Posted by kevin on August 26, 2013 under Foreclosure Blog | 
Earlier this month, newspaper articles surfaced which stated that the US Justice Department has stepped up its investigation of Bear Stearns’ mortgage dealings in the run up of the mortgage crisis. Bear Stearns was purchased by JP Morgan Chase, with more than a little arm twisting by the feds. Now, JP Morgan is holding the bag.
At the same time, US prosecutors in California have been investigating JP Morgan based on Bear Stearns sale of mortgage bonds.
Back at the beginning of the mortgage crisis, the Justice Department indicted two executives of a hedge fund set up by Bear Stearns on the basis that they defrauded investors. Notwithstading huge losses and some rather questionable emails sent and received by these individuals, the jury did not convict. The Justice Department backed off, but it appears that they are engaged once again.
I had a case against JP Morgan based on a piggyback loan which was bought and then securitized by Bear Stearns. The key to the case was that I was able to get my hands on the “real” closing file from the mortgage broker. In that file was a set of underwriting documents which indicated that Bear Stearns did not want the borrower to produce any documents which verified the income of the borrower. Coupled with the testimony from the mortgage broker that Bear Stearns would not have bought the loan unless the mortgage broker followed the instructions of Bear Stearns, I was able to fashion a very favorable settlement for my client. The settlement was approved by the bankruptcy court.
Unfortunately, we rarely get to see the “entire” file in discovery. Plaintiffs in foreclosure cases produce significant amounts of documents but, from our perspective, it probably is not the entire file. The problem from our end is that it is difficult to pinpoint something that is not there, especially considering that closing documents are not uniform. You always get the note, mortgage, HUD-1, TILA Disclosure Statement and like documents. What you never get is the underwriting criteria of the originator or more aptly, the sponsor of the securitized trust (that is the entity that is calling the shots).
While borrowers may not get the key documents, the DOJ should not be in the same position. They have the power of the government behind them. Clearly, the government is starting to use its vast powers, at this late date, to expose the lenders and investment houses for their role in the mortgage meltdown.
Posted by kevin on August 14, 2013 under Foreclosure Blog |
Last week, I blogged about the lawsuit against Bank of America pending in Massachusetts. Within a few weeks of that suit, another group of homeowners in Colorado brought a lawsuit in the federal court alleging that BOA and its contractor, Urban Lending Solutions, ran a scheme to deny permanent modifications in contravention of the federal RICO Act.
The RICO Act was initially used to allow federal law enforcement more flexibility in going after organized crime. Over the years, however, its use has been extended to what would be considered business type activities. Moreover, the RICO statute provides for a private right of action (meaning individuals and not just the government can sue under the statute) and allows legal fees to a prevailing plaintiff.
Interestingly enough, the complaint filed in Colorado cites statements made by former BOA employees in the Massachusetts case. It alleges that BOA and Urban Lending Solutions conspired, in some cases, to push borrowers into more expensive “in house” mods rather than HAMP mods. It also alleges that in other cases, BOA advised borrowers to send their financial information to Urban Lending Solutions. Urban became the “black hole” for documents sent by homeowers. Ultimately, the mod applications were denied in a wholesale manner.
BOA and Urban Lending Solutions have denied any culpability. Notwithstanding with 2 federal lawsuits filed in the last two months both alleging widespread fraud in the modification area, regulators and members of Congress are taking notice.
Irrespective of the outcome of these specific cases, it is my opinion that if the courts in Colorado and Massachusetts rule unequivocally that borrowers have standing to sue in HAMP/mod situations, the defense bar (lawyers who represent homeowners) will have a big victory.
Posted by kevin on August 11, 2013 under Foreclosure Blog |
In mid June, 2013, it was reported in the financial news that a lawsuit had been brought against BOA in the US District Court in Massachusetts claiming that BOA routinely denied borrows permanent modifications under HAMP. So what else is new? Well, in this case, the borrowers enlisted the help of 5 former BOA employees who are providing testimony against their ex-employers. BTW BOA vigorously denies these allegations stating they are absurd and patently false. Having been in the trenches for the last 4 years, I wonder???
Now, a program that is basically run by the servicer, who is
1. the agent for the bank;
2. paid by the bank or the trustee in a securitized trust; and
3. in many instances, stands to make more from a foreclosure than a modification of the loan
would never jerk around a borrower. If you believe that, I have a bridge you may want to buy.
The allegations of borrowers echo what defense counsel has heard since HAMP was instituted. Documents are conveniently lost. The borrower cannot speak with the same person twice. Decisions are not made. Permanent mods are denied after the bank or trust has taken numerous trial mod payments.
What makes this Massachusetts lawsuit different is that the borrowers have statements from ex-employees who claim that:
1. they were instructed to inform homeowners that modification documents were not timely received, not received at all, or missing when they were, in fact, received and in a timely manner.
2. employees were rewarded with cash bonus or gift cards for meeting a quota for monthly foreclosures.
3. employees were encouraged to do anything they could to maximize fees to the bank including lying.
Moreover, the employees are from different BOA offices around the country.
Now, I do not know if these employees are telling the truth. However, can they all be lying? Especially in light of a rich history of borrower complaints all over the country. Even in NJ, judges comment about the problems that borrowers face in obtaining a modification.
I look forward to seeing how this litigation shakes out. I hope that the Judge in Massachusetts does not bounce the case on some procedural technicality, but decides it on the merits.
As I say on my website and blog, I believe that on paper, the new re-incarnation of HAMP is vastly better than previous versions. However, that pre-supposes that the servicer is going to play it straight. Unfortunately, the stories of many borrowers (including many of my clients) question that proposition. Maybe if BOA gets slammed for punitive damages in this lawsuit, servicers may think twice before they play it fast and loose.
Posted by kevin on August 7, 2013 under Foreclosure Blog |
Effective July 1, 2013, Freddie Mac came out with its Streamlined Modification program. It applies to loans that are more than 90 days but less than 720 days delinquent. It does not require financial information.
According to the Guide, the servicer is supposed to solicit applications for the program. If an application is filed by the borrower and he or she otherwise qualifies, the servicer obtains a Broker Price Opinion (we generally refer to that as a Comparative Market Analysis (“CMA”), but a BPO is not required for a manufactured home or 2-4 family homes. Once the analysis is completed by the servicer, a trial payment plan is sent to the borrower. If all payments are made timely during the three month trial period, a permanent modification is given.
Say you had a HAMP mod proposal pending on the effective date, and your servicer sends you an invitation to the Streamlined Modification program. You apply for a streamlined mod and get it. You also get a regular HAMP modification. In that case, you get to keep the modification which is most beneficial to you and your family.
As part of the streamlined mod process, Freddie Mac is sending out to servicers a new software package called Workout Prospector which was supposed to be available July 15.
One caveat. Under the streamlined mod program, the servicer is required to offer a mod that is better than what you are currently paying. There is no provision that it must be a minimum of 10% better or that it is tied into your ability to pay. So, if you are currently paying $3000 per month P&I, a reduction to $2950 is deemed an acceptable mod. Clearly, with substantial arrearages, a de minimus reduction such as the example is not going to help anybody.
NO DOC sounds good on its face. Certainly, it is easy. But without your financial data, how does Freddie know whether the mod offer is affordable? Isn’t a predatory loan one that the borrower cannot afford to pay based on his or her income? I am concerned that the streamlined mod program may give us a slew of predatory modifications.
Let’s see how this plays out.
