Posted by kevin on April 25, 2013 under Foreclosure Blog | 
New Jersey has not done too well during the mortgage crisis. Unemployment has been higher than the national average. Foreclosures have topped 150,000 since 2008 with a backup of probably another 100,000. The courts have been reluctant to find problems with issues like predatory lending, consumer fraud and the like. The NJ Home Ownership Security Act, a supposed strong consumer protection act, turned out to be a paper tiger because basically, it does not apply to 99.9999% of mortgages. The mediation program has run out of money. At the same time, NJ has the second highest foreclosure inventory in the country and NJ is one of only 4 states where foreclosures were up in the last year.
Amid all this less than sterling news, I came across something positive. Assemblyman Troy Singleton from Mount Laurel proposed a bill (A3915) to create the Mortgage Assistance Pilot Program to be run by the New Jersey Housing and Mortgage Finance Agency (HMFA). The purpose of the program is to allow homeowners who are in default of a mortgage owned by HMFA to lower the prinicpal owed on the mortgage if the property is underwater (more is owed than the property is worth).
The specifics: Principal could be reduced up to 30% and interest could be reset to current market rates. For example, you owe $500,000 at 8% on a property worth $300,000. Under this bill , the principal could be reduced to $300,000 and interest (30 years fixed fully amortized) could come down to the low to mid 3’s. That could be a huge savings.
In return, the homeowner is required to retain ownership the property for 5 years, and upon sale, must share any appreciation with HMFA to the extent of the reduction (If the mortgage principal is reduced by 30%, HMFA gets 30% of the appreciation upon sale.) If the owner sells before the 5 year holding period, another 5% is tacked on HMFA’s share.
Back in 2009, I routinely included equity sharing as part of any settlement proposal that I made to a lender/servicer. It was routinely rejected. Now, it appears that the environment may be ready for such a concept. Besides the usual problems involved in turning a bill into law, my chief concern with A3915 is the scope of the legislation. Since the program only applies to mortgages owned by HMFA, how many homeowners will be able to get relief. If HMFA is going to go out and buy New Jersey mortgages to supplement its inventory, where is the money coming from? My concern is that A3915 will become another NJ HOSA- great on paper but of limited utility. Notwithstanding I commend Assemblyman Singleton for attempting to address a big problem here in NJ.
Posted by kevin on April 14, 2013 under Foreclosure Blog |
http://www.youtube.com/watch?v=Xvi7RNr8s4A.
Check out the You Tube. It’s only about 4 minutes. Elizabeth Warren takes two federal bank regulators to task for waffling on whether their agencies will provide evidence of illegal activity of the banks to families who were victimized so the families could bring lawsuits against the banks.
Bank regulators are supposed to serve the public by regulating the banks. Instead it appears that they are protecting the banks. Why? Well, when I was an intern at the SEC many years ago, my boss told me that the only to get to the bottom of a complex factual/legal scenario was to follow the money. The great criminal of the early 20th century, Willie Sutton, was asked why he robbed banks. Sutton reply because that is where the money is. Regulators know that one day, they will leave government service. Then, they would need to get a job. Ponder the choices. Get a job with a large bank where the money is and where you have made friends, or go to work for a consumer group? You got a mortgage and two kids to educate. Not a real tough choice. No wonder why some of regulators appear more interested in not pissing off their prospective employers than in protecting the public.
It is no different on the state level. Clearly, there has been an overabundance of predatory lending. Yet, I have not seen any reported decisions in NJ finding predatory lending since the mortgage crisis. Is that because the borrowers’ attorneys never raise this issue? No. Or could it be that Countrywide, WAMU, New Century and the like made sure that their loans were clean as the driven snow because of the fear of swift and definite punishment for violation of the law in NJ? I don’t think so.
The Romans had a phrase that summed up their view of business. It was “Caveat Emptor” Let the buyer beware. In other words, it was assumed that the seller of a product or service would try to rip you off. So, it was up to the buyer to defend himself and family from the predatory seller. Over the centuries, however, the courts realized that a large seller and a buyer were not on equal footing. In the mid-twentieth century, consumer laws were enacted to protect the little guy. Our leading law is the Consumer Fraud Act which applies to mortgages. Isn’t it about time that the courts turn to the CFA big time to level the playing field. If it is done, 30-40-50 times, the banks will get the message, settlements will miraculously appear, and the housing crisis will end much sooner than it will under the present course.
Posted by kevin on April 5, 2013 under Foreclosure Blog |
Earlier this week, I blogged about the Chairperson of he SEC going to Promontory, the audit company that has come under fire because of the botched Independent Foreclosure Reviews. Yesterday, the Government Accountability Office (GAO) faulted the Office of the Comptroller of Currency (OCC) and Federal Reserve for not insuring that banks were using consistent methods to determine which foreclosure files to scrutinize for possible errors.
Auditors including Promontory Financial Group, rather than following through on the audits, pushed for settlement. The settlement is listed at $9.3 billion, but like the so-called $25 billion settlement, the lenders are putting up only a small fraction of the settlement in hard cash. The rest are a complicated scheme of credits that defy common sense. More importantly, by abandoning the audits, the questions becomes, how do you know who is entitled to settlement proceeds and how much?
The GAO did not focus on these practical issues, but just said that the auditors should have at least had the same checklist for their audits- otherwise people with the same issue could get a different result. GAO said that the buck stopped with OCC and the Fed. I guess they dropped the buck.
The borrowers are the people. And the people get the short end when government takes care of the big guys. Our greatest President (or at least in the top 2) has been in the press a lot over the last couple of months because of the Spielberg movie. I wonder what Mr. Lincoln would think of this government of the people, by the people, for the people?
Posted by kevin on April 4, 2013 under Foreclosure Blog |
In a prior blog, I informed you that the mediation program was being cut back because it ran out of funds. Bad thing, right? Well, my grandmother used to tell me that God closes one door only to open another. I am hoping that is the case with the mediation program.
As my website states, we fight foreclosures. Why? Because we like to fight? We hate the lenders? We live to litigate? No, because by pushing back, we hope to get a better settlement.
There is certainly room for settlement. Properties all over NJ are underwater, particularly in urban areas in Passaic, Hudson and Essex Counties. People from all over NJ got mortgages that they could not afford based on inflated property values that may or may not have been legit in 2006, but certainly bear no resemblence to reality in 2013. In other words, you may owe $500,000 on a house that is worth only $300,000. If the lender throws you out on the street in a foreclosure, then the lender has to sell the property. No one today will pay more than $300,000 (and probably less) for a property whose fair market value is $300,000. It is irrelevant that $500,000 is owed. Moreover, many of my clients don’t want to make a deal where they owe twice what the house is worth because it will take 20 years to dig out. So, why don’t the lenders make a deal based on fair market value? (I have theories on that which I will share with you in future blogs- but let’s stick with this point.)
One of the reasons for lender intransigence is that their lawyers perceive that the courts are not beating them over a head with a hammer to be reasonable. Up until now, the judges have been pretty much invisible in settlement negotiations. Now, I am not blaming the judges entirely. Chancery judges got hit with a tsunami of foreclosure lawsuits with little help. They were buried. The mediation program pretty much sidestepped the judges, who historically have been the architects of settlement in the NJ court system. Mediators try hard but the lenders know that they have no teeth. So, in effect, the lenders or, more appropriately, their servicers have taken over the process and not for the benefit of the borrowers.
Now, mediation is in trouble. There is no funding for lawyers helping borrowers or HUD counselors. Pretty soon there will be no money for mediators. How can that be good? I’ll tell you. If no one else is left, the judges will be forced to step into the fray. Just yesterday at a discovery conference, a judge in Bergen nearly floored me when he said that he is available for settlement conferences. Believe me, I have not heard that often in the last 3 years. In the Guillaume case, the Supreme Court said that, historically, chancery judges have the power and flexibility to make case by case determinations relating to the Fair Foreclosure Act. Why not use that power, experience and flexibility to effect reasonable, practical settlements?
Maybe the right door will open.
Posted by kevin on April 2, 2013 under Foreclosure Blog |
A recurring theme in this blog is the sad fact the government has done little to protect the homeowner in the mortgage crisis. This applies to the federal government, the state government and the judiciary.
Last week, you may have read articles about the DOJ arresting hedge fund types for insider trading. Like the old days. The feds swoop down on the guy in the $2000 suit, read him his rights, handcuff him and make him do the perp walk usually in front of news cameras. The feds, including the SEC, have always been good at insider trading cases. That is when people share non-public or insider information and make a profit on the sale of a security.
But, what about going after the banks or investment houses for all the illegal mortgages. Not a good a record. One of the reasons why is that the regulators are too close to the people they are supposed to regulate. You don’t want to bite the next hand that is going to feed you.
This morning’s WSJ has a lead article that Mary Schapiro, the chairman of the SEC, is taking a job with Promontary Financial Group. Promontory was the lead auditor hired by the OCC for the Independent Foreclosure Review. What a fiasco! The OCC allowed the banks to pick their own auditor (sort of like the Yankees picking their own umps). When the review indicated much more funny business than the banks had advised, what did Promontory do? They stopped the audit and came to some sort of settlement most of which was never paid (to date). This whole debacle was presented over a period of months in Yves Smith’s excellent blog, Naked Capitalism. On top of that, Schapiro is being considered for board membership at GE with a yearly stipend of $250,000. Cha ching.
Now, I am not saying that Ms. Schapiro is not qualified for the job that she will take at Promontory. And I am not saying that she is not entitled to make money in our capitalist society. However, I am saying that it leaves the public with a bad taste in their mouths when high ranking officials go to the other side of the street and work for the same companies that have added to the economic woes of the average American.
