights over the legal standing of banks in foreclosure cases is Mortgage Electronic Registration Systems, based in Reston.
The company, known as MERS, was created more than a decade ago by the mortgage industry, including mortgage giants Fannie Mae and Freddie Mac, GMAC, and the Mortgage Bankers Association.
MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.
The idea behind it was to build a centralized registry to track loans electronically as they were traded by big financial firms. Without this system, the business of creating massive securities made of thousands of mortgages would likely have never taken off. The company's role caused few objections until millions of homes began to fall into foreclosure.
In recent years, the company has faced numerous court challenges, including separate class-action lawsuits in California and Nevada - the epicenter of the foreclosure crisis. Lawyers in other states have also challenged the company's legal standing in court.
Kentucky lawyer Heather Boone McKeever has filed a state class-action suit and a federal civil racketeering class-action suit on behalf of homeowners facing foreclosure, alleging that MERS and financial firms that did business with it have tried to foreclose on homes without holding proper titles.
"They have no legal standing and no right to foreclose," McKeever said. "If you or I did this one time, we'd be in jail."
Judges in various states have also weighed in.
In August, the Maine Supreme Court threw out a foreclosure case because "MERS did not have a stake in the proceedings and therefore had no standing to initiate the foreclosure action."
In May, a New York judge dismissed another case because the assignment of the loan by MERS to the bank HSBC was "defective," he said. The plaintiff's counsel seemed to be "operating in a parallel mortgage universe," the judge wrote.
Also in May, a California judge said MERS could not foreclose on a home, because it was merely a representative for Citibank and did not own the loan.
On the other hand, Minnesota legislators passed a law stating that MERS explicitly has the right to bring foreclosure cases. And on its Web site and in e-mails, MERS cites numerous court decisions around the country that it says demonstrate the company's right to act on behalf of lenders and to undertake foreclosures.
"Assertions that somehow MERS creates a defect in the mortgage or deed of trust are not supported by the facts," a company spokeswoman said.
But that's precisely what lawyers are arguing with more frequency throughout the country. If such an argument gains traction in the wake of recent foreclosure moratoriums, the consequences for banks could be enormous.
"It's an issue of the whole process of foreclosure having been so muddied by the [securitization] process," said Bush, the banking analyst. "It is no longer a straightforward legalistic process, which is what foreclosures are supposed to be."
Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.
But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks' paperwork problems have been laid bare, she said.
The result: "Banks are vulnerable to lawsuits from investors in the [securitization] trusts," Tavakoli said.
Referring to the federal government's $700 billion Troubled Assets Relief Program for banks, she added, "This problem could cost the banks significantly more money, which could mean TARP II."
dennisb@washpost.com chaa@washpost.com
In foreclosure controversy, problems run deeper than flawed paperwork
By Brady Dennis and Ariana Eunjung Cha
Washington Post Staff Writers
Thursday, October 7, 2010; 12:01 AM
Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.
Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.
These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."
The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.
For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can't afford and waiting for the foreclosure process to begin anew.
For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.
For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again. Attorney General Eric H. Holder Jr. said Wednesday he is looking into the allegations of improper foreclosures, and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, said he plans to hold hearings on the issue.
At the core of the fights over the legal standing of banks in foreclosure cases is Mortgage Electronic Registration Systems, based in Reston.
The company, known as MERS, was created more than a decade ago by the mortgage industry, including mortgage giants Fannie Mae and Freddie Mac, GMAC, and the Mortgage Bankers Association.
MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.
The idea behind it was to build a centralized registry to track loans electronically as they were traded by big financial firms. Without this system, the business of creating massive securities made of thousands of mortgages would likely have never taken off. The company's role caused few objections until millions of homes began to fall into foreclosure.
In recent years, the company has faced numerous court challenges, including separate class-action lawsuits in California and Nevada - the epicenter of the foreclosure crisis. Lawyers in other states have also challenged the company's legal standing in court.
Kentucky lawyer Heather Boone McKeever has filed a state class-action suit and a federal civil racketeering class-action suit on behalf of homeowners facing foreclosure, alleging that MERS and financial firms that did business with it have tried to foreclose on homes without holding proper titles.
"They have no legal standing and no right to foreclose," McKeever said. "If you or I did this one time, we'd be in jail."
Judges in various states have also weighed in.
In August, the Maine Supreme Court threw out a foreclosure case because "MERS did not have a stake in the proceedings and therefore had no standing to initiate the foreclosure action."
In May, a New York judge dismissed another case because the assignment of the loan by MERS to the bank HSBC was "defective," he said. The plaintiff's counsel seemed to be "operating in a parallel mortgage universe," the judge wrote.
Also in May, a California judge said MERS could not foreclose on a home, because it was merely a representative for Citibank and did not own the loan.
On the other hand, Minnesota legislators passed a law stating that MERS explicitly has the right to bring foreclosure cases. And on its Web site and in e-mails, MERS cites numerous court decisions around the country that it says demonstrate the company's right to act on behalf of lenders and to undertake foreclosures.
"Assertions that somehow MERS creates a defect in the mortgage or deed of trust are not supported by the facts," a company spokeswoman said.
But that's precisely what lawyers are arguing with more frequency throughout the country. If such an argument gains traction in the wake of recent foreclosure moratoriums, the consequences for banks could be enormous.
"It's an issue of the whole process of foreclosure having been so muddied by the [securitization] process," said Bush, the banking analyst. "It is no longer a straightforward legalistic process, which is what foreclosures are supposed to be."
Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.
But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks' paperwork problems have been laid bare, she said.
The result: "Banks are vulnerable to lawsuits from investors in the [securitization] trusts," Tavakoli said.
Referring to the federal government's $700 billion Troubled Assets Relief Program for banks, she added, "This problem could cost the banks significantly more money, which could mean TARP II."
dennisb@washpost.com chaa@washpost.com
Saturday, October 9, 2010
Banks’ Negligence, "Tip of the Iceberg":A legal inside view of banks are halting their foreclosures.
Last week, we saw three of the nation’s top banks (GMAC, JP Morgan Chase and Bank of America) stop foreclosures due to irregularities in paperwork signed by bank employees. Also a total of 7 of the nation’s largest banks have been ordered to review their foreclosure procedures: JP Morgan Chase; Bank of America; HSBC Holdings; Wells Fargo; U.S. Bancorp; and PNC Financial Services Group.
While JP Morgan Chase tried to downplay the problem by saying it only (ONLY) applied to some 56,000 foreclosures, those of us in the “know” believe that this is the “tip of the ice berg”. And on a daily basis, the list of banks who have either stopped foreclosures or are reviewing their foreclosure processes is growing longer.
While I was thrilled to see the regulatory order 7 of the largest banks to review their paperwork and procedures, as an attorney in California who represents distressed home owners in various stages of default on their mortgages, my first reaction was WHAT TOOK THEM SO LONG?????
I am constantly reviewing bank documentation. What I have found in almost every instance is that the documentation from the bank is non-compliant – or in other words, a mess.
For example, borrowers seeking loan modifications are constantly being made to send and resend the same paperwork over and over again –only to be told that because the bank doesn’t have the paperwork, the process has to be restarted. Even when the borrower proves the paperwork was received by the bank, it still doesn’t change the outcome.
Borrowers are denied modifications of their mortgages because no one at the bank bothers to look at their financial information. Borrowers are sent denial letters even though their lenders have financial records in their possession that clearly establishes the borrower’s qualifications for the modification. And, yes, the borrower is left to start the process from scratch!
In many instances, borrowers who qualify under HAMP are placed in more perilous foreclosure alternatives such as “special forbearance agreements” which contain language that if the borrower is one day late with a payment, the agreement is breached and the house will go into foreclosure.
I review Notices of Default and Notices of Trustee Sales daily, and I have yet to see one done correctly by any lender. In California, we have certain provisions of the Civil Code that in detail spell what actions a lender must perform to try to prevent foreclosure. And one would think that the lender should have to document compliance with all of the terms set forth in the California Civil Code.
Unfortunately, this is not the case. These lenders only have to include a short declaration stating that it complied as opposed to a list of what actions they actually took. The only detail to the statement is that it must be made by a person who actually has personal knowledge of compliance as opposed to a third party.
Mortgages are constantly sold and resold usually in large “pools” of loans – thus the term pooling agreement. So it isn’t unusual for a lender that has commenced foreclosure proceedings to sell the note to a third party, sometimes a large investor, sometimes a pension fund, and sometimes other lending institutions. When this happens, an assignment under the deed of trust is supposed to be executed and recorded in favor of the new note holder or servicing bank (bank collecting the money ….. servicing the loan on behalf of the note holder).
These procedures are fairly simple – and yet it is absolutely shocking how many homes are wrongfully foreclosed because of lack of compliance with even the simplest regulations.
This is not uncommon! What is unconscionable is that the federal government has allowed these banks to continue to “run wild” while only stepping in when the problem is so pervasive, so serious, that the cure may trigger yet another crises to the American economy that is even worse than what is now being experienced.
For the legal mind, this is an exciting time to be practicing law. But for American homeowners, it is one more burden they must bear in an already burdensome economy.
While JP Morgan Chase tried to downplay the problem by saying it only (ONLY) applied to some 56,000 foreclosures, those of us in the “know” believe that this is the “tip of the ice berg”. And on a daily basis, the list of banks who have either stopped foreclosures or are reviewing their foreclosure processes is growing longer.
While I was thrilled to see the regulatory order 7 of the largest banks to review their paperwork and procedures, as an attorney in California who represents distressed home owners in various stages of default on their mortgages, my first reaction was WHAT TOOK THEM SO LONG?????
I am constantly reviewing bank documentation. What I have found in almost every instance is that the documentation from the bank is non-compliant – or in other words, a mess.
For example, borrowers seeking loan modifications are constantly being made to send and resend the same paperwork over and over again –only to be told that because the bank doesn’t have the paperwork, the process has to be restarted. Even when the borrower proves the paperwork was received by the bank, it still doesn’t change the outcome.
Borrowers are denied modifications of their mortgages because no one at the bank bothers to look at their financial information. Borrowers are sent denial letters even though their lenders have financial records in their possession that clearly establishes the borrower’s qualifications for the modification. And, yes, the borrower is left to start the process from scratch!
In many instances, borrowers who qualify under HAMP are placed in more perilous foreclosure alternatives such as “special forbearance agreements” which contain language that if the borrower is one day late with a payment, the agreement is breached and the house will go into foreclosure.
I review Notices of Default and Notices of Trustee Sales daily, and I have yet to see one done correctly by any lender. In California, we have certain provisions of the Civil Code that in detail spell what actions a lender must perform to try to prevent foreclosure. And one would think that the lender should have to document compliance with all of the terms set forth in the California Civil Code.
Unfortunately, this is not the case. These lenders only have to include a short declaration stating that it complied as opposed to a list of what actions they actually took. The only detail to the statement is that it must be made by a person who actually has personal knowledge of compliance as opposed to a third party.
Mortgages are constantly sold and resold usually in large “pools” of loans – thus the term pooling agreement. So it isn’t unusual for a lender that has commenced foreclosure proceedings to sell the note to a third party, sometimes a large investor, sometimes a pension fund, and sometimes other lending institutions. When this happens, an assignment under the deed of trust is supposed to be executed and recorded in favor of the new note holder or servicing bank (bank collecting the money ….. servicing the loan on behalf of the note holder).
These procedures are fairly simple – and yet it is absolutely shocking how many homes are wrongfully foreclosed because of lack of compliance with even the simplest regulations.
This is not uncommon! What is unconscionable is that the federal government has allowed these banks to continue to “run wild” while only stepping in when the problem is so pervasive, so serious, that the cure may trigger yet another crises to the American economy that is even worse than what is now being experienced.
For the legal mind, this is an exciting time to be practicing law. But for American homeowners, it is one more burden they must bear in an already burdensome economy.
Wednesday, October 6, 2010
Foreclosure Doc Scandal Could Lower Earnings, Prompt Federal Probe
American Banker
Wednesday, October 6, 2010
With Fannie Mae and Freddie Mac now requiring that all mortgage servicers review how they handle foreclosures, more questions are being raised about the impact that potentially invalid affidavits will have on the foreclosure process, on servicers and the industry overall.
Three of the largest servicers — Ally Financial Inc.'s GMAC Mortgage, JPMorgan Chase & Co. and Bank of America Corp. — have delayed some foreclosures in 23 states in the past two weeks because of documentation problems. Those companies say no wrongful foreclosures have been identified — yet. It is widely believed other servicers will take similar steps.
American Banker asked analysts, industry representatives, academics and other sources about the wider impact of the controversy.
Why have GMAC, JPMorgan Chase and Bank of America delayed foreclosures?
The servicers halted foreclosures after some of their employees said in depositions that they had signed off on thousands of foreclosure documents a month without verifying or reviewing the information, or did so based on reviews by third parties. Servicing executives say the practice of using "robo-signers" has been widespread for years and is common practice for many legal documents from notices of default to lost-note affidavits that foreclosure attorneys submit in court when they cannot prove they have the underlying promissory note showing ownership of the property.
How will this affect other servicers?
Flawed documents are expected to delay foreclosures and result in longer timelines for the disposing of seized property, said Linda Stesney, a Moody's analyst, who has spoken with many servicers. Because real estate is so local, it will depend on how courts react and what servicers are doing to mitigate these issues.
Servicing and legal costs will skyrocket. More foreclosures will be delayed, adding to investor losses. Further scrutiny by Fannie and Freddie, attorneys general, and federal agencies will add to the uncertainty. Combined with class actions, large bank servicers face the possibility of a significant reduction of earnings.
"If servicers took a short-hand approach that falls below the level of legally appropriate conduct, then they have a grade-A problem," said Joseph Lynyak, a partner at the law firm Venable LLP.
The legal repercussions likely will be determined on a state-by-state basis with some foreclosure proceedings restarted. Attorneys general also may allege a pattern of misrepresentations. "It's not totally clear what the remedies are, and then it becomes a complicated enforcement issue," Lynyak said.
Even if there aren't any inaccuracies in the court documents, homeowners could claim that because servicers did not follow proper legal procedure, the case against them is invalid.
"By putting these affidavits into the record, they are attesting to the fact and they haven't seen any documents," said John Rao, an attorney at the National Consumer Law Center. "That's fraud on the court."
Such arguments have been made in foreclosure cases before, but legal experts believe they will become more rampant now that so much attention has been given to this issue.
William Black, an associate economics and law professor at the University of Missouri-Kansas City School of Law, said filing a false affidavit is a felony and courts will determine whether fraud was used to illegally foreclose and take away people's homes.
What is the worst-case scenario?
Servicer ratings are now under review for possible downgrade by Moody's Investor Services and Fitch Ratings. A downgrade could prompt Fannie and Freddie to pull servicing rights and transfer them to special servicers. Pulling servicing rights is rare and could cause significant capacity constraints.
Meanwhile, investors are banding together and exploring whether to trigger servicer defaults based on breaches of the contractual and fiduciary obligation by servicers to manage the foreclosure process and protect the interests of mortgage-backed securities investors. Doing so would shift liability to MBS trustees, said Bill Frey, the chief executive of the hedge fund Greenwich Financial Services, that represents investors holding $600 billion in nonagency securities.
"The servicers are contractually obligated to enforce these contracts," said Frey.
He said it could take up to 10 years to sort through the mismanaged paperwork from the securitization process and track down any missing documents. "Investors have a non-earning and depreciating asset, and they want to get it resolved in some manner and the servicers in charge of resolving it, don't want to get it resolved, so there is an unsolvable conflict of interest. If the servicer is not adhering to the contract, the investors can hold the trustee liable."
Servicers also are concerned about the potential for federal lawsuits. On Tuesday, House Speaker Nancy Pelosi and other California Democrats sent a letter to the Department of Justice, the Federal Reserve and the Comptroller of the Currency urging a federal investigation into the matter. Sens. Robert Menendez and Al Franken have called on the Government Accountability Office to investigate.
How could this have possibly been going on?
After news reports revealed GMAC's problem on Sept. 20, a spokeswoman described it as a "procedural defect." Other servicers have said the issue is merely "technical" because the accuracy of the loan information did not change based on the affidavits.
The consolidation and transfer of servicing rights in the past few years has meant "documentation is not readily available," Lynyak said. Moreover, pooling and servicing agreements negotiated long before the housing crisis typically pay servicers an average of 40 basis points per loan — too little to cover the costs of foreclosure, he said.
Black blames what had been up to now lax oversight in states such as Florida. "What prompted this, in part, is the obscenity that is Florida, and the attempt to pervert the judiciary," Black said. "No prosecutors were stepping in and going after senior officers at the major lenders or the foreclosure mills."
"This is only the 'echo' epidemic of the far-deeper underlying fraud of millions of liar's loans," Black said.
Prosecutors could charge servicers with perpetrating a "fraud on the court," and hold them in contempt, which is punishable by fines, he said.
Wednesday, October 6, 2010
With Fannie Mae and Freddie Mac now requiring that all mortgage servicers review how they handle foreclosures, more questions are being raised about the impact that potentially invalid affidavits will have on the foreclosure process, on servicers and the industry overall.
Three of the largest servicers — Ally Financial Inc.'s GMAC Mortgage, JPMorgan Chase & Co. and Bank of America Corp. — have delayed some foreclosures in 23 states in the past two weeks because of documentation problems. Those companies say no wrongful foreclosures have been identified — yet. It is widely believed other servicers will take similar steps.
American Banker asked analysts, industry representatives, academics and other sources about the wider impact of the controversy.
Why have GMAC, JPMorgan Chase and Bank of America delayed foreclosures?
The servicers halted foreclosures after some of their employees said in depositions that they had signed off on thousands of foreclosure documents a month without verifying or reviewing the information, or did so based on reviews by third parties. Servicing executives say the practice of using "robo-signers" has been widespread for years and is common practice for many legal documents from notices of default to lost-note affidavits that foreclosure attorneys submit in court when they cannot prove they have the underlying promissory note showing ownership of the property.
How will this affect other servicers?
Flawed documents are expected to delay foreclosures and result in longer timelines for the disposing of seized property, said Linda Stesney, a Moody's analyst, who has spoken with many servicers. Because real estate is so local, it will depend on how courts react and what servicers are doing to mitigate these issues.
Servicing and legal costs will skyrocket. More foreclosures will be delayed, adding to investor losses. Further scrutiny by Fannie and Freddie, attorneys general, and federal agencies will add to the uncertainty. Combined with class actions, large bank servicers face the possibility of a significant reduction of earnings.
"If servicers took a short-hand approach that falls below the level of legally appropriate conduct, then they have a grade-A problem," said Joseph Lynyak, a partner at the law firm Venable LLP.
The legal repercussions likely will be determined on a state-by-state basis with some foreclosure proceedings restarted. Attorneys general also may allege a pattern of misrepresentations. "It's not totally clear what the remedies are, and then it becomes a complicated enforcement issue," Lynyak said.
Even if there aren't any inaccuracies in the court documents, homeowners could claim that because servicers did not follow proper legal procedure, the case against them is invalid.
"By putting these affidavits into the record, they are attesting to the fact and they haven't seen any documents," said John Rao, an attorney at the National Consumer Law Center. "That's fraud on the court."
Such arguments have been made in foreclosure cases before, but legal experts believe they will become more rampant now that so much attention has been given to this issue.
William Black, an associate economics and law professor at the University of Missouri-Kansas City School of Law, said filing a false affidavit is a felony and courts will determine whether fraud was used to illegally foreclose and take away people's homes.
What is the worst-case scenario?
Servicer ratings are now under review for possible downgrade by Moody's Investor Services and Fitch Ratings. A downgrade could prompt Fannie and Freddie to pull servicing rights and transfer them to special servicers. Pulling servicing rights is rare and could cause significant capacity constraints.
Meanwhile, investors are banding together and exploring whether to trigger servicer defaults based on breaches of the contractual and fiduciary obligation by servicers to manage the foreclosure process and protect the interests of mortgage-backed securities investors. Doing so would shift liability to MBS trustees, said Bill Frey, the chief executive of the hedge fund Greenwich Financial Services, that represents investors holding $600 billion in nonagency securities.
"The servicers are contractually obligated to enforce these contracts," said Frey.
He said it could take up to 10 years to sort through the mismanaged paperwork from the securitization process and track down any missing documents. "Investors have a non-earning and depreciating asset, and they want to get it resolved in some manner and the servicers in charge of resolving it, don't want to get it resolved, so there is an unsolvable conflict of interest. If the servicer is not adhering to the contract, the investors can hold the trustee liable."
Servicers also are concerned about the potential for federal lawsuits. On Tuesday, House Speaker Nancy Pelosi and other California Democrats sent a letter to the Department of Justice, the Federal Reserve and the Comptroller of the Currency urging a federal investigation into the matter. Sens. Robert Menendez and Al Franken have called on the Government Accountability Office to investigate.
How could this have possibly been going on?
After news reports revealed GMAC's problem on Sept. 20, a spokeswoman described it as a "procedural defect." Other servicers have said the issue is merely "technical" because the accuracy of the loan information did not change based on the affidavits.
The consolidation and transfer of servicing rights in the past few years has meant "documentation is not readily available," Lynyak said. Moreover, pooling and servicing agreements negotiated long before the housing crisis typically pay servicers an average of 40 basis points per loan — too little to cover the costs of foreclosure, he said.
Black blames what had been up to now lax oversight in states such as Florida. "What prompted this, in part, is the obscenity that is Florida, and the attempt to pervert the judiciary," Black said. "No prosecutors were stepping in and going after senior officers at the major lenders or the foreclosure mills."
"This is only the 'echo' epidemic of the far-deeper underlying fraud of millions of liar's loans," Black said.
Prosecutors could charge servicers with perpetrating a "fraud on the court," and hold them in contempt, which is punishable by fines, he said.
In foreclosure controversy, problems run deeper than flawed paperwork
In foreclosure controversy, problems run deeper than flawed paperwork
By Brady Dennis and Ariana Eunjung Cha
Washington Post Staff Writers
Wednesday, October 6, 2010; 11:12 PM
Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.
Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.
These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."
The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.
For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can't afford and waiting for the foreclosure process to begin anew.
For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.
For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again. Attorney General Eric H. Holder Jr. said Wednesday he is looking into the allegations of improper foreclosures, and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, said he plans to hold hearings on the issue.
At the core of the fights over the legal standing of banks in foreclosure cases is Mortgage Electronic Registration Systems, based in Reston.
The company, known as MERS, was created more than a decade ago by the mortgage industry, including mortgage giants Fannie Mae and Freddie Mac, GMAC, and the Mortgage Bankers Association.
MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.
The idea behind it was to build a centralized registry to track loans electronically as they were traded by big financial firms. Without this system, the business of creating massive securities made of thousands of mortgages would likely have never taken off. The company's role caused few objections until millions of homes began to fall into foreclosure.
In recent years, the company has faced numerous court challenges, including separate class-action lawsuits in California and Nevada - the epicenter of the foreclosure crisis. Lawyers in other states have also challenged the company's legal standing in court.
Kentucky lawyer Heather Boone McKeever has filed a state class-action suit and a federal civil racketeering class-action suit on behalf of homeowners facing foreclosure, alleging that MERS and financial firms that did business with it have tried to foreclose on homes without holding proper titles.
"They have no legal standing and no right to foreclose," McKeever said. "If you or I did this one time, we'd be in jail."
Judges in various states have also weighed in.
In August, the Maine Supreme Court threw out a foreclosure case because "MERS did not have a stake in the proceedings and therefore had no standing to initiate the foreclosure action."
In May, a New York judge dismissed another case because the assignment of the loan by MERS to the bank HSBC was "defective," he said. The plaintiff's counsel seemed to be "operating in a parallel mortgage universe," the judge wrote.
Also in May, a California judge said MERS could not foreclose on a home, because it was merely a representative for Citibank and did not own the loan.
On the other hand, Minnesota legislators passed a law stating that MERS explicitly has the right to bring foreclosure cases. And on its Web site and in e-mails, MERS cites numerous court decisions around the country that it says demonstrate the company's right to act on behalf of lenders and to undertake foreclosures.
"Assertions that somehow MERS creates a defect in the mortgage or deed of trust are not supported by the facts," a company spokeswoman said.
But that's precisely what lawyers are arguing with more frequency throughout the country. If such an argument gains traction in the wake of recent foreclosure moratoriums, the consequences for banks could be enormous.
"It's an issue of the whole process of foreclosure having been so muddied by the [securitization] process," said Bush, the banking analyst. "It is no longer a straightforward legalistic process, which is what foreclosures are supposed to be."
Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.
But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks' paperwork problems have been laid bare, she said.
The result: "Banks are vulnerable to lawsuits from investors in the [securitization] trusts," Tavakoli said.
Referring to the federal government's $700 billion Troubled Assets Relief Program for banks, she added, "This problem could cost the banks significantly more money, which could mean TARP II."
dennisb@washpost.com chaa@washpost.com
By Brady Dennis and Ariana Eunjung Cha
Washington Post Staff Writers
Wednesday, October 6, 2010; 11:12 PM
Millions of U.S. mortgages have been shuttled around the global financial system - sold and resold by firms - without the documents that traditionally prove who legally owns the loans.
Now, as many of these loans have fallen into default and banks have sought to seize homes, judges around the country have increasingly ruled that lenders had no right to foreclose, because they lacked clear title.
These fundamental concerns over ownership extend beyond those that surfaced over the past two weeks amid reports of fraudulent loan documents and corporate "robo-signers."
The court decisions, should they continue to spread, could call into doubt the ownership of mortgages throughout the country, raising urgent challenges for both the real estate market and the wider financial system.
For struggling homeowners trying to avoid foreclosure, it could mean an opportunity to challenge the banks they argue have been unhelpful at best and deceptive at worst. But it also threatens to leave them in prolonged limbo, stuck in homes they still can't afford and waiting for the foreclosure process to begin anew.
For big banks, "there's a possible nightmare scenario here that no foreclosure is valid," said Nancy Bush, a banking analyst from NAB Research. If millions of foreclosures past and present were invalidated because of the way the hurried securitization process muddied the chain of ownership, banks could face lawsuits from homeowners and from investors who bought stakes in the mortgage securities - an expensive and potentially crippling proposition.
For the fragile housing market, already clogged with foreclosure cases, it could mean gridlock and confusion for years. And there is concern in Washington that if the real estate market and financial institutions suffer harm, it could force the government to step in again. Attorney General Eric H. Holder Jr. said Wednesday he is looking into the allegations of improper foreclosures, and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, said he plans to hold hearings on the issue.
At the core of the fights over the legal standing of banks in foreclosure cases is Mortgage Electronic Registration Systems, based in Reston.
The company, known as MERS, was created more than a decade ago by the mortgage industry, including mortgage giants Fannie Mae and Freddie Mac, GMAC, and the Mortgage Bankers Association.
MERS allowed big financial firms to trade mortgages at lightning speed while largely bypassing local property laws throughout the country that required new forms and filing fees each time a loan changed hands, lawyers say.
The idea behind it was to build a centralized registry to track loans electronically as they were traded by big financial firms. Without this system, the business of creating massive securities made of thousands of mortgages would likely have never taken off. The company's role caused few objections until millions of homes began to fall into foreclosure.
In recent years, the company has faced numerous court challenges, including separate class-action lawsuits in California and Nevada - the epicenter of the foreclosure crisis. Lawyers in other states have also challenged the company's legal standing in court.
Kentucky lawyer Heather Boone McKeever has filed a state class-action suit and a federal civil racketeering class-action suit on behalf of homeowners facing foreclosure, alleging that MERS and financial firms that did business with it have tried to foreclose on homes without holding proper titles.
"They have no legal standing and no right to foreclose," McKeever said. "If you or I did this one time, we'd be in jail."
Judges in various states have also weighed in.
In August, the Maine Supreme Court threw out a foreclosure case because "MERS did not have a stake in the proceedings and therefore had no standing to initiate the foreclosure action."
In May, a New York judge dismissed another case because the assignment of the loan by MERS to the bank HSBC was "defective," he said. The plaintiff's counsel seemed to be "operating in a parallel mortgage universe," the judge wrote.
Also in May, a California judge said MERS could not foreclose on a home, because it was merely a representative for Citibank and did not own the loan.
On the other hand, Minnesota legislators passed a law stating that MERS explicitly has the right to bring foreclosure cases. And on its Web site and in e-mails, MERS cites numerous court decisions around the country that it says demonstrate the company's right to act on behalf of lenders and to undertake foreclosures.
"Assertions that somehow MERS creates a defect in the mortgage or deed of trust are not supported by the facts," a company spokeswoman said.
But that's precisely what lawyers are arguing with more frequency throughout the country. If such an argument gains traction in the wake of recent foreclosure moratoriums, the consequences for banks could be enormous.
"It's an issue of the whole process of foreclosure having been so muddied by the [securitization] process," said Bush, the banking analyst. "It is no longer a straightforward legalistic process, which is what foreclosures are supposed to be."
Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.
But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks' paperwork problems have been laid bare, she said.
The result: "Banks are vulnerable to lawsuits from investors in the [securitization] trusts," Tavakoli said.
Referring to the federal government's $700 billion Troubled Assets Relief Program for banks, she added, "This problem could cost the banks significantly more money, which could mean TARP II."
dennisb@washpost.com chaa@washpost.com
Pelosi Calls For Investigation Of Foreclosure Fraud
http://www.huffingtonpost.com/2010/10/05/democrats-call-for-invest_n_751373.html
First Posted: 10- 5-10 04:17 PM
Updated: 10- 6-10 08:02 AM
House Speaker Nancy Pelosi and the other California Democrats are calling for an investigation into the foreclosure fraud scandal that has forced the nation's biggest banks to halt foreclosures in 23 states.
"It just shows the irresponsibility of the banks, so eager were they to securitize those loans they didn't care almost what they were," said House Speaker Nancy Pelosi (D-Calif.) in an interview with HuffPost on Tuesday.
Bank of America, JPMorgan Chase, and Ally Financial (formerly known as GMAC) halted foreclosures in 23 states after employees admitted in sworn depositions that they didn't verify information in thousands of foreclosure documents.
The California delegation sent a letter to Attorney General Eric Holder, Fed Chairman Ben Bernanke, and Comptroller of the Currency John Dugan demanding an investigation into "possible violations of law or regulations by financial institutions in their handling of delinquent mortgages, mortgage modifications, and foreclosures."
In the Senate, Sen. Bob Menendez (D-N.J.) sent letters to Bank of America, JPMorgan Chase, GMAC, and 117 mortgage servicing companies demanding to know what they've done in light of the paperwork scandal. Menendez and Sen. Al Franken (D-Minn.) asked the Government Accountability Office to investigate as well, and Sen. Jeff Merkley (D-Ore.) sent a similar request to Treasury Secretary Tim Geithner and Housing and Urban Development Secretary Shaun Donovan on Monday.
"After all that has transpired in our economy, Wall Street should act responsibly toward and cooperatively with Main Street families," said Menendez in a statement. "This rushed and bureaucratic approach to actions as significant as foreclosures would suggest otherwise. I want to know how deep this problem goes and what safeguards are now in place to prevent unjustified rubber-stamp foreclosures from happening in the future."
Servicers' use of false affidavits to prove they have the right to foreclose recalls the predatory lending and "liar's loans" that fed the housing bubble in the first place.
"It really does show you, though, left to their own devices, [the banks] no sense of community, no sense of what's right for our country," said Pelosi. "Just get something so we can turn it into a financial instrument so we can short it or long it or whatever, and privatize the gain and nationalize the risk, both to the taxpayer, to the homeowner, to the consumer, it's stunning. This is a very big deal."
Michael Steel, a spokesman for House Minority Leader Rep. John Boehner (R-Ohio), said, "At a time when economic uncertainty and unemployment are putting great pressure on homeowners and the housing market, it is imperative that we get all of the facts about this situation, and quickly."
First Posted: 10- 5-10 04:17 PM
Updated: 10- 6-10 08:02 AM
House Speaker Nancy Pelosi and the other California Democrats are calling for an investigation into the foreclosure fraud scandal that has forced the nation's biggest banks to halt foreclosures in 23 states.
"It just shows the irresponsibility of the banks, so eager were they to securitize those loans they didn't care almost what they were," said House Speaker Nancy Pelosi (D-Calif.) in an interview with HuffPost on Tuesday.
Bank of America, JPMorgan Chase, and Ally Financial (formerly known as GMAC) halted foreclosures in 23 states after employees admitted in sworn depositions that they didn't verify information in thousands of foreclosure documents.
The California delegation sent a letter to Attorney General Eric Holder, Fed Chairman Ben Bernanke, and Comptroller of the Currency John Dugan demanding an investigation into "possible violations of law or regulations by financial institutions in their handling of delinquent mortgages, mortgage modifications, and foreclosures."
In the Senate, Sen. Bob Menendez (D-N.J.) sent letters to Bank of America, JPMorgan Chase, GMAC, and 117 mortgage servicing companies demanding to know what they've done in light of the paperwork scandal. Menendez and Sen. Al Franken (D-Minn.) asked the Government Accountability Office to investigate as well, and Sen. Jeff Merkley (D-Ore.) sent a similar request to Treasury Secretary Tim Geithner and Housing and Urban Development Secretary Shaun Donovan on Monday.
"After all that has transpired in our economy, Wall Street should act responsibly toward and cooperatively with Main Street families," said Menendez in a statement. "This rushed and bureaucratic approach to actions as significant as foreclosures would suggest otherwise. I want to know how deep this problem goes and what safeguards are now in place to prevent unjustified rubber-stamp foreclosures from happening in the future."
Servicers' use of false affidavits to prove they have the right to foreclose recalls the predatory lending and "liar's loans" that fed the housing bubble in the first place.
"It really does show you, though, left to their own devices, [the banks] no sense of community, no sense of what's right for our country," said Pelosi. "Just get something so we can turn it into a financial instrument so we can short it or long it or whatever, and privatize the gain and nationalize the risk, both to the taxpayer, to the homeowner, to the consumer, it's stunning. This is a very big deal."
Michael Steel, a spokesman for House Minority Leader Rep. John Boehner (R-Ohio), said, "At a time when economic uncertainty and unemployment are putting great pressure on homeowners and the housing market, it is imperative that we get all of the facts about this situation, and quickly."
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