Posted by kevin on March 30, 2018 under Foreclosure Blog | 
I have not posted in a few months because there was little happening of any interest to borrowers. I continue to read the “advance sheets” which have a few, what are referred to as, “unpublished” appellate decisions in New Jersey over the last couple of months. All borrower appeals were rejected.
A war story. I appeared in court in January to stay a sheriff sale. The background: Loan in 2007, foreclosure by BAC in 2009. Client was offered a modification in 2010, but the offer was withdrawn by BAC because they claimed the modification acceptance arrived late. Perhaps, the fact that the borrower does not speak, read or write English had something to do with that. The robo-signing stay in NJ put the case on hold for 8 months; however, after the stay was lifted, BAC did nothing for two years. The Clerk moved to dismiss but BAC got the case reinstated in 2014. After reinstatement, BAC once again did nothing and the case was dismissed in 2016. All the while, interest and fees are piling up. In late 2016, Bank of America filed a second foreclosure.
I became involved in 2017 just about the time that final judgment was entered. We applied for a loan modification under a so-called proprietary modification plan. That means that it is the lender’s (or servicer’s) in house mod plan. The problem was that the BOA never made public what the guidelines were for obtaining their proprietary plans. The servicer notified me that my client did not have sufficient income to obtain a modification under the investment property modification plan. I called the “point of contact” person and requested information about the plan guidelines so that I could confirm whether, in fact, my client did to qualify, and how much more income he would need to qualify. The reason was that the borrower’s son, who had substantial income, was willing to sign on the loan (which was disclosed to the servicer). Neither the point of contact person nor her supervisor, could tell me how much income was needed to qualify for the investment property mod plan. They could not (or would not) give me a copy of the plan guidelines. At BOA’s suggestion, we appealed the decision but were again rejected.
I served a QWR (qualified written request) to ascertain the plan terms and received a reply that borrower did not have sufficient income to qualify. I served a Notice of Error and the response from BOA is that they did not have to tell us the plan guidelines since it was proprietary. WTF? I once again told the servicer that the son was willing to sign on the loan and provided his income documentation. BOA refused to consider any amendment and refused to put off the sale.
The Judge heard the case, listened to my arguments and said that BOA was under no obligation to offer my client a modification. That is true, but was not the point. The point was that once a servicer or lender publicizes that it has a modification program and invites the borrowing public to apply for such a modification, it should be compelled to make public the terms for qualifying for such a program. Otherwise, we are dealing with an Alice in Wonderland situation. The Judge did not see it that way and my client lost the property.
Draw your own conclusions.
Posted by kevin on December 24, 2017 under Foreclosure Blog |
I became involved with foreclosures in the late 1980’s representing both lenders and borrowers. By 2000, however, my only involvement with foreclosures was an outgrowth of my bankruptcy practice. Around 2007, I began reading articles from bankruptcy attorneys, including Max Gardner, about the looming problems in the mortgage markets. In 2008 with the fall of Bear Stearns, I read more about how the US (and the world) had gotten itself into the problem that we now call the mortgage crisis. Securitized trusts, Fannie and Freddie lowering requirements to buy loans, variable rate loans and negative amortization loans, stated income loans and no income loans, robo-signing and servicing “irregularities”, predatory lending and outright fraud. The conservative mortgage lending industry became like Las Vegas.
In NJ, foreclosures averaged about 15,000 per year. But by 2008, the numbers were tripling or more. I wanted to get involved again with foreclosures. But this time, representing borrowers only. So, I did my research by looking at the electronic “advance sheets” to see how the courts were dealing with foreclosure cases. They were still treating foreclosures like it was 1980, and they were not listening to borrower arguments that the system was broke.
I knew that I had a general understanding of the then environment but I also knew that I did not know enough. I needed help. In mid-2009, by chance, I met Mike Lucey. He was an FHA underwriter who was working with borrowers facing foreclosure. More so, he was educating attorneys who represented borrowers about how to given the new lending environment.
Mike grew up in Brooklyn. He was a 240 lbs tough guy with hands like catcher’s mitts. He talked fast and expected you to pay attention. He knew all the lenders and servicers. He knew the people on Wall St who put together the deals. He understood Pooling and Servicing Agreements and how to exploit them. He could formulate arguments in foreclosure matters better than any attorney I had ever met. He taught me how to be an effective foreclosure defense attorney. Now, that is not to say that he did not drive me crazy at times, and we did not have our fair share of arguments loaded with expletives. But because of Mike, I was able to help scores of clients keep their homes.
Mike died yesterday from cancer and its aftereffects. He put up a valiant struggle. For all the people that I helped over the years, I want you to know that I could not have done it without Mike. Please say a prayer for Mike and his family.
Posted by kevin on September 7, 2017 under Foreclosure Blog |
Many times, borrowers served with a foreclosure complaint have asked, ‘if we are only $18,000 behind on the Note, how can the bank take the position that $500,000 is due?’ The answer is two-fold. First, in a foreclosure, the borrowers are not being sued for what is called a “money judgment”. The object of the foreclosure is to sell the collateral (your home) and pay off the loan. What gives the the lender the right to sell your home? That leads to the second point. Your Note and Mortgage give the lender the right to sell the collateral to pay off the loan. Moreover, the Note and Mortgage give the lender the right to accelerate the loan upon a default. That means even if you are late even one payment and that triggers a default, the entire amount of $500,000 is due at the option of the lender.
Is there anyway to de-accelerate the Note and Mortgage? Well, if your Note and Mortgage give you the right to reinstate, then you have an out. Otherwise, in the “old days”, you were basically at the mercy for your lender. It was the lender’s decision to de-accelerate the mortgage. If the lender consented, they usually tacked conditions on the consent in the form of payments of late fees, penalties and collection costs which sometimes seemed exorbitant under the circumstances.
In New Jersey, that all changed in 1995 with the passage of the Fair Foreclosure Act. That law applies to any residential mortgage, and gives the debtor the right at any time up to the entry of final judgment in a typical foreclosure to cure the default, and de-accelerate and reinstate the mortgage by paying the amounts due as set forth in the statute. The term “residential mortgage” clearly applies to your home. But it also applies to dwelling of up to 4 units one of which is occupied by the debtor of members of his/her family. In addition, the term residential mortgage can apply to a vacation home.
How much must you pay prior to the entry of final judgment? The law says all sums which would have been due in the absence of default. That means all principal, interest and escrow payments that you missed. In addition, the debtor is responsible to pay all late charges, court costs and attorneys fees permitted in foreclosure matters by the New Jersey Court Rules. Payment must be in the form of cash, cashier’s check or certified check. Although not specifically mentioned, a wire transfer into an account designated by the lender should satisfy the condition.
As with any statute, there are terms which are not exactly clear. So, besides the statute, borrowers may have to look at court opinions dealing with the statute. However, the short answer to our question is that under the right circumstances, borrowers have a right to reinstate a residential mortgage in New Jersey.
Posted by kevin on August 10, 2017 under Foreclosure Blog |
Last week, the New Jersey Supreme Court came down with a pro-borrower decision relating to enforcement of a modification agreement. Although this is good news for borrowers, my take is that the decision is driven by the facts of the case and may have limited application especially when applied by trial courts.
In GMAC v. Willoughby, the borrower closed a mortgage loan in February, 2006 and defaulted in June, 2006. Not good facts for a borrower going to court. GMAC foreclosed and received a final judgment. The trial court, however, stayed the sale (scheduled for September, 2009) so that the parties could go to court sponsored foreclosure mediation.
In May, 2010, the parties entered into a settlement. The mediator used the court approved form. The lender’s attorney wrote in the terms which included the borrower would pay $600 down and make trial payments of $1678. Upon payment during the trial period, a permanent modification would be offered which was final upon signing of the permanent mod agreements.
Well all the trial mod payments were made thru the end of May, 2011, but instead of a permanent mod, GMAC sent the borrower a new mod offer with a higher payment required. The borrower refused to sign the new mod, but made the higher payments and protested that the new deal was improper (to no avail). Then, in November, 2011 and then again in May, 2012, GMAC sent the borrower new modification agreements which she initially orally agreed to but she refused to sign the written agreements. However, she continued to make payments. So, GMAC (on behalf of the lender) decided to play hardball. They sent back the August, 2012 payment and the lender foreclosed. The borrower tried to enforce the May 2010 settlement agreement but the trial court said that the May 2010 agreement was provisional and not final, and the property went to sale. Note that the borrower paid over $58,000 on the May, 2010 modification agreement but apparently this fact did not move the trial court. On appeal, the appellate division affirmed the trial court.
Ms. Willoughby took the case up to the Supreme Court. The Supreme Court reversed and ordered the trial court to vacate the sale and reinstate the May 2010 settlement. The legal analysis was straightforward. The Supremes found that the settlement agreement constituted a valid contract. There was an offer and acceptance and the terms were definite. To the extent that any terms were not definite, the Supremes found that since the lender’s attorney filled in the terms, any ambiguity had to be construed against the lender. This is basic statutory construction. Moreover, the agreement stated that it was a final, binding and enforceable agreement. Finally, Ms. Willoughby relied on the finality of the agreement and made over 58K of payments.
I think four factors influenced the Supreme Court’s correct decision. First, GMAC was playing it pretty fast and loose. My experience has been that this is typical of lenders and servicers in many foreclosure situations. Second, the contract terms were pretty straightforward. Third, the borrower paid over 58K, and GMAC not only played games with her but pulled the rug out from under her. Fourth, (and this surprised me), the Supremes put a fair amount of emphasis on the NJ Mediation program as a vehicle for settlement. Reading between the lines, the Supremes seemed offended that the servicer treated the mediation process in such a cavalier manner If this were a straight modification without court sponsored mediation as a vehicle, would the decision be the same.
Factors One and Two should be enough for a victory but, I believe, they did not win the day for Willougby. What clearly was more important was that Willougby, in reliance on the settlement agreement, made over 58K of payments which GMAC glomed. This shows incredible good faith on the part of the borrower (which was totally ignored by the trial and appellate courts). The wildcard in this opinion is that fact that the settlement came out of court sponsored mediation. The opinion spent pages on this fact and the policy behind mediation. Would the decision have been the same if it was a straight modification application made through the servicer? I do not know.
Posted by kevin on July 25, 2017 under Foreclosure Blog |
NJ had 35,000 foreclosures filed in 2016. That is about one half the amount of annual foreclosure actions filed at the height of the mortgage crisis, but it is still significantly higher than the 20,253 foreclosures filed in 2005. And, at the time, 2005 was a record year.
Bankrate lists New Jersey as the worst state when it comes to foreclosures. Statewide the rate of foreclosure is one unit in 515. The national average is one unit in 1636.
There are a myriad of reasons for this dubious honor, but that is not the point of this blog. Readers should be aware that New Jersey still has a foreclosure problem. Individual home owners should be aware that there are steps to be taken if you fall behind on your mortgage.
The first thing that you should do if you are delinquent is not to bury your head in the sand, or hope that things will work out. If you take that approach, I assure you that things will not work out.
There are many factors which go into an analysis of a foreclosure situation. How much is the mortgage? How much is the property currently worth? Is it a single family residence or rental property? If rental, is it rented and for how much? What is your income? What is the monthly principal, interest, taxes and insurance (PITI)? Is the loan interest fixed or variable and what is the current rate? Is there a second mortgage? What other debts do you have? What loan documents do you have? Were you represented by an attorney in the loan transaction? And probably, the most basic factor is what is it you want to accomplish?
Once your situation is analyzed, you can start to put together a strategy. Maybe, you do not want to keep your home that is grossly “underwater”. In that case, a short sale may be an appropriate strategy. Maybe, you are only a few months behind and have significant credit card debt and doctor’s bills. In that case, a Chapter 7 or Chapter 13 bankruptcy may be an appropriate strategy. Maybe you were put into a loan that you could not afford. In that case, litigation (that is, fighting the foreclosure in court) may be the answer. Maybe you could benefit from a modification. Even though the federal HAMP program was phased out as of December 31, 2016, Fannie Mae and Freddie Mac have their own programs which could significantly lower your monthly payment. Moreover, private lenders have what are called “proprietary” mortgage modification programs which may be helpful.
As you can see, there are options available. Moreover, you are not limited to one option. I have had clients who fight the foreclosure in State court and then seek a modification, or a Chapter 13. Others seek a modification and then file Chapter 13, or seek a modification while in Chapter 13.
The key is, seek help early in the process. Even the most experienced foreclosure/bankruptcy attorney may not be able to help you if you call and say, ‘I have a sheriff sale tomorrow. Can you help?’
Posted by kevin on July 16, 2017 under Foreclosure Blog |
The Making Homes Affordable HAMP mortgage modification program expired on December 31, 2016. If you filed for modification before that date, you application will be considered until December 31, 2017. However, no new applications under HAMP after December 31, 2016. So, where are we at?
Well, the GSE’s (Fannie Mae, Freddie Mac) still have programs and most, if not all, servicers and lenders have their in-house programs.
For example, in December, 2016, Fannie Mae announced its new Flex program which combines features of the Fannie Mae HAMP, Standard and Streamlined modification programs. As with the prior programs, your loan has to be held by Fannie Mae in its own portfolio or sold to investors by Fannie Mae. Servicers can begin implementing the new program as early as March 1, 2017 but must implement the program no later than October 1, 2017. Borrowers who are delinquent or in imminent danger of default qualify. If the borrower is less than 90 days delinquent, PITIA (principal, interest, taxes, insurance, and HOA assessment) is based on 40% of gross income and the reduction in payment must be at least 20% of what the borrower had been previously paying. If more than 90 days delinquent, then the servicer considers only a 20% reduction. The program utilizes waterfalls similar to previous programs and does allow principal forbearance in certain situations. Although geared to primary residences, investment properties and vacation homes can be eligible if the loan is at least 60 days delinquent.
In-house programs exist just as before. They are sometimes called proprietary programs. I have dealt with so-called proprietary programs since 2012. The biggest problem is that the servicer does not publish the program guidelines so you are getting basically a pig in a poke. However, for the most part, the proprietary programs are similar to the HAMP programs in that the servicer will target PITIA payments at a percentage of income. Normally, the target is in the 30-40% of gross income range, but I did have a case with Bank of the West where they targeted PITIA at 50% of gross income. There are waterfalls to get to the target as with the HAMP loans. The biggest difference is that few proprietary modifications will take the loan out to 480 months from filing of the modification application. The worst case scenario is that the modification term is limited to the remaining term of the loan.
There is still a brisk market for mortgage modifications on their own, in conjunction with a foreclosure or in conjunction with Chapter 13 bankruptcy. Since the Dodd Frank modification rules kicked in in 2014, a foreclosing lender cannot start a foreclosure unless it has made a decision of a pending mortgage modification application. If the foreclosure has been filed, and the borrower files a complete mortgage modification application within 37 business days before the sales date, a lender is precluded from going to sheriff sale until it makes a decision on the modification application. That is Dodd Frank. Many servicers will put off the sale if the application is filed less than 37 business days of the sale. I have had situations where the servicer has put off the sale when the application was filed 10 business days before the sale, and I have also had situations where decisions, for whatever reason, have not been made for well over a year after the application is submitted.
So, if you are behind on your mortgage but have a job, you can still qualify for a mortgage modification. It would pay to look into that option.
Posted by kevin on June 26, 2017 under Foreclosure Blog |
About a year ago, I posted, bluntly, that borrowers need to be realistic in today’s foreclosure environment. I suggested that in NJ, there was a demographic element to predatory lending notwithstanding that the standard definitions of predatory lending in a residential setting put the emphasis on lending to someone based primarily on the value of the collateral and not on the ability of the borrower to repay.
In one of the last cases that I have seen in NJ on the issue of predatory lending with a positive result for the borrower, the court considered that the borrower and his family were recent immigrants from South America, who spoke limited English and were unfamiliar with American banking practices, and were forced to use their savings after they were scammed by an unscrupulous representative from a large mortgage originator. Clearly, a demographic element.
Recently, I had a case involving a man who was born in rural Columbia and attended school through the 9th grade. He worked as a subsistence farmer. In his mid-20’s, he moved to the US and worked in a factory by day and a bodega at night. Eventually, the people that owned the bodega retired and he took over. He works basically 7 days a week and makes about $36,000 per year. Over the years, he was able to save about $35,000.
He speaks little English and does not read or write in English. He was able to supply his store because he dealt with Spanish speaking suppliers. He wanted to buy a house in an urban area in NJ for his father and himself. He found a place for $465,000. It was a two family with a tenant in place.
He went to Countrywide for a loan. Countrywide assigned him to a Spanish speaking rep. He turned over his tax returns and bank statements. She filled out the loan application. She listed his income at $15K per month and indicated that he had 18 years of schooling. (When I told him this in our client interview through an interpreter, he was shocked.) Not only did they lend him $372K on a first mortgage, but gave him a line of credit to pay the remainder of the purchase price. His mortgage payments and escrows amounted to over $3700 while his total income including rental income was about $3900. He was forced to use his savings to pay the mortgage, and then went into default.
A classic case of predatory lending and consumer fraud with the demographic element. And how did we fare? The court granted summary judgment to the lender ignoring all arguments about predatory lending and consumer fraud. In addition, the borrower’s motion for discovery was denied.
Since the end of spring, I have turned down 4 , what would have been consider in 2010, strong cases involving instances of predatory lending. It is unfortunate, but a reality. In 2009, when I began to concentrate on foreclosure defense, litigation was a primary tactic. That is why I called this site fightforeclosureNJ.com. Now, litigation is one tactic among many that we consider with new clients. There still are alternatives for many homeowners faced with a mortgage situation; however, we must evaluate your fact situation in light of current court decisions and objectively set realistic goals.
Posted by kevin on November 26, 2016 under Foreclosure Blog |
Since the election, interest rates on residential mortgages are up by over 1/2 of 1 percent (0.005 or 50+ basis points, if my math is correct). As a result, refinancings are down significantly. Increased mortgage interest rates will make homes less affordable, so it is likely that home prices will not advance in 2017 like they have from 2012 to 2015.
A WSJ article indicates that since lenders are not going to be making as much money on re-fi’s, they are starting to push more risky adjustable rate mortgages and increasing loan to value ratios. Didn’t that lead to a meltdown in 2008?
At the same time, MHA or, more specifically, the HAMP mortgage modification program is phasing out as of 12-31-2016. With Trump being elected, it does not appear that this program will be renewed. Under HAMP I and HAMP II, interest rates can be reduced to 2%. What I have been seeing, however, is that servicers are trying to push my clients into so-called “proprietary modifications” which are not subject to MHA guidelines. With interest rates rising, the proprietaries are starting at 3% or more, usually, for 5 years, and then are being stepped up to over 5%.
At that rate, it would seem that many consumers will be priced out of mods.
There is still time to get a MHA/HAMP but time is running out
Posted by kevin on September 8, 2016 under Foreclosure Blog |
If I had $10 for every client or potential client that told me that they sent $1500, $3000, $5000, as high as $8000 to a mortgage modifier in California or Florida or wherever and not only never got a mortgage modification but just got a run around by the company that was supposedly representing them. Needless to say, they never got their money back.
The National Mortgage News just ran a story about a man from California who was ordered to pay $2.4 million in restitution and sentenced to 52 months in federal prison over his role in an alleged mortgage modification scam. He operated a series of California based companies that claimed to provide home loan modifications and other debt services to consumers across the country. They would cold call consumers and offer modifications for $2500-4300. Then, after they got their money, they would tell the consumer that they were approved for a modification. That was a lie.
I am not saying that there are not reputable companies on the internet that are performing mortgage modifications. What I am saying is be guided by the old saying, “Let the buyer beware”. Make sure you check out the background of the person you hire to do your modification.
The MHA mortgage program, sometimes called the HAMP program, is due to expire at the end of this year. If you had problems but are back on your feet, you may want to consider looking into a mortgage modification or refinancing under HARP before the program expires.
Posted by kevin on August 10, 2016 under Foreclosure Blog |
WSJ states that foreclosure sales are up while new foreclosures are down in NJ and NY. NJ has 6.2% of its home mortgages in foreclosure. Although down, that puts NJ #1 in the country. NY comes in at 4.6%. Most of the other states have less foreclosures not because their economy and housing market are in better shape than NJ and NY, but because they have already completed most of their foreclosures.
NJ and NY are called judicial foreclosure states. That means a lender has to file a lawsuit and obtain a judgment before it can foreclose. In non-judicial foreclosure cases, the borrower signs a Deed of Trust instead of a mortgage. If the borrower defaults, the trustee (after performing steps required by state where the property is located), lists the property for sale. The borrower then must file an affirmative lawsuit (in a short period of time) to attempt to put off the foreclosure. The result is that in non-judicial foreclosure states, there is lot less litigation, and houses go to sale much more quickly.
While foreclosures are still up in NJ and NY, foreclosure sales are up also. I can see two reasons for that. First, borrowers who have ask judges to put off sales because of hardship have exhausted the good will of a vast majority of the judges. Second, housing values have gone up over the last three years. When prices were down, mortgage holders put off the sale. They did not want to get stuck with the maintenance of the property while at the same time take a bath on any resale. However, with 30% rise in prices over the last 4 years, mortgage holders can recoup more money and. perhaps, even be made whole.
There are still strategies that will keep you in your house with the goal of getting a modification. But it is getting tougher.
Posted by kevin on August 5, 2016 under Foreclosure Blog |
I read an article in Bloomberg about new waves of regulations on mortgage backed securitizations in the EU. One recent proposal requires that the sponsor of a securitized trust must retain up to 20% of the offering. My experts have uncovered some offerings in the US from 2006-2007 where the sponsor is holding a much smaller precentage- known as the residual tranche.
So, what does this mean? In Europe, it appears that the regulators believe that if the sponsor has “skin in the game”, there is less chance that it will try to foist unduly risky investments onto the public. But the article set me to thinking. Looking at retaining an interest in the securitization from a litigation standpoint, such a regulation may open up new defenses for the borrower.
The object of most mortgaged backed securities (MBS) offering is that the trustee is buying the pool of mortgage loans from the sponsor through the depositor. On closing day, the sponsor through the depositor is selling the notes and mortgages to the trustee. The note, they claim and the courts have agreed, is a negotiable instrument. As the buyer of the note, the trustee can become a holder under Article 3 of the Uniform Commercial Code (UCC). A holder is the first step to becoming a holder in due course (HDC). The trustee wants to be an HDC because you take the note free and clear of most defenses to the note. It is like laundering the transaction.
So, if you had a subprime loan for 450K on income of 30K given to a person who did not speak or read or write English with a 500 FICO , you probably have a good case under predatory lending and consumer fraud. However, if the originator of that loan sold it to a securitized trust, the foreclosing trustee could argue that it is an HDC. The borrower may be able sue the originator, but vis-a-vis the trustee (who is foreclosing on the house), the borrower is usually SOL.. Not good for the borrower.
But, perhaps an argument could be made that the transaction is not a sale because the originator is keeping a portion of the loans. It is more akin to a security interest under Article 9 of the UCC. If Article 9 controls, the there can be no HDC and the trustee takes subject to all the bad things that the originator may have done.
NJ has take the approach, for the most part, that a borrower lacks standing to argue that the note is not in the securitized trust because it was not transferred in accordance with the terms of the Pooling and Servicing Agreement. I disagree with these holdings, and so does the Supreme Court of California and courts in other states. But so far, my argument plus $23 gets me a parking space at Citi Field.
Perhaps the argument that may get some traction is that because of the residual tranche, the transaction is not a sale of notes and mortgages but a secured transaction covered by Article 9. If that argument prevails, we might see more case law in NJ where the banksters get tagged for treble damanges and attorneys fees under the Consumer Fraud Act.
Posted by kevin on May 6, 2016 under Foreclosure Blog |
Seven years into the mortgage crisis, FHFA finally announced a program that could reduce principal on residential mortgage loans. This has been a political hot potato. After the bailout of FNMA (Fannie Mae) and FHLMC (Freddie Mac) (collectively known as the GSE’s), Director DeMarco was dead set against principal forgiveness. He was supported by Treasury Secretary Geithner. President Obama said that he was in favor of principal forgiveness but it took him about 6 years to get off the schneid. First, he had to replace DeMarco with a more sympathetic Director, Congressman Mel Watt. Two years later, a new program.
But, it is far from a uuuuge program. It affects about only 33,000 significantly underwater mortgages according to reports in Housingwire and National Mortgage News. That’s the bad news. The good news is that NJ has the highest share of properties eligible.
Here’s the deal. The property must be owner occupied, and you have to have been behind at least 90 days as of March 1, 2016. So, no strategic defaults. Fannie or Freddie have to either own the loan or have guaranteed it. The outstanding principal balance must be no more than $250,000 and the mark to market loan to value (MTMLTV) must exceed 115%.
You still capitalize earnings, reduce the interest rate and extend the loan. But the last step is that if the MTMLTV is greater than 115%, you reduce the MTMLTV to 115%. That amount according to one article is forgiven. According to another article, it is put in a suspense account at 0% interest, and if the borrower makes all required payments for a given amount of time, that amount is forgiven.
What the GSE’s had was a principal forbearance program. Same calculations which should lead to the same monthly payment. However, the lesser of 30% of the unpaid principal balance or amounts greater than 115% of MTMLTV is put in a suspense account with 0% interest. So, say that amount is $30,000. It stays in the suspense account until you pay off the loan, sell or refinance. Then, you have to pay back the $30,000 as a balloon payment.
Some may say, too little too late. But, I say it is worth looking into.
If you think you fit into this program or what like to see if you do (or if you are looking for a mortgage modification) contact us at kh@kevinhanlylaw.com.
Posted by kevin on May 1, 2016 under Foreclosure Blog |
The NJ Court Rules require that before an attorney submits a document to the court in any lawsuit, he or she must do a reasonable inquiry to ascertain that the factual allegations contained in the document have evidentiary support. In other words, you have to do your due diligence. The rules dealing with foreclosure complaints go a little further. The require the attorney to communicate with an employee of the lender or servicer who confirms that accuracy of the contents of the complaint, and, on top of that, the attorney must check the file to confirm that the employee is telling the truth. Sounds great on paper, but in practice in NJ, you have to wonder how seriously this obligation is taken.
The Consumer Financial Protection Bureau (CFPB) is an independent agency of the United States government responsible for consumer protection in the financial sector. Its jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors, other financial companies operating in the United States. It appears that the CFPB takes the due diligence requirements seriously.
In its April 25, 2016 press release, the CFPB stated that it entered into a consent order with NJ debt collection law firm Pressler & Pressler, LLP, two of its principal partners, and New Century Financial Services, Inc., a NJ based debt buyer, to stop churning out unfair and deceptive debt collection lawsuits based on flimsy or nonexistent evidence. The consent orders bar the companies and individuals from illegal practices that can deceive or intimidate consumers, such as filing lawsuits without determining if debts in question are valid. The orders also require the firm and the named partners to pay $1 million, and New Century to pay $1.5 million to the Bureau’s Civil Penalty Fund.
More specifically, the CFPB alleged that Pressler & Pressler used an automated claim-preparation system and non-attorney support staff to determine which consumers to sue. Attorneys generally spent less than a few minutes, sometimes less than 30 seconds, reviewing each case before initiating a lawsuit. This process allowed the firm to generate and file hundreds of thousands of lawsuits against consumers in New Jersey, New York, and Pennsylvania between 2009 and 2014. The CFPB contend that the respondents violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits unfair and deceptive acts or practices in the consumer financial marketplace.
On the other side of the issue, insideARM.com defended vigorously the actions of the law firm and lender, and pointed out that the settlement ultimately involves no consumer redress, no invalidation of judgments and no findings of the use of improper affidavit practices. That article, however, forgot to mention the $2.5 million in penalty payments to the CFPB’s Civil Penalty Fund made by Pressler and Pressler and New Century. Oversight? Or just a puff piece for the so-called “industry”
Will the courts follow the ruling of the CFPB and allow meaningful discovery on due diligence, or just accept without scrutiny the word of lender’s counsel that they did everything according to Hoyle. We shall see.
Posted by kevin on February 18, 2016 under Foreclosure Blog |
The HARP program allows certain homeowners who are current on their mortgage loan but underwater,the ability to refinance at a low interest rate. The loan must have closed prior to May 31, 2009 and is owned or guaranteed by Fannie Mae or Freddie Mac. The LTV (loan to value) must be greater than 80%. Current means no 30 day + payments in the last six months and no more than 1 late payment in the last 12 months.
The program is scheduled to sunset on December 31, 2016. It is not expected, at this time, that the program will be extended.
The FHFA is advertising in selected states advising people to check their eligibility and go forward before the deadline.
FHFA estimates that there are 13,800 borrowers in NJ who are eligible for HARP refinancing and about 400,000 nationwide.
If you fit into the criteria listed above and want to reduce your interest rate, check with your lender or servicer to see if they participate in the program.
Posted by kevin on under Foreclosure Blog |
Took a break for awhile. Spending lots of time doing modifications and checking into causes of action under Regulation X. Also, just wrapping up a Chapter 13 (5 payments to go). Saved the house, stripped the second mortgage, and got hefty sanctions against the servicer. Now, back to foreclosures.
I lived in NJ for my entire life with the exception of college and law school. So, I have been the recipient of all those barbs about New Jersey for a long time. Enough to give you a complex. So, a couple of months ago, when I saw in a local newspaper that NJ is #1 at something, it gets my attention. Only problem is that it said that NJ had the highest rate of foreclosure cases in the US. 1 out of 171 housing units is subject to a foreclosure filing. That is more than double the national average.
Looking more at the numbers, activity is up 27% over the prior year, but new foreclosures are actually down. That means that the vast majority of the cases are winding their way through the court system.
In the past three days, I have received calls from people who are at various stages of foreclosure. All need help. One just received a Notice of Intent to Foreclose. That is at the beginning of the process. Others are facing sheriff sale in less than 10 days. Those people are at the end of the process.
The facts are that the courts in NJ have trended in favor of lenders in foreclosure matters. The Feb 1 published decision in Curcio is just another indication that borrowers have an uphill battle. The trend is most pronounced at the end of the process. Once a default is entered, it is getting increasingly more difficult to convince a judge to set aside the default and allow the borrower to go forward with his or her case. Forget about situations where default judgment is entered. Your chances of overturning a default judgment or slim- less than 5%.
So, a little advice. If you are behind on your mortgage and get a Notice of Intent to Foreclose, get in to see an attorney. You may have a case that will resonate in the foreclosure court. Or you may have a situation where a Chapter 13 bankruptcy will work. A modification should always be considered, but if you follow the mod path without addressing the foreclosure, you are setting yourself up for a potential fall.
When you are dealing with an attorney, make sure that he or she is looking at an integrated approach which will utilize all your options to get a result that will work for you.
Posted by kevin on September 13, 2015 under Foreclosure Blog |
If you have read my blog over the last few years, you know that I represent borrowers. You know that I have pointed out forcefully what lenders and servicers have done wrong. Moreover, I have pointed out my frustrations with the courts, servicers, and government.
We are in the latter stages of the mortgage crisis. It is not clear that the federal government will continue the MHA- HAMP programs for much longer. However, there are still hundreds of thousands of mortgages that are in default and those cases need to be resolved.
So, you are a borrower. You may have gone into default when your option arm mortgage had an interest rate change. You could not afford the $3500 per month new payment You may have been in default for 2 or 2 1/2 years. Then, you were able to get a modification at $2800. Not a great deal, but it was better than being thrown out on the streets. You paid that for a year, but have not made any mortgage payments or real estate tax payments or insurance payments since the beginning of 2012. That comes out to more than $200,000 of payments that you have not made over the years and you still have a roof over your head.
Whoa! That does not sound too empathetic. But that is how most chancery judges in NJ are going to look at you. Chancery is the old equity court. Equity, they tell us, tries to balance the pro’s and con’s of a case to come out with a just decision. On the one hand, you, the borrower, took 200K, 400K, 600K and did not pay it back. On the other hand, the bank has shoddy paperwork or fudged your income (usually with the borrower’s knowledge). Does that mean you get a free house? That is tough for a judge to swallow.
Many of the procedural defenses such as standing in securitized trusts and violations of the Fair Foreclosure Act are no longer bases for relief. Potential clients call all the time and tell me that they were the victims of predatory lending because they were given a mortgage that they could not afford except by looking to the collateral. That is a primary definition of predatory lending under the federal regs and OCC guidelines, but it generally falls on deaf ears in court. In NJ, we have three published opinions (and a few more unpublished opinions) dealing with predatory lending and consumer fraud violations. One deals with a black family in Newark. The other deals with a Hispanic person on a modification. The third deals with an 83 year old woman who lost her house in a scam involving a contractor that took back a mortgage on her property to finance the installation of new aluminum siding.
What do these cases have in common? They all involve taking advantage of unsophisticated people who did not have a lawyer. Moreover, those unsophisticated people were either minorities or old people. In other words, in practical terms, it appears there is a demographic element to the way the law of predatory lending/consumer fraud is applied in NJ. Now, I do not believe that is a proper interpretation of what predatory lending is, but that is how it applied in NJ.
Each week, I have people call me and state that they are victims of predatory lending and/or they were jerked around by servicers in modification applications or they were scammed by a Florida or California outfit in the modification. They want me to guarantee that if I take their case, they will not be foreclosed on, or guarantee that there will not be a sale after judgment, or guarantee that they will get a modification that they deem affordable. And while you are at it, could you keep your fees low because money is an issue.
Neither I nor any other attorney can make such assurances except as follows: if you repay all arrearages before final judgment, your mortgage will be reinstated. Moreover, if you file bankruptcy, the foreclosure action will be stayed for a limited period of time in a Chapter 7 and could be effectively stayed for 5 years in a Chapter 13 if you make all required payments going forward including your current mortgage payments and all arrearages. Short of that, no guarantees.
What we can do is explain to you your defenses and come up with a strategy to defend the case through trial and possibly appeal. We can review your modification applications or put together a new one. We can analyze whether there are any violations of the Dodd-Frank regulations. We can analyze whether Chapter 13 makes sense for you. And we can tell you the approximate cost for each type of service. But we cannot pull rabbits out of hats no matter how much we would like to.
So, be realistic when you seek legal counsel.
Posted by kevin on August 7, 2015 under Foreclosure Blog |
Late last week, it was reported on Bloomberg News and other outlets that the AG of Utah had revived a suit against Bank of America (BOA) over illegal foreclosure practices. In addition, the current Utah AG charged two of his predecessors with corruption after they dropped out of a similar lawsuit against BOA. The BOA hook is what caught my eye. I read the account in Bloomberg and started drawing diagrams to represent the people and acts involved. After a while, I threw my hands up. Then, I looked at an articles in the Salt Lake Tribune and Fox News and started to piece it together. Note, that I am not saying that anyone did anything wrong. But it is an incredible series of events and allegations made by the current AG.
Here are the basics (and probably not all the basics), as best as I can figure out. The Bell’s filed a lawsuit against BOA alleging that they did not follow Utah law in foreclosing on their home and other homes in Utah. The AG’s office, headed by Mark Shurtleff, joined in the suit as an intervenor. According to the current AG, Sean Reyes, a few months later, Shurtleff dropped the lawsuit notwithstanding that the deputy AG’s handling the case believed they could prevail.
Another key player is John Swallow, who purportedly was Shurtleff’s chief deputy. It appears Shurtleff was stepping down as AG and Swallow ran for that office.
The Bell’s hosted a fundraiser for Swallow. Shortly after the fundraiser, Swallow engaged in settlement negotiations with BOA. It is inferred (altho I cannot see how it happened) in more than one of the articles that Swallow acted on behalf of the Bell’s. Then, BOA offered the Bell’s a mortgage modification that, according to Bloomberg, cut $1.13 million from the loan and reduced the interest rate from 7.5% to 2.65%. The Bell’s, presumably, dropped their lawsuit. Shurtleff then dropped Utah’s action against BOA. Shortly thereafter, Shurtleff landed a job with a lobbying firm that apparently had done extensive business with BOA.
Fast forward, another home owner in foreclosure, McBride, filed suit against the former AG’s arguing that because of the corrupt nature of the Bell deal, McBride was denied a mortgage modification. McBride also alleged that Shurtleff offered him $2 million to dismiss a sensitive lawsuit. The person who was going to come up with this $2MM has alleged that Swallow and Shurtleff tried to shake him down. They say truth is stranger than fiction, but this fact pattern strains credulity.
Even in New Jersey, this kinda stuff does not happen. Or at least we hope.
At any rate, the current AG has piggybacked on a suit by a homeowner who is making the same allegations that were made in the suit by Bell. The attorney for that individual states that ReconTrust, a subsidiary of BOA, foreclosed illegally on at least 8000 homes. BOA’s denial of the allegations stated that it was not 8000 homes but only 3-4000. Priceless. It was sort of like Clinton saying it depends on what ‘is’ means.
Let the courts decide if the AG’s in Utah did anything wrong. But BOA was up to its elbows in this alleged corruption, and no where in the numerous articles does it say that anyone at BOA was indicted or convicted or in jail. Worse than that, for a bank to deny an allegation not because they did nothing wrong but because they only screwed around 1/2 as many people as plaintiff alleged, that must win the hubris award for the decade.
But, is it much better in NJ? Banks do not turn over discovery. Banks put in BS certifications which make a mockery out of the business records exception to the hearsay rule. Moreover, no- you cannot look at the actual computer records to verify or find exculpatory material. And no, you cannot depose any witness.
But, it could be worse. We could all be in Utah.
Posted by kevin on July 21, 2015 under Foreclosure Blog |
A fundamental rule of law is that a plaintiff could only be paid once for an injury. So, if your lender has been paid the amount of the mortgage note, it should be correct that that lender cannot file a foreclosure action and take your house. Why? Because the lender is not owed anything/
If you read the prospectuses and pooling and servicing agreements of many of the NY securitized trusts that were prevalent from 2002-2007, you will note that the higher tranches (most conservative investments) contained a insurance component whether it be straight out insurance against default or a credit default swap (CDS). Moreover, the lower tranches were wiped out if a certain percentage of loans failed.
In discovery in most of my foreclosure cases, I request copies of all letters from the trustee to the investors. I want to know how many defaults have occurred with trust, and how the trustee is dealing with the various tranches. I also ask whether the trust had procured any insurance or CDS’s. Based on the unpublished Gomez case in NJ which relies on a 1st Circuit BAP case that was effectively overruled by a later 1st Cir. case, I never get that discovery. But the fact remains, if the plaintiff in your case has been paid, how can he come into court and ask to be paid again.
Last week, I had the opportunity to talk with a person who worked for a “too big to fail” bank and an investment house that was very active in the securitized mortgage business. She confirmed that whenever a loan went into default, the first thing that her employer did was to make an insurance claim. And her employer was paid on those claims.
A basic tenet of insurance law is that if the insurer pays a claim, then the insurer steps into the shoes of the insured and can go after the wrongdoer (in this case, the borrower). This is called subrogation.
Two questions? If a plaintiff is being paid twice, isn’t that against the law? And, why are the courts not interested in what amounts to a) fraud on the court, b) consumer fraud, c) theft d) criminal activity? (take your pick). The answer you get is that the borrower took the money, the borrower owes the money. However, in the above scenario, the borrower does not owe the money to the plaintiff, but to the insurer. So, why pay the plaintiff twice?
Posted by kevin on June 19, 2015 under Foreclosure Blog |
For what appears to be the up-teenth time, the OCC has imposed sanctions on 6 servicers for assorted violations relating to modifications including failures a)to respond to requests for information, b)to make good faith effort to prevent foreclosure in the first place and c) to track existing modification applications.
Wells Fargo and HSBC got one thump across the buttocks in that they are prohibited from acquiring servicing rights, entering into new servicing contracts, and banned from offshoring servicing rights. In addition, these banks need OCC approval to hire senior mortgage servicing officers.
JPMorgan Chase, US Bank, Santander Holdings and Everbank got slaps on the wrist. They also must get OCC approval to hire senior staff and must also get OCC approval to buy servicing rights, enter into new servicing contracts, outsourcing servicing rights and offshoring servicing rights.
Either the banks/servicers have become immune to punishment or the punishment is too lenient because I have not seen any real downturn in unlawful activities notwithstanding the continued crackdown.
I am reminded of a client that I had in a shareholder dispute. She could not resist blurting out her opinion about witness testimony during the trial. The Judge became more than a little upset. He held her in contempt and fined her $100. The Judge shot me a look right afterwards indicating that he had put the fear of God into her. Well, my client was humbled for the rest of the day. Then, the next day, she started commenting again. The first transgression got a warning. However, I knew that the warning was falling on deaf ears because while my client was yessing the Judge, she was getting her checkbook out of her pocketbook. By the last day of a 6 day bench trial, she was held in contempt 3 or 4 times and warned about a dozen other times. Clearly, $100 was not enough of a fine to change her behavior.
OCC is just chastising these banks. The punishment makes for a good press release but the offenders will find a way around the sanction. So, the laws will continue to be violated to the detriment of the consumer public. Only when some bank or better yet bank executive gets his ass kicked by the regulator with a loss of employment or incarceration will the situation get better. Unfortunately, that ain’t gonna happen.
Posted by kevin on May 30, 2015 under Foreclosure Blog |
Both Chapter 7 and Chapter 13 will stop a foreclosure.
The Bankruptcy Code says that a bankruptcy “petition filed… operates as a stay, applicable to all entities, of—… any act to… enforce [any lien] against any property of the debtor… .” See Section 362(a)(4). This means that the mere filing of your bankruptcy case will immediately stop a foreclosure from happening.
But What if the Foreclosure Still Occurs?
But what if your bankruptcy case is filed just hours or even minutes before the foreclosure sale, but the foreclosing mortgage lender or its attorney can’t be contacted in time for them to be informed? Or what the lender is contacted in time but messes up on its instructions to its foreclosing attorney so that the foreclosure sale mistakenly still takes place? Or what if the lender refuses to acknowledge the effect of the bankruptcy filing and deliberately forecloses anyway?
As long as the bankruptcy is in fact filed at the bankruptcy court BEFORE the foreclosure is conducted, the foreclosure would not be legal. Or at least would very, very likely be immediately undone. It does not matter whether the foreclosure happened mistakenly or intentionally.
A Foreclosure by Mistake
If a foreclosure happens by mistake after a bankruptcy is filed, or because the lender didn’t find out in time, lenders are usually very cooperative in quickly undoing the effect of the foreclosure. It is usually not difficult to establish that the foreclosure occurred after the bankruptcy was filed, and that usually quickly resolves the issue. If a lender fails to undo such a foreclosure after being presented evidence that the bankruptcy was filed first, the lender would be in ongoing violation of the automatic stay. This would make the lender liable for significant financial penalties, so they usually undo the foreclosure right away.
A Foreclosure Purposely Conducted after Your Bankruptcy is Filed
This almost never happens. If you are harmed by a foreclosure intentionally done after your bankruptcy filing, you can “recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, may recover punitive damages.” See Section 362(k). Bankruptcy judges are not happy with creditors who purposely violate the law. Enough of them have been slapped that most creditors know better.
Chapter 7 vs. Chapter 13
For purposes of stopping a foreclosure that is about to happen, it does not matter whether you file a Chapter 7 or Chapter 13 case. The automatic stay is the same under both.
But how long the protection of the automatic stay lasts can most certainly depend on whether you file a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” That’s because even though you get the same automatic stay, each Chapter gives you very different tools for dealing with your mortgage. That’s why your mortgage lender will likely react differently depending on which Chapter you file under and how you propose to deal with the mortgage within each.
Posted by kevin on May 12, 2015 under Foreclosure Blog |
I do not know what the future of the Consumer Financial Protection Bureau will be. Clearly, a lot depends on who wins the next presidential election. But, I do know the the CFPB is necessary.
I love to listen to Larry Kudlow on the radio and watch him on CNBC. He is a Reagan republican who worked for Bear Stearns for awhile. He believes in free trade, smaller government, and less regulation. He believes in the free market. He is articulate and energetic. I agree with a lot that he says, except when it comes to governmental regulation of financial institutions.
Well, I do believe in free markets to an extent. But I do not believe that we should be living in a “caveat emptor” society. Believe me, I have seen enough chicanery (over my entire 35 year career but especially in the last 8-9 years) to come to the conclusion that regulation is necessary to not only protect taxpayers but also to protect the players on Wall Street and the too big to fail banks from themselves.
There is something perverse going on here, however. You would think that after the $25 billion settlement and other multi-billion dollar settlements, the players would understand that they have to fly right. But every month or two, there is a new scandal, investigation, settlement. Just this past week, Ocwen entered into a $150 million settlement of a class action in Florida which alleged kickbacks on force placed insurance. The class members got $140 million which comes out to a less than princely sum of $350 per claimant, and Ocwen denied any liability.
The CFPB went after Wells Fargo and JP Morgan Chase and Genuine Title Co. Over 100 Wells Fargo employees took kickbacks from Genuine to get the title work associated with the loans. WF had to pay $24 million in penalties and another $11 million to consumers. JPMC engaged in the same behavior but at a lesser magnitude.
Obviously, monetary penalties are not stopping the players from playing. What will? Short of jail terms and long term suspensions from the industry, the only other method is enforcement of strong but fair regulation of the industry. Lord knows judges in judicial foreclosure states are not stepping in to fill the void.
Not just regulation, but regulation and enforcement. It does no good to have the regs on the books if the enforcement is weak or intermittent. The SEC dropped the ball. The Fed has eviscerated Truth in Lending by drafting regs and especially staff commentaries that are so pro-industry that you have to shake your head. But let’s be practical. Do you really expect an SEC staff attorney or Fed examiner making $75,000 per year coming down hard on Wall Street or Too Big To Fail Banks when that regulator is probably looking at the regulated class for his or her next job at $150-200K per year. I don’t think so.
So, maybe you just throw up your hands and blather about the conflicts of interest and inherent corruption of the system. Or maybe, you do something about it. At this point, the CFPB may be one of the few regulators who have remained untainted, at least at this time. Therefore, it must stay in business.
Posted by kevin on April 20, 2015 under Foreclosure Blog |
In the past week, I have received telephone calls from 5 homeowners whose homes were in foreclosure. 3 of the owners told me that they had received notice from the sheriff that a sale has been scheduled. In other words, final judgment had already been entered. I quoted them a fee, and when they picked themselves off the floor, I told them that the chances of overturning the judgment were slim and might not justify the expense involved.
If you have had the chance to read this blog (or other blogs dealing with foreclosures), you will know that in NJ, the courts have made it very difficult for borrowers to succeed in litigation. In 2011 just after pro borrower decisions, I was getting positive results in court on a regular basis. This made it easier to negotiate a settlement. One by one, however, defenses have been whittled down by the courts which has made litigation and settlement more difficult.
One of the first areas where the courts hit back at borrowers were in cases dealing with post judgment relief. What does that mean? Well, for the most part, it means that the borrower does not file an answer to the complaint, but waits until final judgment is entered before he or she hires an attorney to contest the foreclosure.
To set aside the final judgment, a borrower must file a motion to vacate the judgment. The test is that the borrower must show excusable neglect plus a meritorious defense. This a a pretty high standard, made even tougher by a series of unpublished decisions that came down from late 2011 to 2013 which further cut off access to the courts in post judgment situations. Add to the high standard to vacate and the tough case law, the penchant of many judges to give lenders more than one bite at the apple in opposing the motion to vacate. Your lawyer winds up writing 2 or more briefs and making as many appearances. And, after all that work, you lose about 90% of these motions on the trial level.
On a practical level, reviewing all the documents, drafting the initial papers, going to court and then writing supplemental briefs with two or more court appearances is time consuming and, thus, costly. It can easily run into $7500-9,000 worth of time. So, I tell clients unless you have that one in a thousand fact pattern, you are probably wasting your money.
So what do you do? If you are behind on your mortgage, you will get a letter of default from the servicer. Then, you will get a Notice of Intent to Foreclose along with the ‘we are your bank and we are here to help’ letter. That is the time that you hire an attorney. It gives you the best chance to get what you want, and it gives an experienced defense attorney the most flexibility in shaping a defense.
Posted by kevin on April 15, 2015 under Foreclosure Blog |
In the previous blog, we stated that litigation in the area of servicing is going to be the next battlefield between consumers and the mortgage industry based on Dodd-Frank and the CFPB regulations.
Recently, the CFPB announced a $250,000 fine against RMK Financial Corp for unfair and deceptive advertising. More specifically, RMK was putting out a mailing (and we all get them in one form or another)
which suggested that its loan program was affiliated with the government. Reference was made to the VA interest rate or the FHA Streamline Department. Moreover, logos were placed on the mailing which gave the impression that a governmental agency was either behind the mailing or affiliated with RMK.
Richard Cordray, the head of the CFPB, put it succinctly:
Deceptive advertising has no place in the mortgage marketplace.
Posted by kevin on April 10, 2015 under Foreclosure Blog |
The United States Bankruptcy Court for the District of New Jersey has a foreclosure mediation program. To date, I have not utilized this service. After a review of the rules, I doubt that I would ever use the program.
In short, the program is available to debtors in Chapters 11, 12 or 13. A Chapter 7 debtor can participate with the permission of the court. Debtors include only individual debtors so if title to the property is in the name of a corporation or LLC, you are SOL. The property must be the principal residence of the debtor. So, pure rental property is out.
The debtor is required to make adequate protection payments to the creditor during the mediation. Here is where the program breaks down. The adequate protection payments amount to 60% of the principal and interest payment plus 100% of escrows. Say your P&I are $3000 per month, you pay $12000 in real estate taxes and another $150 per month for insurance. Your monthly payments during the mediation amount to $2950 per month.
1800- 60% of 3000
1000- 1/12 of taxes
150- Insurance
2950- Total
That is 71% of the total payment prior to filing. Depending on what your arrearages are,
What I try to do is figure out what I would be paying in a modification on principal and interest and make that the adequate protection payment. I also explain to the creditor how I arrived at that figure. I agree to pay the insurance going forward to avoid the force placed insurance super surcharge which is usually more that double what the debtor is required to pay for insurance. Then, the ball is in the creditors court to demand more money as adequate protection. If they want more, they will ask for it or file a motion.
Posted by kevin on March 9, 2015 under Foreclosure Blog |
Over the last few years, the major players including Bank of America, Citigroup, Goldman Sachs, JPMC, Morgan Stanley and Wells Fargo, have agreed to over $63 billion to settle cases involving mortgages or mortgaged backed securities. Just last week, the courts gave final approval to BOA’s settlement of claims related to Countrywide. The price tag was $8.5 billion. Two major cases are up for final approval in the next month- JP Morgan Chase and Wells Fargo.
I heard Bill Maher ravage Chris Christie because he settled a supposed $8.9 billion claim against Exxon Mobil for $225 MM. But, isn’t that settlement comparable to the settlements that DOJ has gotten against the major banks for taking down the economy. The $25 billion dollar settlement dealt with claims in excess of a trillion dollars. Moreover, the details of those settlements often indicate that the payments or credits to be made by the banks was illusory. In NJ, the vast majority of mortgage modifications or forgiveness was on second loans that were completely underwater. So, the banksters “forgave” loans that they had long written off, and got credit toward the settlement 100 cents on the dollar.
Sorry for the rant.
Although many publications say that mortgage foreclosure litigation is winding down, and that it is getting progressively more difficult to get a down the middle ruling, the next battlefield is going to be in the area of mortgage servicing. TILA (Truth in Lending) and RESPA (Real Estate Settlement Procedures Act) and the 2014 regulations administered by the CFPB open the door a bit to smack servicer violations. Figure that door is open as long as the Democrats control the White House. I suspect that federal district court judges will not be happy with the prospect of these cases, but the regs do provide a private right of action with attorneys fees.
We’ll see.
Posted by kevin on March 6, 2015 under Foreclosure Blog |
Various sources including Mortgage Servicing News carried story that DOJ is settling claims brought by US Trustees that JP Morgan-Chase engaged in wide spread robo-signing after the 25 billion dollar settlement. The penalty to JPMC is $50.4 million.
Under the Bankruptcy Code, the US Attorney is an arm of the Justice Department and is responsible for the administration and overview of bankruptcy cases. The investigation focused on the period from late 2011 until late 2013 and involved about 50,000 notices of payment change and 30,000 escrow notices. JPM-Chase, according to the articles, admitted that it utilized a third party vendor to sign documents, however, claimed that the information contained in those documents was verified by JPM-Chase employees and was accurate. Query: If verified by employees, then why didn’t those employees sign off on the document in question?
Who gets what, though? $22.4 million goes to credits against or forgiveness of second mortgages owed by approximately 400 borrowers. On a per borrower basis, this portion of the settlement comes out to about 56K per borrower. Of course, if the property is underwater, JPMC gets credit for $56,000 on a second mortgage for which it was going to receive $0.
$10.8 Million goes to 12,000 homeowners whose escrow balances were incorrect. $9.7 million to 18,000 homeowners ($540 per borrower) who never received escrow statements or whose escrow payments were misapplied. Finally, $7.5 million went to the American Bankruptcy Institute to provide training to lawyers and education to the public.
This is at least the third time that JPMC has received a multi-million dollar penalty for not following the law. They were a party to the $25 billion DOJ settlement. Then, in late 2013, JPM Chase paid another $13 billion in settlement of claims by the DOJ that they defrauded Investors. This last settlement was small in comparison to the other settlements, and may portend a future where JPMC buys off small governmental claims as a cost of doing business.
Posted by kevin on February 8, 2015 under Foreclosure Blog |
Investors dealing with private securitizations or securitizations orchestrated by GSE’s have taken it on the chin in recent federal court decisions.
In an article from the National Mortgage News dated February 8, 2015, the federal district court for the Southern District of Iowa dismissed a complaint by Continental Western Insurance against the FHFA claiming FHFA acted outside its authority in sweeping all profits of the GSE’s (government sponsored entitites such as Fannie Mae and Freddie Mac) into the treasury. The judge found that the plaintiff’s claim was the same as the claims raised by Continental’s parent company, Berkley Insurance, brought in the DC district court. The ruling against Berkley is on appeal to the DC circuit. This case does not intrigue me other than the fact that it shows that plaintiffs with money can afford to forum shop. However, on a practical level, to get a federal judge to rule against a federal entity after the federal taxpayer bailed out the profligate GSE’s is, in my opinion, a stretch.
The more interesting case came out of the federal district court in NJ and was reported in a February 6, 2015 update of the NJ Law Journal . In that case, the Judge dismissed with prejudice most counts in Prudential Insurance’s lawsuit against BOA claiming that BOA sold it more that $2B in fraudulent residential mortgage backed securities.
First, the Judge tossed Pru”s RICO claims. Then, he tossed common law fraud claims asserting that BOA misrepresented the rate of owner occupied mortgages in the offering. The Judge stated that Pru confused buyer’s statements of intent to occupy the premises with indicia of non-occupancy after closing. (I am going to go on the internet and get this opinion because I would like to see the exact wording on this part of the decision). It seems that the Judge may have cut the baloney a bit thin on this specific ruling.
The Judge also tossed common law claims that the appraisals were overstated by stating that Pru did not make a plausible scenario that appraisers conspired to inflate appraisals and that BOA (or Countrywide) knew about this practice. This decision may be attributable to Iqbal and its progeny where claims are tossed on motions to dismiss where no discovery has been produced as yet. Or it may be that Pru could not produce enough evidence on this issue. Another alternative would be that it was not apparent to the the Judge that the appraisals were bullshit.
On the issue of lack of evidence, I could see how such an opinion can be reached. First, our experience has been that for the most part, banks do not produce discovery unless the court forces them. When a judge (or magistrate) actually shows interest in your discovery request, some bank counsel stands there in open court and states that the documents do not exist. On the other hand, they tell you when their discovery is 3 weeks late, that the papers are with the serivcer in California thus implying that they have no control over the documents and have not even seen them. If you have never inspected the documents, how can you say that they never existed???
But I think we have a more fundamental problem when it comes to appraisals. Appraisals are based on comparable values and are, at best, estimates of value. Because they are estimates of value, there is a built in fudge factor. Second, how do you know that the comps are true comps absent going out and reviewing all the properties. You would be forced to re-do thousands of comps. That is not going to happen. Finally getting to my real point, when the bad appraiser fudges the comp, it becomes part of the data base for future appraisals. How do you separate that out, especially ten appraisals down the line. Fudge upon fudge.
Do I believe that appraisers fudged appraisals in the 2003-2007 era. You bet your ass. They wanted the business and mortgage brokers and banks were pushing loans- not reasons not to give the loan. But without a whistle blower, it is going to be damned hard to prove.
Posted by kevin on January 28, 2015 under Foreclosure Blog |
I have had at least 100 clients or potential clients tell me that they have a great foreclosure defense because their mortgage servicer jerked them around unmercifully when they applied for a temporary modification, and refused to give them a permanent mod notwithstanding that they made three or more payments. Up to last week, the client or potential client in NJ was wrong.
Why? Because modifications are governed by the HAMP program (now MHA of which HAMP is one of the options). HAMP is based on a federal statute in which the federal government gives servicers money if they agree to modify mortgages generally in accord with the guidelines established under the statute. The parties to the agreement are the federal government and the sevicer. Even though borrowers are the reason for the statute and a beneficiary of the statute, they are not a party to the agreement. Federal courts held that borrowers cannot sue under HAMP or MHA (no private right of action).
In 2011 and 2012, certain federal courts got their “common sense” cap on, and concluded that notwithstanding that the borrower was not a party to the HAMP agreement, you cannot have servicers taking money with no intention of granting a permanent modification. One of those courts was the 7th Circuit Court of Appeals in the Wigod case.
Foreclosure defense attorneys in NJ have argued that Wigod is good law in NJ, and the failure to grant a permanent modification is tantamount to a violation of the Consumer Fraud Act or a breach of the implied covenant of fair dealing between parties.
Last week, in a published opinion, the Appellate Division in NJ adopted Wigod but limited the application. It held that if the servicer granted a temporary modification, and the borrower makes the required payments, turns over all required documentation, and his or her representations to the servicer are true and accurate, that borrower is entitled to a permanent modification. Failure to grant a permanent mod gives the borrower a cause of action.
Now, this ruling does not handle all cases involving a modification. If you apply for a mod, and send your documents in, but can never get someone on the phone, or your inquiries are pushed from one person to another none of which can make a decision, or your documents are lost three or four times, or the servicer claims that it never received your application notwithstanding that you have a Fed Ex proof of delivery, or you are asked for updated bank statement until or are pulling your hair out, then you get rejected- you are SOL. That stands for s&%! outta luck. Why, it is the temporary mod which establishes a contractual relationship between the borrower and the servicer which triggers Wigod.
The case in NJ is Arias v. Elite Mortgage Group. A victory in today’s foreclosure defense environment.
Posted by kevin on January 13, 2015 under Foreclosure Blog |
I have seen a plethora of articles which say that the Consumer Financial Protection Bureau (CFPB) looks to be pro-active in 2015. That is a good sign especially when you consider that the DOJ has done little in way going after the bailed out banks, and the Republicans have taken over the House and Senate.
On the agenda for 2015 are a review of debt collection practices by first parties (the owner of the debt) as opposed to third party collectors. Third party collectors are usually subject to the FDCPA and consumers have a private right of action to go after illegal activity by third parties. However, the FDCPA hardly ever applies to the owner of the debt. Employees of those organizations can engage in the same type of outrageous acts which could land a third party collector in court- but they skate. According to the articles that I have read, the CFPB wants to look into how debts are being reported by first parties to consumer reporting agencies. Moreover, the CFPB wants to review first party dispute resolution policies.
Other areas of concern are payday loans, arbitration clauses in credit agreements, student loans especially in cases dealing with for profit schools, and continued review of mortgage servicers.
I am especially interested in seeing what comes out of the student loan investigations. At this time, private lenders get all the benefits associated with the discharge exception in bankruptcy, but are not required (as with federal loans) to offer income based repayment plans. I do not know if that was an intended consequence of limiting the bankruptcy discharge or just something that fell between the slats. However, that law does present to private lenders a windfall. They get to go after the student and pound them for judgment and interest with little or no downside risk that the loan will be discharged in bankruptcy. While at the same time, the student loan creditor does not have to deal fairly with a student strapped with debt and just starting out.
The sense of urgency at CFPB seems to be fueled in part, however, by the reality that the Republicans have taken over the House and Senate. Senator Shelby, Chair of the Senate Appropriations Committee, and Congressman Hensarling, now Chair of the House Financial Services Committee, are no big fans of Dodd-Frank and the CFPB. They have promised to clip the CFPB’s wings. In fact, Hensarling has just attacked the CFPB for upgrading its offices. So, maybe the flurry of activity at CFPB is just trying to make themselves harder to hit moving targets.
Posted by kevin on December 24, 2014 under Foreclosure Blog |
MHA (Making Home’s Affordable) was set up by the government to induce lender’s to make deals with borrowers whether it be mortgage modification, dealing with second mortgages, short sales, deeds in lieu.
Oh excuse me, MHA may be about modifications, short sales and the like, but the inducement is not to the lender but the servicers. Not the guy that owns the mortgage, but the bean counter who collects the payments and sends them to the appropriate party.
What’s the big deal? Well, in defending foreclosure cases for the last 5 years, and reading pooling and servicing agreements, I have concluded that the interests of the servicer is many times in conflict with the interests of lenders or investors in securitized trusts. Investors and lenders usually fare better if they can work out a deal with the borrower. Servicers, on the other hand, seem to do better if there is a foreclosure.
That is why I was not too surprised to read the numerous stories about Ocwen getting hammered by the New York Superintendent of Financial Servicers. As part of the 150 million dollar settlement, William Erbay, the founder of Ocwen, is being forced out as CEO. Ocwen must come up with one hundred million in foreclosure relief and fifty million is going to be paid to Ocwen customers in NY. Do we have any governmental agency in NJ that protects borrowers? Heaven forbid. Moreover, Ocwen’s operations are to be monitored by an independent monitor for two years. Stock prices have fallen by 30% in that last week. Moreover, a $39 billion deal with Wells Fargo may be down the crapper.
What did Ocwen do? Basically, what most servicers do; that is, jerk around borrowers. However, Ocwen did it on a scale that made other servicers look like the JV (stealing a term from the Prez). For example, complaints against Ocwen were two times more frequent than complaints against BOA and 5 to 6 times more frequent than complaints against Wells Fargo. ( I have dealt with BOA and WF, and they are not what I would call “user friendly”).
Ocwen ran up costs by farming work out to affiliates which had strong ties to Ocwen and its executives. They backdated letters to borrowers which made it look like they were responding in accord with regulations under Dodd-Frank. According to Richard Cordray, the head of the CPFB, Ocwen took advantage of borrowers at every stage of the process. Another strategy attributed to Ocwen is that they would accept a package of documents and information from a borrower, wait 29 days, and then, instead of deeming the package complete for review by underwriter, Ocwen would send a deficiency letter to the borrower and request updates. What was not in the articles, but what I fear happened, was that Ocwen used the incomplete application as the basis for extracting additional monthly payments out of the borrowers during the so-called trial period. If you were to cross-check those payments against the servicing agreement, I would not be surprised to find out that the servicer kept a portion (if not all) of those payments.
Ocwen is not only servicer that plays games, but they got nailed. I would not be surprised if other servicers wind up on the wrong side of regulators in the future.
Merry Christmas.
Posted by kevin on December 19, 2014 under Foreclosure Blog |
If you owe money to a bank, say on a mortgage loan, and the bank accepts a short sale which nets them 200K but you owe 300K, then you have 100K of what is called “forgiveness of indebtedness” (FOI) income for which you may be required to pay taxes. Historically, the primary methods of getting around FOI income and the related taxes were to file bankruptcy or prove that you were insolvent at the time. In 2009, because of the mortgage meltdown, Congress eliminated FOI income on short sales, deeds in lieu of foreclosure, etc of primary residences- but not permanently.
That law ran out at the end of 2013. This left some of my clients who did short sales, etc in 2014 in financial limbo.
Well, the recent budget bill which passed in Congress last week extended the law which eliminates FOI taxes on primary residence for 2014. That is good news. In addition, taxpayers can deduct mortgage insurance premiums paid in 2014- private and public. Newspaper articles indicated that Congress was pushing for 2 years on these bills, but the Administration held out for 1 year.
There is a payback, sort of. When Ed DeMarco was head of the FHFA, he stedfastly refused to allow principal reductions on mortgages owed by or sold to investors through FNMA, Freddie Mac, FHA, VA. The media lamented that if only the president could get his guy, Mel Watt, into the position of head of the FHFA, then the government loans could be subject to principal reduction. Well, Watt is in, but there is still no principal reduction on the government loans. Moreover, the Mortgage News claims that since FOI income tax relief is being extended, Watt can use that trinket to avoid principal reduction. Let’s see how that plays out.
Posted by kevin on December 2, 2014 under Foreclosure Blog |
Prior to 2008, I viewed many appraisals with a bit a disbelief. The economy was growing at 3-4% but real estate prices in NJ were going up by 20%. Something had to give and it sure did.
When I started doing foreclosure defense work, I was shocked to see the mortgages that were being given out based on highly questionable income. How could a guy that worked as a manager at Home Depot get a $500,000 mortgage? Moreover, who, in their right mind, could believe that that person was making $10,000 per month? Welcome to the world of stated income loans.
Any sane person would conclude that the manager at Home Depot was not making $120,000 per year. One would think that an underwriter would come to that same conclusion. How, then, could the employer of that underwriter lend a half million dollars to that manager. If not based on income, it had to be based on the value of the collateral. Enter the appraiser.
More than a few appraisers were fudging their appraisals. The problem that I found was that it was difficult to get an expert to testify that another appraiser was playing games. A tight little group. At any rate, I was not able to go after any appraiser in my 5 years of foreclosure defense litigation.
That brings us up to an article in today’s WSJ about inflated appraisals. Banks are auditing loan applications, or so they say, and are seeing more and more questionable appraisals. As prices have leveled, appraisers are claiming that loan officers and real estate brokers are putting the heat on them to come up with values to justify the loans. Isn’t that fraud??? or predatory lending?? or both. The OCC and Freddie Mac are investigating.
The article goes on to say that surveys of real estate agents show that 31% lost deals because of low appraisals in March, 2012; 29% lost deals in March, 2013, but only 24% lost deals in March, 2014. Those numbers indicate that more and more appraisers are playing ball, but at the same time complaining that the real estate agents and bank officers are squeezing them
Finally, the article says that banks are turning to AMC’s (appraisal management companies) to assign appraisal work. This gets the loan officer (a source of pressure on the appraiser) out of the loop. However, appraisers now are complaining that the AMC’s are twisting their arms to come up with more favorable appraisals.
It’s funny. The appraiser blame loans officers, real estate agents and AMC for their own illegal activity. Sort of reminds me of my sons when they were little. Whenever I caught them doing something wrong, it was always someone else’s fault. More importantly, the question is what did the banking industry and their agents and the government learn from the 2008 meltdown. Looks like not much.
Posted by kevin on November 29, 2014 under Foreclosure Blog |
In my previous blog, I told of a mortgage modifcation application that is pending for over a year. For me, the telling point of the whole episode was when the point of contact person told me that Freddie Mac owned the loan. Brought back chilling memories.
A few years back (before Guillaume), I got a case dismissed on the day of trial for failure to comply with the Fair Foreclosure Act (Notice of Intent requirements). The Judge held open the dismissal so that my clients could go to mediation which is what they wanted. (Note that my other argument was that plaintiff sold the note to Freddie Mac and therefore lacked standing. In chambers, my adversary vehemently denied that charge.)
Well, we were assigned a HUD counselor (who was excellent) and started the process. The mediator was nice but powerless as all mediators are in the NJ program. The mediators basically defer to to the servicer who runs the show other than scheduling. Note that unless something very egregious happens, the judges do not get involved. I have heard stats at meetings that 35% of the parties in mediation get mods. I think they get those numbers from the same place that they get the Obamacare enrollment numbers.
At any rate, at the first session, we are told that Freddie Mac was not ready to proceed. So much for the veracity of my adversary. By session 6 we were still getting nowhere since Freddie Mac said it was not ready to make a decision. In a letter to my clients and the HUD counselor, I suggested that the only way that we would be able to get a reasonable decision was through escalation. That is the fancy term that MHA uses for an appeal. At the 8th or 9th session (about 10 months into the process), Freddie Mac turned my clients down with some bogus rationale. I was terminated by frustrated clients, and the clients then went the escalation route with the counselor where they finally got their mod well after a year into the process.
Traditionally, judges in NJ have been excellent at the arm twisting and sausage making that goes into the settlement process. For some reason, however, State court judges have shown a reluctance to jump into the settlement fray on foreclosures. Why? I do not know. But one thing I do know is that if those judges took their usual hands on attitude toward settlement, there would be a lot more loans being repaid, while at the same time court calendar’s would become more manageable. But what do I know? I’ve only been doing this for 35 years.
Posted by kevin on November 27, 2014 under Foreclosure Blog |
I have been quite vocal concerning how the current Administration sold out the people by backing off on Chapter 13 cramdown in 2009. Instead, we got HAMP and MHA. The first few versions were just awful. Borrowers were routinely being ripped off by servicers on trial modifications;payments were made and glommed by the servicers; permanent mods were not given; and the borrower had no recourse because the courts said absent a permanent mod (and contractual relationship) the borrower had no standing to sue the servicer.
In late 2012, with HAMP version 4, I thought that we might have something. At least on paper, it seemed better than previous versions. Well, in real life, not the improvement that I expected. Why? The servicers still run the show. The government wags it finger at the servicers and tells them to fly right, but nothing substantive happens. Finally, the GSE’s, Fannie Mae and Freddie Mac, and the VA are not covered by the government program, MHA.
Why am I saying Happy Anniversary? I represent a elderly woman in a Chapter 13. As part of the Plan, we proposed a modification which called for capitalization of arrearages and a reduction in the interest rate to 4% escalating to 5% on the first mortgage loan to JP Morgan Chase . Junior encumbrances were to be stripped for lack of equity.
If you are familiar with HAMP Version 4, you know that the proposed mod is pretty much plain vanilla. On November 25, 2013, I sent a complete modification package to Chase to modify a note payable to JP Morgan Chase. In mid- February, 2014, the servicer (also Chase) called with good news and bad news- my application was deemed complete and was scheduled to go to underwriting, however, the servicing rights were being transferred to another servicer. I was assured that my file would be forthwith sent to the new servicer and I would have a decision right away. Guess what? I did not believe the Chase people.
It took a month to find the right servicer ( the new servicer assigned the loan to a subservicer). Then it took another month to find out who the point of contact person was. BTW, the point of contact person is very cordial and smart , but he is not running the show. By mid May, I was told that Chase had not yet sent the file to the new servicer so I had to start from scratch. I sent a complete, updated application with documents and proposal in late May.
In NJ, the Chapter 13 trustees will push to confirm plans with mods conditionally. The condition is that the debtor has to get the mod within 4 months of the confirmation or the case is dismissed. Because of the confusion with the new servicers, I was able to put the confirmation off until June. However, I had to make 3 appearances (no, they would not let me do it over the phone) to plead my case and get a lecture from the trustee for not having a mod in place. Every three weeks or so, my client gets a letter from the servicer asking for an updated whatever. Within a few days, we comply with the request(s). September comes and goes and the trustee files a notice that we are in default because we do not have a mod in place and requests that the case be dismissed. I am forced to file a written response. We have a hearing in mid-December.
The point of contact persons assured me that we would have a decision by the end of November, but nothing yet. He also tells me, for the first time, that the loan was sold to Freddie Mac so we are not operating under HAMP guidelines. In the meanwhile, the paralegal at the lender files a motion to vacate the stay because we do not have a mod as set forth in the confirmation order. Thank goodness, her boss pulled the motion.
You can’t make this shit up. To add insult to injury, I checked my time records last week to discover that I have spent more time on the modification than I did on the nuts and bolts Chapter 13 case including motions to strip. Go figure. To be continued.
Posted by kevin on November 1, 2014 under Foreclosure Blog |
On October 28, 2014, the Consumer Financial Protection Bureau issued a report on mortgage servicers/servicing. It wasn’t pretty.
The report found that servicers are engaging in significant delays which lead to higher payments to the borrower. In addition, the servicers are not, for the most part, properly notifying credit reporting agencies that borrowers are no longer delinquent.
The problem has been exacerbated because major bank, which were subject to the $25 billion dollar settlement, are getting out of the servicing business and selling their portfolios to non-bank servicers such as Ocwen or Greentree.
Higher costs are incurred when servicers keep borrowers in trial modifications for more than three months at interest rates that are higher than the ultimate permanent mod. If the trial mod payment does not cover the fully amortized payment, then the difference is added on to the principal. More trial mod payment, the greater the amount that is added on to principal.
Recently, the CFPB fined Ocwen $2.1 billion for taking advantage of borrowers. The New York attorney general is investigating Ocwen for backdating letters.
I have always been leary about dealing with servicers on modifications, short sales and deeds in lieu. Back in 2011, most attorneys who brought the foreclosures actions would work with me on getting a resolution of the case. Not any more. I make proposals to my adversaries only to be told that I must deal with the servicers. Then, the games begin.
On paper, MHA (formerly called HAMP) has decent guidelines that seem to protect the consumer. However, you have no recourse if the servicer does not follow the guidelines. In addition, you are left swinging in the breeze when servicers sit on your file for 3-4 weeks, and then demand more or updated information, and then continue with this process for months. Currently, I have a modification that started last November and is still not into underwriting.
The CFPB is going in the right direction by holding the servicers’ feet to the fire. A change in the compostion of Congress, which looks likely, may have a negative impact on CFPB’s impact.
Posted by kevin on October 22, 2014 under Foreclosure Blog |
Well, on Tuesday (10/21), most newspapers indicated that the FHFA and major mortgage lenders had entered into an agreement in principal to loosen lending requirements. The announcement was made by FHFA boss, Mel Watt, at a speech before mortgage bankers in Las Vegas.
Las Vegas, that is precious. John Stewart’s writers could not have come up with a funnier story line.
To increase access to credit for lower income borrowers, Watt called for loan to value ratios of 95-97%. With only 3-5% down, borrowers have little skin in the game. If housing prices decline, they will be underwater. How is that different from 2008? One way it will not be different is Fannie and Freddie will insure the loans, therefore, the taxpayer will be bailing out lenders on defaulted loans.
The devil is in the detail as they say. So, we will see in the next few months what safe harbors are given to lenders.
When Dodd-Frank was promulgated, it included a specific provision that stated, in general terms, that a lender must grant a mortgage loan based primarily on the ability of the borrower to repay and not on the value of the collateral. The analysts railed on that such an onerous standard would kill the housing market. Well, my research indicates that the Dodd Frank standard is the fundamental definition of predatory lending, and has been around in Interagency guidelines, regulations, and OCC Advisory Letters since the mid 1990’s.
History has a tendency to repeat itself. I just did not think that it would happen so soon.
Posted by kevin on October 21, 2014 under Foreclosure Blog |
A recent WSJ article indicated that Fannie and Freddie on one side and the major mortgage lenders on the other side are close to an agreement to lower standards to provide mortgages to borrowers with weak credit. The article meanders through many issues- downpayment reduction, mortgage buybacks, fraud, foreclosure, opening credit markets for low income borrowers.
Pre-2008, lending standards were so loose that you could get a mortgage if you had a pulse. Why? A variety of reasons but one reason was that mortgage originators and securitizers were dumping their loans on investors so they had little risk and made lots of money in fees and in selling mortgage backed securities. Of course, as the number of defaults increased, the house of cards collapsed and with it the US economy. We are still mopping up the mess with foreclosures continuing.
Now, the President is pushing the banks to make loans if not to anyone with a pulse, then to people with less than decent credit ratings. Pre-2008, these were called subprime loans. Ed DeMarco, the head of the FHFA which oversees Fannie and Freddie, resisted this and also principal reduction on mods (not good). Now, Mel Watt is in charge of FHFA and supposedly pushing President’s agenda. The problem is how far to you push opening credit- too little and you do not get the economic benefit of an expanded housing market; too much and you get the same problems that you had in 2008.
On the other side you have the banks. They are looking for a safe harbor to make questionable loans. HAMP 1 is based on PITI (principal, interest, taxes, insurance and association fees) of 31% of gross income. HAMP II takes us, for the most part, up to 42%. Would not be surprised if banks are looking for some safe harbor in the 45% range.
My experience in handling foreclosure cases for borrowers over the last 5 years is that 45% is on the road to disaster. When you factor in that taxes rise (especially in States like NJ) 45% can grow to 50% in no time. Is that where we want to be?
Posted by kevin on October 11, 2014 under Foreclosure Blog |
I recently conducted a review of a borrower file to determine whether there were any defenses to a pending foreclosure action which at the final judgment stage. I noted that the homeowner received $600 from the Independent Foreclosure Review.
Brought back memories, so I searched my notes about this so-called review. Kudos to Naked Capitalism blog where I got most of my anecdotal information. Also, a nod to Prof Levitin from Georgetown The following is a piecing together of my notes:
The banks had agreed to hire the reviewers, pay them, coordinate their efforts, all presumably within the oversight of the Office of the Comptroller of the Currency (OCC). Then after a year and a half of spending $1.5 billion on this program of which little or nothing went to the homeowner victims of the banks’ foreclosure abuses, the banks persuaded the OCC that the reviews were not worthwhile.
2 Points.
1. Back in October 2011 as the Independent Foreclosure Reviews beginning, Georgetown Law Professor Adam Levitin wrote a long blog he called “Robosigning 2.0: Mortgage Foreclosure File Reviewers.” In it he reviewed and criticized a bank’s temp agency’s help-wanted ad for the reviewers. His main conclusions:
“I have seldom seen a document that says more about the… malarkey that the OCC and Fed are trying to pass off to cover for the banks than this job ad. I think it demolishes even the thin fiction that the OCC/Fed servicing consent orders are anything more than [fake] Potemkin villages. Instead, what we have here is nothing less than a federally-blessed Robosigning 2.0.”
“Bottom line here–it’s hard to take the OCC/Fed consent orders seriously when all they mean is that a marginally more skilled employee is reviewing the robosigners’ original work….”
2. Regretfully, what then actually happened as the banks proceeded to hire and work with these reviewers appears to be much worse even than Prof. Levitin anticipated. One former reviewer wrote a very long comment describing in great detail how the bank where was hired to conduct these reviews actively suppressed his and other reviewers’ efforts to find foreclosure errors and abuses, and to locate and compensate homeowners. Here are samples of what he wrote:
“We were supposedly independent contractors, but we worked directly under bank and lenders authority and supervision. Any findings we made were quality controlled by the bank. Any findings we made came directly under the scrutiny of the bank. Any arguments over our findings, and whether they should be changed or not could and often did result in termination from the program (meaning the reviewers got fired) without cause or warning and we had no recourse because we were contractors.”
“Other issues began to come up…The situation was becoming heated as Claim Reviewers (as we were called) began finding more and more issues of law, not to mention, incompetence, and immorality and poor judgment…[T]here were tensions building between Claim Reviewers and bank managers as the list of harm on borrowers grew. However, the bank and the OCC did find a solution. Take the questions out of the tests we were doing that asked about issues of law. So one test that had 2200 investigative questions (there are about a dozen tests for a file review) now became about 550 questions. Issues of law were removed.”
“At another of our group meetings we were told that if a borrower did not specifically cite the law or statute that was violated in their complaint that we were not to address a violation of law found in the file as it was now irrelevant to the issues at hand… The problem was that usually a borrower only had a feeling they got shafted somehow, but did not specifically know how. The complaint form also didn’t mention to the borrower that they had to be specific about issues of law. The form only asked generic questions about what happened. Now it was very evident that we were there as window dressing and not the compassionate heroes we thought we were.”
The problem was that the banks sold the OCC on the idea that the audits would vindicate the banks; however, as the reviewers got more into their work, they discovered that the opposite was true. At that point, the banks complained that the costs of the audits was prohibitive, and before you know it, the audits stopped. Many of my clients got checks with some sort of vague explanation of why. A joke.
Posted by kevin on September 30, 2014 under Foreclosure Blog |
A little change of pace. The amount of student debt in the United States is exceeding the amount of credit card debt. So, from time to time, I will write about student debt either in this blog or my bankruptcy blog.
I attended a seminar a few months back on student loans. I was aware that since 1999, you could discharge student loans in a bankruptcy only by showing hardship. However, the test is so difficult that (and my older readers will probably get this), the only people who get hardship discharges are the one’s that can win on Queen for A Day (a somewhat popular daytime show from the late 50″s early 60’s where three women told their hard luck stories and the audiences voted on who had the toughest lot. That woman became queen for a day and won food and a clothes washer.) I’ve always thought that the test used for hardship in bankruptcy has been too stringent.
At the seminar, the presented pointed out that there were only 3 offenses under federal law that did not have a statute of limitations: murder, treason, and failure to pay your student loan. About a week ago, the Bergen Record ran an article about senior citizens saddled with student loan debt. It claimed that in 2010 4% of seniors carried $18.2 billion of student debt. Some were for Parent Plus loans for their kids, but the vast majority was on their own loans.
The problem is that these loans do not go away. The bigger problem is that if you are in default, a collection fee (in the range of 18-25%) is added on to the amount due. The biggest problem is that the federal government can garnish a portion of your wages and social security to recoup the loan.
It is tragic to think that unsuspecting Americans take out loans to get an education to get a better life, and millions are stuck with these debts even into retirement.
In this blog, I have written on numerous occasions about mortgage modifications. They are hard to get even when you qualify. It takes months of being jerked around. Sometimes you must question the good faith of the mortgage servicers who control this game.
Well, you can get modifications of federal student loans. That is the good news. The better news is that you eventually deal with the Department of Education as opposed to servicers and collection agents (but that takes a little effort). The best news is that you can substantially reduce or eliminate your monthly payments on student loans depending on your income.
It is worth looking into. Our offices are available for consultation on these matters. Email us at kh@kevinhanlylaw.com or call at 201-248-2204.
Posted by kevin on September 22, 2014 under Foreclosure Blog |
MERSCORP is the creation of the Mortgage Bankers Association of America (MBAA). In 1993, at the MBAA convention, a paper was presented which suggested that an electronic method of tracking mortgages (similar to tracking stocks) would be more efficient than the current method of filing with a county register or clerk. The MBAA funded a study which concluded that the industry could save significant money in filing fees if it could establish and sell to the industry an electronic system.
In 1995, MERSCORP was incorporated in Delaware by the MBAA. Initial members included FANNIE MAE, FREDDIE MAC, GE Mortgage, GMAC Residential Funding Corp., 1st Nationwide Mortgage, Chase Manhattan Mortgage and others.
MERS stands for Mortgage Electronic Registration Systems, Inc. Mortgage Electronic Registration Systems, Inc. MERS is a wholly owned subsidiary of MERSCORP. MERS operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.
You have to be a member of MERSCORP to utilize the service. MERS continued to grow in 1990’s. Then, in 1999, rating agencies, Moody’s and S&P, issued releases that they had no problem with the MERS concept and implementation. This allowed MERS’s membership to explode because it became the vehicle of choice for securitized trusts. By 2007, 60% of all mortgages in the US were utilizing the MERS system according to MERS. Now, about 5500 members.
Every State in America has a recording act and has set up an apparatus for recording Deeds, Mortgages and Assignments. The recording acts require local recording of documents with payment of the requisite fees. MBAA and MERS just took it upon themselves to set up the MERS system and bypass the various recording acts with impunity. MBAA and MERS never went to any State legislature to change the recording laws. As a result, States and counties have been deprived of billions of dollars in recording fees. Moreover, a person cannot get access to information concerning who owns his or her mortgage.
How does the MERS system work. Say you borrow money from Wells Fargo. The Note would be payable to Wells Fargo, but the Mortgage would say that MERS is the mortgagee as nominee for the lender, Wells Fargo. It is recorded like any other mortgage usually at the county level. The Note is then sold three or 4 times. You would expect that the Mortgage would be assigned for each sale and recorded. The county (and ultimately the State) would receive, presumably, three or 4 recording fees. However, under MERS, if the purchaser of the Note is a MERS member, no assignments of mortgage are recorded. The transaction is memorialized on the computers at MERS, and the public does not have access to that information. Since the lender usually deals only with the servicer of his or her loan (the company that collects the money), he or she has no idea that the loan has been sold, and no where to find out whether the loan has been sold. And, as stated above, the county and State are out the fees.
Lately, however, there has been push-back against MERS. In PA, the recorder of deeds of Montgomery County brought a suit against MERS and MERSCORP in the federal district court of Pennsylvania. The lawsuit alleges that MERS shortchanged Pennsylvania out of million of dollars in recording fees by not complying with the Pennsylvania law which requires the recording each mortgage and assignment of that mortgage. MERSCORP moved to dismiss the case, but the Judge denied the motion and the case is going to trial. The Montgomery County Department of Records estimates that from 2000 to 2015, more than $15 million in recording fees have been lost. A victory at trial will, undoubtedly, lead to actions by other counties in PA.
Couldn’t happen to nicer guys
Posted by kevin on under Foreclosure Blog |
The Consumer Financial Protection Bureau proposed to make all consumer complaints public, sorted out by lender and subject matter.
In a recent article (blog) by Ari Karen in National Mortgage News website, the author argued that this public forum could be used improperly by consumers, disgruntled employees and competitors. Moreover, the fact that a complaint is published could give it an air of legitimacy. Finally, the article contends that the lenders would have to spend money replying to these complaints.
The article does not point out that the proposal states that the body of the consumer complaint will not be published until 15 days after it is sent to lender.
The problem with the article is that it tries to paint a picture of a blameless lending sector that is being deluged with over-regulation. This ignores the simple fact that Dodd Frank and the CFPB came about because bank and investment company abuses in residential mortgages almost brought down our economy in 2008.
Posted by kevin on April 15, 2014 under Foreclosure Blog |
Since the federal bailout of Fannie Mae and Freddie Mac (the GSE’s) in 2008, there has been a call for their overhaul. The question is, what is a suitable replacement?
Yesterday, there was an article by Ken Blackwell, former undersecretary of HUD and mayor of Cincinnati (how many n’s, how many t’s) and now a director at the Coalition for Mortgage Security. The stated purpose of the Coalition is to educate the public concerning housing policy and finance. The article says that the coalition wants to preserve the 30 year fixed rate mortgage.
In this article, Blackwell states that there is broad consensus in Washington that the GSE’s should be replaced by a private mortgage secondary market funded by private capital with a limited government role.
Blackwell has a bone to pick with the feds. He points out when the federal government bailed out Fannie and Freddie, it took 80% ownership interest. Now that the government has been paid back, it is claiming still 80% ownership but 100% of the profits of the GSE’s. In effect, the feds have screwed the shareholders of the GSE’s. By creating and maintaining such a policy, Blackwell claims that investors will be very reluctant to jump into any new private mortgage financing vehicle.
Implicit in the article, however, is that the Coalition fully expects the government to be there in case of future meltdown. So, the private market is not really a private market.
Yesterday, the WSJ ran an editorial relating to the reform of Fannie and Freddie. It discussed in some detail the Johnson/Crapo bill which would replace the GSE’s with multiple private mortgage bond issurers that would each have a taxpayer guarantees. To get those guarantees, the issurers would need to maintain (over time) a 10% capital level vis-a-vis aggregate mortgage loans.
The editorial rails on against provisions in the bill which encourage and subsidize loans to people who are not creditworthy. On the other end of the spectrum, the editorial states that while the median price for a home in the US was $189,000, a borrower could borrow as much as $625,000 and have that loan backed up by the feds. WSJ questions whether the government should be subsidizing the somewhat wealthy on their home purchases.
From my viewpoint, it appears that the politicians want to get rid of Fannie and Freddie while at the same time keeping Fannie and Freddie. Different groups want to dump the aspects of the programs they do not like, and keep the one’s they do like. Seems like a lot a work to end up pretty much at the same place.
Posted by kevin on April 11, 2014 under Foreclosure Blog |
Almost every client that has come in my door for the last five years has told horror stories about their treatment at the hands of servicers. I believe they are telling me the truth because servicers jerk me around almost as unmercilessly as they do borrowers. The prospective client believes that they have solid grounds for suing the servicer.
There may be some situations involving servicer improprieties in a Chapter 13 which rise to the level of a cause of action or sanctions. However, in NJ state courts, the borrower generally cannot go after the servicer unless a temporary modification was granted. Why? Because the courts have decided that the MHA program is a contract between the servicers and the government. So, borrowers, not being a part of the deal, lack standing to assert that the servicer is not following the rules. When the borrower is granted a temporary modification, however, many courts have found that there is an implied contractual relationship between the servicer and lender on the one side and the borrower on the other side. This gives the borrower standing to sue or raise defenses in a foreclosure.
What about FHA loans? Our argument is that they are an exception to the no standing argument. Why? Because when you an FHA loan, the borrower has to pay, at closing, a fairly hefty fee for MIP insurance. In addition, there is an insurance component built into each monthly payment for a good many years of the loan. Our position is that those payments gives the borrower standing to allege servicer issues.
For example, the FHA HAMP guidelines state that unemployed borrowers are eligible for a special forbearance. However, many times the servicer never offers this program, but goes right to foreclosure. Our position is that this is a violation of FHA guidelines. The servicer should offer a special forbearance before filing any foreclosure. If not, then the foreclosure case should be subject to dismissal for failure of the lender to fulfill a condition precedent.
I cannot say that I have found any case law supporting this position in New Jersey. However, the argument is compelling. I am waiting for the right borrower to test this theory.
Posted by kevin on April 7, 2014 under Foreclosure Blog |
The first rule is that HAMP, the government program for mortgage modifications, does not apply to government loans. If FANNIE or FREDDIE bought the loan (whether for their own portfolio or sold to investors), HAMP does not apply. We will deal with this in later blogs.
Other basics:
2. HAMP applies to first lien mortgages originated on or before January 1, 2009.
3. HAMP applies to condo’s, coop’s and manufactured housing if state lien law makes mortgage a lien on real estate.
4. The property securing the mortgage loan has not been condemned and is habitable.
5. Borrower has a documented financial hardship and does not have sufficient other assets to pay mortgage as currently stated.
6. Borrower agrees to escrow for taxes and insurance (if not doing already) prior to any trial period.
7. The unpaid principal balance prior to capitalization is not greater than $729,750 for 1 Unit, $934,200 for 2 Unit, $1,129,250 for 3 Unit and $1,403,400 for 4 Unit.
8. The mortgage is secured by a one to four unit property.
9. The borrower has submitted an initial package for modification on or before December 31, 2015 and the modification effective date is on or before September 30, 2016.
If you have followed my blogs, you know that I believe that HAMP is not bad on paper, but problematic in its implementation. Servicers still jerk people around, and borrowers cannot look to the courts for help unless they have a temporary modification. But, with the courts clamping down on defenses and looking the other way on evidence issues, it may be the best game in town at this point. So, look into it. Time is running out.
Posted by kevin on March 29, 2014 under Foreclosure Blog |
Earlier this week, we commented on the DOJ audit relating to financial fraud and, more specifically, mortgage fraud. The report concluded that the DOJ dropped the ball on these issues. One of the excuses used by the DOJ was that mortgage fraud (notwithstanding the President’s task force included mortgage fraud) was not really within its purview, but should be considered securities fraud. This was kick the can over to the SEC.
Oddly enough, the SEC announced that it is investigating whether a recent Wall Street boom in complicated bond deals is opening up new opportunities for fraudulent behavior. My Goodness. Is there gambling going on at Rick’s Cafe Americain? Keeping with the Casablanca theme, the SEC is lining up the usual suspects-Barclay’s , Citigroup, Deutsche Bank, Goldman, Morgan Stanley, RBS and UBS.
Now, I am hoping that the investigation is more than a press release. After all, the SEC was rather slow on the uptake in their investigation of irregularities following the mortgage crash of 2008. But, maybe they learned something from the prior go around.
A WSJ article indicates that the SEC is referring to the securities as CLO’s (collateralized loan obligations). It is not clear whether the SEC is investigating deals involving consumer credit or CDO type deals. Irrespective, the SEC must investigate and aggressively go after wrongdoers. Wall Street was emboldened by the tepid response by regulating agencies, While making billions of dollars, Wall Street practically wrecked the economy, got bailed out, and there were scant criminal or regulatory repercussions. So, is the plan, lay low for a couple of years, and let the games begin anew. The SEC has an opportunity to prove that its priority is to protect the public as opposed to laying the groundwork for getting its higher ups great jobs at mega law firms or in investment banking houses. You will know the answer based on the results of this and other investigations. I am not optimistic.
Posted by kevin on March 25, 2014 under Foreclosure Blog |
It has been a recurring theme in this blog that the courts have done little to level the playing field in foreclosures, and the federal and state governments have done little to bring the big players to justice. It is almost farcical when you read articles in NJ about the US attorney or State attorney general prosecuting individual mortgage brokers when the higher ups on Wall Street and at the big mortgage originators do not get prosecuted, do not go to jail, and do not forfeit their vast fortunes. Maybe in the next life.
Recently, the DOJ inspector general came out with a report on DOJ’s efforts to address mortgage fraud.The time line was 2009-2011. The report stated that even though the President made a big deal about setting out a financial fraud task force headed by Eric Schneiderman, the up to that point carnivorous NY AG, the FBI Criminal Investigation Division rated financial crimes lowest among criminal threats facing the country. Moreover, the FBI rated mortgage fraud as the lowest sub-priority within the financial crimes category.
Last week, Gretchen Morgenson had a sobering article in the NY Times. She cited that inspector general report. She also pointed out that the Justice Department claimed that the task force was a great success with criminal charges lodged against 530 defendants including 172 executives. 73,000 victims who lost over a $1 billion dollars were helped. Of course, those numbers were BS. The number of defendants was revised downward to 107, the number of executives to about 70 and the losses to about $95 million. The article also quoted Senator Kaufman, retired, from Delaware. ( I remember seeing him on C-Span more than once.) He tried valiantly to bring the mortgage fraud issues to the forefront, but he had little support from his fellow senators (or the administration). Kaufman said that not only was mortgage fraud not the top priority of DOJ, it was their last priority.
What happens when people are not punished but rewarded for their bad behavior? More bad behavior not only from the original miscreants, but also eventually from the erstwhile honest people who conclude that crime actually does pay. The Morgenson article ends with the following quote from Senator Kaufman: “The report fits a pattern that is scary for a democracy, that there really are two levels of justice in this country, one for the people with power and money and one for everyone else”.
It is a shame.
Posted by kevin on March 16, 2014 under Foreclosure Blog |
Back in February, 2012, the six largest servicers entered into a $25 billion settlement with the US DOJ and the AG’s from 49 states. Thank god. No more robo-signing. No more servicer fraud. A great day for the consumer.
Not really. I started to see evidence of robo-signing after that “historic” settlement. In fact, almost all endorsements now are on allonges, and all the allonge forms are identical irrespective of the lender. What a coincidence. I am sure that Judges who saw hundreds of these “new” allonges made the same observation. One could only hope that those observations were made on the record.
Moreover, the $65-70 million earmarked to reduce principal on NJ mortgages never really materialized. I had heard from HUD counselors that the banks were walking away from underwater second mortgages (which they would have done anyway) and getting credit toward their share of the $65-70 million.
So, my take was that the $25 billion settlement may not have been a total canard, but certainly was a lot less than met the eye
Last week, in a case pending in the federal district court for the Southern District of New York, the borrower’s counsel made reference to a 150 page Foreclosure Attorney Procedures Manual which, according to the NY Post, details a procedure for processing [mortgage] notes without endorsements and obtaining endorsements and allonges. That would be fraud on a massive level. However, a Wells Fargo spokesman denied that the manual could be used to order improper documents, and admonished the public not to believe their own lying eyes, but to take WF’s word for it. Well, at least I can now sleep peacefully.
I have a few WF cases. I also have access to the manual. The next few nights of reading may prove very interesting. If so, the next few months in discovery will be worth the price of admission. I plan to take depositions including attorney depositions in the proper cases. Stay tuned. I look forward to reporting back to you
Posted by kevin on February 27, 2014 under Foreclosure Blog |
How can Homeowner A get a better deal? “A” is saving $1056 per month on principal and interest payments while “B” is saving only about $264 per month. So, from a cash flow basis, “A” is saving more. Moreover, without the suspense account of $200,000, “A” probably could not meet the monthly nut. It is almost impossible to scrap up another $1056 per month every month. An extra $264 per month is no piece of cake, but it is a lot more do-able than $1056. So, “A” is getting the better deal. Right?
But, let’s look at it another way. “A” has to come up with $200,000 at the end of the term while “B” only has to come up with $50,000. Advantage to “B” but that is potentially 25 years off. If the fair market value of the house is $300,000 and prices increase an average of 5% per year, at the end of 25 years, the house could be worth about a $1,000,000. “B” walks away with more money if he is still able to walk. But “A” still has a health chunk of change. In effect, neither A nor B are out there breaking their backs to earn money to make that balloon payment. Why? Because inflation pays the balloon.
What if prices never go up. Well, at the end of the term, you pay or don’t pay. If you do not pay, you get foreclosed. “A” saves $200,000, “B” saves $50,000 and both are looking for a small apartment in Florida.
How bout looking at it another way. “A” does not pay interest on $200,000 for 25 years at 4%. That is a savings of $116,000 while “B” saves only $29,000.
Enough already. There are many ways to analyse this mod scenario. Some ways seem jaded, but I am sure that the lenders, with the NPV calculations required under HAMP, are looking at your home in the same cold blooded way.
While all the above analyses should be considered by the homeowner who has been presented a modification with a balloon payment, any analysis should begin with same question. How long do I intend to live at my current house? Why? Because the balloon is due at the end of the term or when you sell. If your kids are in their late teens or early 20’s, chances are that they are going to move out in 5-8 years. Why keep a big house if there are only two of you. The problem is, however, how are you going to come up with $50,000 or $200,000 in 8 years. Maybe, the house may increase in value by $50,000 over 8 years, but you are going to need much more than a $50,000 increase because you have to cover the closing costs including the broker’s fee. $200,000, in most cases, is a “bridge too far”.
Bottomline, the longer you intend the stay, the less the balloon payment is an issue.
Posted by kevin on February 22, 2014 under Foreclosure Blog |
How can you evaluate whether you are being offered a fair modification. At a very basic level, you must ascertain that it lowers your payments enough that it is affordable to you. But the analysis should go beyond that.
Our starting point is to look at the total payments over the course of the loan pre-mod and post mod? We determine that by comparing total payments under the original loan versus your total payments under the proposed modification. This can be a little complex because a good mod may reduce interest, suspend interest, increase the term, capitalize arrearages with a balloon payment and/or reduce principal. All these components need to be considered. I have many clients who believe that they got a bad deal because there was not a principal reduction. However, if your interest rate is reduced from 10% to 4%, that is a considerable savings over the remaining term of the loan (whether extended or not). Moreover, in cases where my clients have not received principal reduction, the servicer usually offers to capitalize arrearages, place that amount in a suspense account with 0% interest, and have that amount paid at the end of the term or at sale as a balloon payment.
Some of my clients say that is not a good deal. My answer is that it depends. Let’s look at two different scenarios. In both cases, the loan will be amortized over 25 years and the amortized amount is $200,000. In the first scenario, however, the capitalized arrearages are $200,000 while in the second scenario, the capitalized arrearages are $50,000. Remember, there is no principal reduction. The monthly payment of the amortized portion (which is your monthly payment) is the same in either scenario; that is, roughly $1056 per month for principal and interest. Taxes and insurance should be the same. So, monthly payments are the same. The glaring difference is that at the end of 25 years, Homeowner A owes the lender $200,000 while Homeowner B owes the lender $50,000. At face value, one would say that Homeowner A got the better deal, and in many cases that is the correct analysis. However, in our next blog, we are going to look at these scenarios in a little more depth. There may be more to this story.
Posted by kevin on January 2, 2014 under Foreclosure Blog |
For the US as a whole, foreclosures are at their lowest level in years. Nationwide, home prices are up 13.6% over the prior year. Unemployment is supposedly below 7% but those numbers are fudged so much that, frankly, I do not know what they mean.
New Jersey, however, is not faring as well as the rest of the US. Unemployment is at about 8.4%. Values of single family homes are up only 4.9% in north NJ. Price levels are comparable to those of 2004 and are 20% below the peaks reached in 2006. In Bergen County, prices rose only 3.6% while Passaic did a little better with 8.8% increases in single family residences.
Nearly 7% of NJ homes are slated for foreclosure according to CoreLogic. That is the second highest amount in the country. Only Florida at 7.1% is higher. In New Jersey, 10.6% of homeowners are at least 90 days behind on their mortgages.
New Jersey is a judicial foreclosure state. That means that a lender must file a complaint and then obtain a final judgment before it can schedule a foreclosure sale. This slows the process down considerable. Even in uncontested cases, it can take 180-200 days to get to sale (double that or more if aggressively contested). On the other hand, in non judicial foreclosure states, the process can be over in 45 days. The trustee of the deed of trust (the equivalent to a mortgage in NJ) sends the proper notices. If the loan is not brought current, the trustee can schedule a sale. Courts get involved only when the borrower files a complaint to stop the sale.
Because the process takes longer in judicial foreclosure states, there is a longer backlog. It is anticipated that in NJ foreclosures will continue at the 2013 pace until well into 2015.
What should you do if you are delinquent on your mortgage or on the brink of becoming delinquent. Time to take stock. If you are our of work, you have to get back into the game. No work, no history of income, no way you are going to be able to get a modification. However, a modification is not right for all people. If your house is still underwater, and comparable rental property is available for 60% of your current mortgage payment, well maybe it’s time to deed the property back to the lender. You will never recoup your money on that house.
Be wary of short sales. I rarely see a scenario where a short sale makes sense to a homeowner except in situations where association fees continue to mount. You do a lot of work on behalf or your lender and all you get in return is a 1099 for the shortfall which, in some cases, leads to a tax liability to Uncle Sam.
Finally, remember that although HAMP (actually MHA with HAMP being their modification alternative) is better- much better than it was a few years ago, you are still at the mercy of the servicer. Sometimes, I have seen really good mod offers; other times I just walk away shaking my head. However, just like the lottery, you gotta be in the game to win.
Feel free to contact our offices to discuss your situation.
Posted by kevin on December 24, 2013 under Foreclosure Blog |
The federal government and the AG’s from 49 states including NJ announced a $2.1 billion settlement with Ocwen Financial Services and Ocwen Loan Servicing. In New Jersey, Ocwen will provide troubled borrowers with an estimated $151 million in loan reductions. Moreover, over $2MM is being set aside for cash payments to borrowers who were already foreclosed on (great deal for Ocwen and its lenders- they get the house and the homeless borrower gets a whopping $1,000 or a little more if less homeowners sign up for the deal).
Among the charges against Ocwen Financial Corporation and its subsidiary, Ocwen Loan Servicing, were charging unauthorized fees, misleading borrowers about alternatives to foreclosure, providing false or misleading information about the status of accounts, denying loan modifications to eligible homeowners and filing robosigned documents with the courts (you mean those certifications filed with the courts by the servicers and the lender’s attorneys are fugazies ? I’m shocked.)
In addition, Ocwen will be subjected to the the so-called heightened standards of the Consumer Financial Protection Bureau.
As I have said in previous blogs, HAMP 4.1 is better than previous HAMP roll outs. I get a fair amount of decent modification offers, but I get some insulting offers as well and servicers still play games. With this settlement still fresh in Ocwen’s corporate mind, I would surmise that in the next few months anyway, Ocwen will probably be offering pretty decent modifications.
So, if your loan is serviced by Ocwen, you may want to look into this or retain counsel to look into it.
Merry Christmas to all.
Posted by kevin on December 10, 2013 under Foreclosure Blog |
Joseph Smith, the overseer of the $25 billion settlement, issued a recent report pointing out that Bank of America has violated the settlement because it failed to file accurate documents in bankruptcies. What that means is not clear. Did they add up a column of numbers incorrectly or did they submit robo-signed documents. Moreover, it is not clear that there was any real sanction for violations other than a promise to do better.
I have many problems with the $25 billion settlement. Among them is that the overseer seems to be a very qualified guy with a reputation for protecting consumers when he was the Commissioner of Banking in North Carolina. However, as overseer what we see are reports and sanctions that do not even amount to a slap on the wrist.
In the meanwhile, I really have not seen any real reduction in the antics that the lenders/ servicers are up to in foreclosure actions. In NJ, we see an upsurge in servicers stating that they are the lenders notwithstanding the there is ample proof that they are just the servicer. How do they do it? A combination of no meaningful discovery being allowed to borrowers and use of allonges which are endorsed in blank. The servicer puts in a certification that it came into possession of the note prior to the foreclosure filing. The problem is that the allonges, starting in about 2012, all started to look exactly alike as to form. The tranasction and the closing of loan date is on the top of the page followed by an endorsement in blank. Before 2012, I do not recall seeing this allonge form at all. Now, it is standard. So, it could be just a coincidence. Or it could be that the endorsements were all made after 2012 irrespective of when the note was signed by the borrower or sold. What do you think?
Many client and prospective clients tell me of the antics of servicers during the modification process. Being put on hold for long periods of time. Leaving messages and not getting call backs. Documents are lost time and again. Your “point of contact” person is never available. What can you do? Is it negligence on the part to the servicers or bad faith? Can you sue them? Is it a defense against the foreclosure?
The answer is that if you have not been offered a trial modification that you accepted, you are SOL against the servicer and lender. Why? You have no contractual right to a modification. Making Homes Affordable is a deal between the federal government and the banks. You are not the federal government. So, you have no standing to sue. The overseer has standing to do what is listed in the $25 billion settlement which includes wrist slapping. You can complain to people who will not listen whether that be the servicer, the lender, the consumer affairs department in NJ or the courts.
However, if you do get a trial modification and then get jerked around, you have standing and can sue the servicer and lender. In fact, in New Jersey, it may be a consumer fraud violation. In those limited cases, it may be worthwhile to pursue legal action.
Posted by kevin on December 4, 2013 under Foreclosure Blog |
Freddie Mac buys mortgage loans either for its own portfolio or for sale to investors. Under the terms of these purchases, Freddie has the right to put back the loan to the originator if it is found that the loan does not meet the standards set forth in the purchase agreements. The so-called “put back” loans defaulted because, for the most part, the loans were made to people who could not afford to repay them. That is the essence of predatory lending.
As of September, 2013, Freddie Mac had $1.4 billion in put back loans that were previously owned by BOA, and they wanted BOA to take them back. The settlement reached has Freddie Mac receiving $404 million.
This is not the first time that BOA has settled with Freddie Mac. In January, 2011, BOA made a $1.35 billion settlement over loans sold by Countrywide which was acquired by BOA in 2008. Moreover, BOA recently settled with Fannie Mae for over $11 billion.
Why is BOA settling for these vast sums of money? Well, the standard line is that they want to cut litigation costs and move on. While both statements are technically true, my take is that a primary motivating source in the settlements is that BOA (and other settling banks) does not want the government conducting a methodical and in depth investigation into its lending practices. That would uncover “irregularities” that make everything else look like child’s play.
Let’s play a little detective. Did you ever ask why there was widespread robo-signing of documents which included everything from people signing other people’s name on endorsements and assignments on thousands of documents to outright forged endorsements. I would say the question is, why were these notes not endorsed at the closing or shortly thereafter? I mean, the banks and investment houses had all the best legal minds in their stables telling them exactly what to do and when to do it. Do you really believe they all collectively dropped the ball on doing something as simple as signing an endorsement on a note or signing an assignment of mortgage?
I have been in the trenches for 4 years fighting foreclosures. I have seen a lot of “stuff”, both from the banks and the courts. Perhaps, I have become a bit jaded. But one question that I ask, over and over again, is, ‘was there a reason that the banks and investment houses allegedly did not endorse notes until they were robo-signed just before the foreclosure action was filed? Well, here’s one theory. Banks and investment houses are required to borrower billions of dollars daily at the repo desk. To get their hands on that kind of money, they have to put up collateral. A note that is endorsed to someone else or in blank cannot be used for collateral. But if, by chance (or not by chance), you had notes that were made out to you but not endorsed to a third party or in blank, perhaps, just perhaps, those notes could be used as collateral at the repo desk. Who would know the difference?
That would be a massive fraud. It would make Bernie Madoff look small time. Now, I am not saying that this happened. But, what I am saying is that there has to be a reason that BOA and other banks and investment houses are paying millions and more often billions of dollars in settlements, right and left. There has to be a reason that they do not want any in-depth discovery of their paperwork or e-work. It is not because of a few predatory loans.
Think about it. Then ask yourself, why aren’t the courts and the feds asking this same question?
Posted by kevin on November 23, 2013 under Foreclosure Blog |
Periodically, we have been tuning in to the negotiations between the Justice Dept and JP Morgan Chase (“JPMC”). It is clear that JPMC wanted to settle to put a cap on its liabilities and to probably also to keep from the public damaging information about the types of loans it was making, servicer improprieties, and robo-signing issues (although technically part of $25 Billion settlement, chance that negative info could have come out in discovery). At any rate, this past Tuesday, the deal with the Justice Dept (which included pro-active States) was finalized for $13 Billion. Here is the breakdown:
$4 Billion to help struggling homeowners of which $2 Billion to lower principal balances and $2 Billion for other homeowner relief including lowering interest rates;
$4 Billion to FHFA for questionable loans sold to Fannie and Freddie;
$1.4 Billion to National Credit Union Administration;
$300 Million to California AG;$515 Million to FDIC;
$2 Billion to Justice Dept.
$300 Million to California AG;
$20 Million to Delaware AG;
$100 Million to Illinois AG;
$34.4 Million to Massachusetts AG; and
$614 Million to NY AG.
(Nothing for NJ because we have been less than pro-active in this fight (as we were in the Revolutionary War and Civil War- but let’s not get into that). The deal does not include a “get out of jail free” pass for possible criminal activity.
In addition, on November 15, JPMC agreed to pay $4.5 Billion to an investor group including Black Rock, Goldman Sachs Asset Management, LP and others based on sale of securities by JP Morgan and Bear Stearns.
Now, if these settlements were based on bad loans sold by JPMC to investors or Fannie and Freddie, how come the loans that backed up these securities are not viewed as equally bad? On the positive side, however, money is available for settlements. Although servicers still dance borrowers around during the modification process (and that is not going to change dramatically no matter what MHA says), we believe that Borrowers with JPMC, or Bear Stearns loans should actively pursue modification. The money is there.
Posted by kevin on November 18, 2013 under Foreclosure Blog |
Millions and Millions of dollars were made by mortgage brokers, originating lenders, servicing companies and Wall St, firms selling residential mortgaged backed securities (“RMBS”) . Wall St made even more money by slicing and dicing the RMBS and turning them into collateralized debt obligations (“CDO”). But the assistance of one industry was necessary for the successful sale of RMBS’s and CDO’s. Who could they be? The rating agencies. You see, without an A rating or better, the best instititutional salesmen on Wall St could not unload these securities. So, without the likes of Standard & Poor, Moody’s Investors and Fitch Ratings, we may not have had the real estate bubble and the Great Recession.
In previous blogs, we have pointed out the that government has been slow on the draw going after Wall St investment houses and the Too Big to Fail Banks. But at least they have gotten off a few shots. On the other hand, governmental action has been almost non-existent against the rating agencies.
With the statute of limitations running out, we may be seeing some push back. In the last week, the liquidators of two failed Bear Stearns hedge funds filed suit against S&P, Moody’s and Fitch accusing them of fraudulently misleading investors about the quality of their ratings. The liquidators are looking for over a billion dollars in damages.
The complaint was filed in the New York Supreme Court (in NY, this is the trial level court). The liquidators are looking at the ratings in light of the types of mortgages that were in the mix, the lack of analysis by the rating agencies as proof of a lack of due diligence, and statements made by the employees of the rating agencies in emails where they joked about the quality (or lack thereof) of the mortgages that were part of a deal.
The liquidators filed bare bones complaints in early summer to beat the statute of limitations, and this past week added a 140+ page complaint.
What does this mean if you are a borrower in NJ? Unfortunately, at this time, not much. Many judges do not want to hear the details about the confluence of misdeeds by brokers, mortgage originators, rating agencies, sponsors of trusts, trustee who refuse to bounce back bad mortgages, and servicers who jerk around homeowners who want to get a modification so they can continue to live in their homes. They are granting summary judgment (defenses of borrower thrown out without the need for a trial) to lenders in foreclosure cases with increasing frequency. I have not tried a case in well over 18 months- not from lack of effort on my part. But, perhaps the case against the rating agencies, together with all the news about large banks settling with the SEC or Justice Department for billions of dollars, may cause one or more appellate panels to find consumer fraud or predatory lending; to question whether those allonges that all started to look alike about a year ago are not examples of fraudulent robo-signing; and to force plaintiffs to prove their cases with competent, credible evidence based on personal knowledge. We did get decisions like that back in 2010 and 2011. Let’s go back to the good old days.
Posted by kevin on November 3, 2013 under Foreclosure Blog |
A good proportion of the mortgages in default in New Jersey were sold to investors by means of private securitizations. In such cases, a sponsor will buy about a thousand mortgages from one or more originators, transfer them to related entity called a depositor, who then sells them to a trust. (Multiple transfers are necessary to insure bankruptcy remoteness). The trust is usually a REMIC (real estate mortgage investment conduit) which means that only the investors are taxed. The guiding document is called a Pooling and Servicing Agreement (PSA) which describes in detail what happens, how the various notes and mortgages are transferred into the trust, how and how much the investors are paid, and what the functions of the various parties are.
Unless the securitization is exempt from federal securities laws, the sponsor must register the offering with the Securities and Exchange Commission (SEC). Because of this registration requirement, some of the documents associated with the securitization, including the PSA, can be available on the SEC site. When you get the opportunity to read 100 or so PSA’s, you realize that many require that the note have an endorsement from the depositor to the trustee or in blank with all intervening endorsements so that there is a complete chain of endorsements. This is to comply with the requirements concerning bankruptcy remoteness.
When you compare the your client’s note to the usual requirements of the PSA, you often times find that the endorsement(s) on the note do not come close to complying with the requirements of transfer set forth in the PSA. If the PSA is governed my NY law, it is pretty clear that if the note and mortgage are not transferred to the trust in accordance with the terms of the PSA, then the note and mortgage are not in the trust and the plaintiff, trustee, has no standing to bring the action.
This could be a major problem for lenders. Literally, hundreds of thousands of cases in New Jersey and across the United States could be tossed out of court. But, that has not happened to date. Why? Because an unpublished case in NJ stated that a borrower cannot refer to the requirements for transfer set forth in the PSA because the borrower is not a party to the PSA. Yeah, the lender broke the rules of its own operating agreement, but the borrower, who stands to lose her home, cannot bring it up. Many trial courts in NJ have adopted this position notwithstanding that the case setting forth this rule is an unpublished, and under our Court rules, unpublished opinions have no precedential value. You can draw your own conclusions on this, but it does seem to defy common sense.
More on this in upcoming blogs.
Posted by kevin on October 28, 2013 under Foreclosure Blog |
This past week, a jury in Manhattan found Bank of America (BOA) liable for mortgage fraud. BOA, as successor to the infamous Countrywide Home Loans, was found to have fudged its system for detecting bad loans which were sold to investors. They even had a name for the scheme- High Speed Swim Lane- acronmym “Hustle”. 57% of the Swim Lane loans defaulted, and the government claimed that 43% of the loans were defective or fraudulent. In addition, the jury found Rebecca Mairone, who oversaw the program, liable. Just an aside- when you call a loan program “Hustle”, I think that you are flirting with danger.
Now, these loans were originally Countrywide Loans which were sold to investors through Fannie and Freddie. BOA bought Countrywide in 2008 for $2.5 billion. The Hustle program ended just prior to the purchase. The case is entitled US ex rel O’Donnell v. BOA, et al because the case stems from a whistleblower action brought by former Countrywide executive, Edward O”Donnell. The penalty phase of the case will be going forward. The government is looking for a shade under $1 billion in damages. Because fraud is involved, the Judge could tack on punitive damages and fees.
This case is significant for two reasons: first, we are talking about a jury verdict. What we commonly see is a settlement usually way before trial to reduce costs to the bank and , more importantly, with no admission on the part of the bank of liability or wrongdoing. Second, the verdict is against the bank and an executive. It puts a face on the wrongdoing. Moreover, it will have a strong chilling effect on bank executives who are actively involved in hustling the public and even those that just look the other way when wrongdoing is rampant.
The case was brought under the FIRREAA. This was a statute that was promulgated during the Savings & Loan crisis of the late 80’s and early 90’s. The benefit is that the statute of limitations is 10 years. BOA may take the case up on appeal to challenge the applicability of that statute more so to attack the long statute of limitations.
Clearly, a victory for the investors and possible all consumers since we have a jury verdict on fraud. How NJ judges will consider this fraud when dealing with borrowers is another question. Borrowers and investors are two sides of the same coin. If borrowers did not get the predatory and often fraudulent loans, investors would not be sold those same loans. It is rather incongruous that courts blame the banks for the loans vis-a-vis the investors, but blame the borrowers for taking the bad loans as opposed to the originating lenders for granting them.
Posted by kevin on October 19, 2013 under Foreclosure Blog |
Usually, we talk about foreclosure and events surrounding the fallout caused by the mortgage crisis.
In the last few weeks, however, we have lived through the drama of the government shutdown. Now, you could say that the culprits were the Tea Party activists for pushing the envelop, or Harry Reid and the President for refusing to negotiate any significant changes to Obamacare. I say that there is enough blame to go around with some finger pointing to be directed to the media as well.
One thing is sure. The country is divided- by political party for sure; but also, more or less, by economic group, by age, by race and, it appears, by neighborhoods.
A Pew Research Center report called “The Rise of Residential Segregation by Income” concluded that the share of lower-income and upper-income households who live mainly among other households of their income class increased significantly from the 1980 census to the 2010 one. The percentage of upper-income households who live in majority upper-income census tracks doubled, from 9% to 18%, while the percentage of lower-income households who live in majority lower-income household increased significantly, from 23% to 28%.
The more important backstory here is the by now much-discussed contraction of the middle class. This is not just the result of the last few years’ Great Recession, but has been happening for decades. In 1980, middle-income households (those with income from 67% to 200% of the national median) included 54% of U.S. households, but by 2010 they were down to 48%.
With less households at middle income, there are more census tracts (local areas with about 4,200 people) that are either majority lower income (less than 67% of median) or majority upper-income (more than 200% of median income). From 1980 to 2010, the portion of census tracts that did not have majority middle income climbed from 15% to 24% (up from 15% to 18% for lower income and from 3% to 6% for upper income).
At the threshold points of 67%/200% of median income, in 2010 lower income was defined as less than $34,000 of household income, and upper income as $104,000 and above. Although these dollar amount may or may not fit your personal definition of these economic classes, the Pew Center conducted multiple analyses using different thresholds to define lower- and upper-income households, and the basic finding reported here of increased residential segregation by income was consistent regardless of which threshold were used.
At this point you may be saying, well of course, people live in neighborhoods they can afford, so well-off people will live in expensive neighborhoods and the less well-off will live in more modest ones. True, but what is meaningful is the trend towards greater residential segregation, and particularly the sharpness of the trend. We’ve seen a widening income gap between the rich and the poor, and now understand that this has come with fewer of us living in mixed-income neighborhoods, and more of us living among people like us economically. This fast-increasing isolation of the economic classes from each other can have profound consequences for the nation’s social and political cohesiveness. Our national motto—“E Pluribus Unum,” “out of many, one”—is being sorely tried by our deep and seemingly increasing political divides. Adding a deepening economic divide only increases the challenge of working together constructively.
Posted by kevin on under Foreclosure Blog |
In our last episode, JP Morgan Chase and the Feds were talking in terms of an $11 billion settlement of the various claims against JP Morgan. Yesterday, the Wall Street Journal reported that JP Morgan settled with the FHFA for $4 billion based on misrepresentations concerning the quality of mortgages underlying bonds sold to Fannie and Freddie. Bloomberg has just come out with a story that says that JP Morgan is in the process of finalizing a $13 billion settlement with the Feds (includes the $4 billion to FHFA) which will cover all Federal claims (except possible criminal action against individuals) and all claims being raised by NY AG Eric Schneiderman.
Nothing in either report indicates whether and how much of the settlement will be used for loan modifications.
JP Morgan took a $7.2 billion charge against 3d quarter earnings relating to legal issues. Clearly, the bank is trying to rapidly put its legal problems and the money associated therewith behind it so that it could move forward. The Bloomberg piece says that not only has Jaime Dimon, the CEO of JP Morgan, and Eric Holder, the US Attorney General.
We can expect confirmation of the settlement with all of its terms within the next few days.
Posted by kevin on under Foreclosure Blog |
About a month ago, I wrote to you about the governments investigation of JP Morgan Chase (“JPMC”) based on the sale of Bear Stearns mortgage backed securities (“MBS”).
Well, the financial news has been abuzz with stories about JPMC. Yesterday, it was reported that JPMC was trying to settle all of its criminal and civil cases with the government for $3 billion. The bulk of that settlement was to be attributed to the sale of MBS. In regard to MBS, the issue was predominately whether JPMC (or Bear or Washington Mutual- all bought by JPMC) violated its warranties and representations concerning the quality of the loans put into securitized trusts. The issues were: (1) was that enough money; (2) what claims would be part of the settlement; and (3) whether JPMC would have to admit culpability.
Well, the talks have moved pretty fast in the last day. It appears that the AG, Eric Holder, rejected the $3 billion offer. The number that is being floated around is $11 billion, but that includes claims of FHFA relating to claims that JPMC misled Fannie and Freddie, and claims brought by the NY AG. From that $11 billion, $7 billion would be in cash, and $4 billion would be available to JPMC borrower (I represent a few of those). Discussions are said to be very fluid at this time, because there is not a meeting of the minds about what claims are included or whether JPMC must admit culpability There may be a deal; there may not be a deal. We shall soon find out
Interesting. The feds are going after JPMC for putting bad loans into securitized trusts and lying about it. I have always said that the two parties who got screwed during the mortgage run up of the 2000’s were homeowners and the investors in securitized trusts. If a crappy loan finds it’s way into a securitized trust, it was usually because the originating lender offered a loan to someone who could not afford to repay it. That is predatory lending. So, violation of warranties and representations goes hand in hand with predatory lending. By settling, even without an admission of guilt, JPMC is tacitly agreeing that it misled investors. So, aren’t they also admitting that they engaged in widespread predatory lending?
What about borrowers? They either lost or are in the process of losing their homes and savings. Who has taken care of them? Well, I guess you can say that the proposed settlement of $11 billion puts $4 billion on the table, in the form of modifications, to borrowers. But, what have the courts done for borrowers? Not much. In New Jersey, there are only a handful of cases (I can think of only two offhand) that deal with predatory lending and neither were in the context of the current mortgage crisis. Since 2007, well over 100,000 people have lost their homes in New Jersey, yet I am not aware of one case since that time that found a loan issued in NJ to be predatory. There are some bankruptcy cases that have dealt with this issue, and there is a NJ case that says that modification agreements are subject to the Consumer Fraud Act, but I am not aware of any reported cases that hold that a loan issued in NJ was predatory during the current mortgage crisis. How can that be? Certainly, NJ loans were not subjected to a higher underwriting standard. One day, this will all come to light. What can you do? Discuss this issue with your elected officials. Demand an even playing field.
Posted by kevin on September 18, 2013 under Foreclosure Blog |
If you listen to the various commentators, there were numerous reasons for the housing bubble. Some blame the government. the Community Reinvestment Act, enacted during the Carter administration, encouraged (or better yet, demanded) that banks lend money to people who would not traditionally qualify for a mortgage loan. That law basically lay dormant during Reagan and Bush I. However, as the economy picked up in the second Clinton administration, the feds started to push this law.
Going hand in hand with the Community Reinvestment Act was the Federal Housing Enterprises Financial Safety and Soundness Act (which was eventually anything but), a 1992 Act which gave HUD authority to administer GSE’s (Fannie Mae and Freddie Mac) affordable housing provisions. The law established a quota of loans to borrowers who were at or below median income in their area and required to be bought by the GSE’s. These loans were commonly called sub-prime mortgages. The initial quota was 30%. By 2008, however, the percent of subprimes on the books of the GSE’s was over 70% of all subprime loans.
Others blame Wall St and how it is structured. Prior to the 1980’s, investment houses were mostly partnerships with unlimited liability. One reckless partner could bring down the whole firm, so risk was managed by the partners keeping an eye on each other. But Wall St realized that it needed more capital than its partners could generate to be involved in bigger trades, bigger deals. It needed OPM- other people’s money. To accomplish this, the firms became corporations, went public and brought in piles of money. The new owners were the shareholders. The old owners had shares and managed the firm. The money that the old owners took out changed from profits to yearly compensation. Pay was tied into performance. Bigger profits, bigger pay and bonuses. However, with bigger profit comes bigger risk. In the past, the unlimited liability aspect of the partnerships checked risk. But now the investment firms were corporations dealing with OPM, so risk was no longer a primary factor. The investments firms borrowed heavily to make the big deal or trade. That’s fine as long as everything is going up, but a disaster when the bottom falls out.
A third factor was, related to the structure of Wall Street but accomplished by the government, was the repeal of the Glass Steagall Act. This Act came about in the 1930’s. It separated commercial banking from investment banking. Restrictions were put on commercial banks because they were take deposits from the public. That gave them lots of capital but restricted what they could do with it. Investment banks could not take deposits; and therefore, had less capital. However, investments banks could get involved in more and riskier deals or trades for their own account. By the 1990’s, commercial banks were looking at the investment banks and saying, ‘imagine what we could do with all out money if we had the investing flexibility of the investment banks’. Investment banks were looking at the commercial banks and saying,’ if we only had the capital that commercial banks have, imagine what we could do’. The solution? Get rid of Glass Steagall. We all know that Democrats and Republican agree on very little. But they had no trouble, during the second term of Clinton, coming together to repeal Glass Steagall. 90 Senators voted for the repeal. Do I hear, Campaign Contributions?
Finally, on the private sector side, was the emergence of private mortgage securitizations. In short, Wall St bundled a thousand or so mortgages and put them into a trust. Certificates of participation in the trust were sold to investors. Bad loans were mixed with pretty good loans and good loans, but somehow the trusts all got triple A ratings- even if they were dogs. Wall St used its massive marketing apparatus to sell these securitizations around the world. Hell, you got 50-100 basis points better than Treasuries on an investment that was triple A. Investors fell for it. The big wigs at the investments houses saw the incredible profits coming out of these securitizations and push for more.
Now, just so that political blame can be shared, the Bush II administration had to see the warning signs of a housing bubble but took no aggressive steps to stop it. Yes, they half-heartedly tried to rein in the GSE’s but backed off when certain congress people started to scream that lower income people were being hurt.
Well, in late 2007, the bubble burst. Rates on adjustable mortgages spiked up. People could not afford to pay and went into foreclosure. This led to a drop in housing prices. Then, more people faced foreclosure. They could not refinance because the value of their homes now did not justify a re-finance. So, they went under. Prices continued to fall. Investors then refused to invest in private securitizations. This eventually lead to the bailout of Bear Stearns followed by the bankruptcy of Lehman Bros, and then the financial crisis and recession.
As I said before, there is enough blame to go around; however, my assessment is that government policy was the dominant factor in this whole mess- not say 90%, but at least 60%.
Keep an eye on what the government does now that Fannie and Freddie are making money again. Any shift in policy to make loans more available may be the first step toward the next bubble.
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.
Posted by kevin on June 29, 2013 under Foreclosure Blog |
In the 1970’s, there was a comedian named David Frye who was famous for his Richard Nixon impersonation. One of his famous skits was Nixon meets the Godfather. Nixon is attending the wedding of Don Corleone’s daughter. He is meeting in private with the Godfather to ask for a favor. The Godfather thanks Nixon for the lovely present that he brought- a blender. He asks Nixon if he could do anything for him. Nixon says that he has to get out of the Watergate mess. The Godfather says, “Do you seek justice.” Nixon replies, “Not necessarily, I just need to get out of this Watergate mess.”
For the last 4 years, I have been involved in the foreclosure crisis representing homeowners. I know that the courts have been overwhelmed by these cases. Yes, it is true that borrowers agreed to pay their mortgage and have not done so. They are in default. But for the lender (and sometimes the court) to hit borrowers and their counsel with the mantra, “you took the money, you didn’t pay it back, you are liable” does not tell the whole story- does not do justice.
Why? Because it overlooks what the lending industry did. In order to make billions of dollars in profits, the lending industry threw out underwriting standards, and sold toxic loans to millions of people who not only did not understand the transaction but could not afford the mortgage. People with under 500 FICO scores and $30,000 annual income were given mortgages for $400-500,000. A disaster waiting to happen. When the bottom fell out, Wall St and the big banks (referred to hereinafter as “bansksters”) went running to the federal government for a bailout . The banksters got their bail out on the backs of the US taxpayers, but the homeowners did not. Finally, over the last few years, the banksters and their servicers have been jerking around homeowners and the courts on loan modifications.
Not only did the banksters get a bail out, they wanted all the properties back. But they had major problems on their end. Predatory loans. Bad paperwork. Failure to provide discovery. Robosigning. False or improper certifications. Failure to mitigate damages in good faith. Usually, if you cannot prove your case, you make a deal with the other side. But, the banksters wanted their cake and eat it too. How do you do that? Ignore your problems and just repeat the mantra to the courts that the borrower took the money and didn’t pay it back. The banksters want the courts to overlook all of the lenders bad acts, all of their proof problems. The banksters say they want justice; but all they really want is to get out of the mess that they created.
The position of the courts should be that if you want justice, you have to do justice. Lenders are licensed either by the federal government or the State of New Jersey, and have certain obligations to borrowers and the society in general. They have to play by the rules- rules about who qualifies for a mortgage, rules about transferring interests in the notes and mortgages, rules about disclosure of future interest rates, and rules about modifying delinquent or underwater mortgages. Those rules were accepted by the lenders as a pre-requisite to doing business in New Jersey.
So, I have this novel idea. Why don’t the courts hold the banksters to the legal standards the banksters accepted when they were licensed to do business in NJ. But many judges act like they do not have that power. Wrong. Under the Guillaume decision handed down by the NJ Supreme Court a little over a year ago, it was recognized that foreclosure courts, as courts of equity, have the power to mold a decision in accord with justice and the facts of the case.
On a practical level, we believe that the trial courts should be pro-active on two levels. First, if the banksters come into court with deficient proofs, improper notices, questionable documents and certifications that strain credulity, courts should call them on it. Second, the trial courts should get actively involved in settlement negotiations. Right now, the courts have abdicated that role ( based on the fact that they are overworked) to mediation or the HAMP modification process. Both of these process are failures because the banksters run them.
I have practiced law for over 30 years. I have seen effective judges wield power to effect meaningful settlement. What is needed here is a group of tough minded judges who will jump into the settlement fray the old fashion way- evaluate each side’s case, expose weaknesses, twist arms. It works in every other area of the law- why not in foreclosure. The banksters will not like this because they will not be in control anymore. But, by putting the onus on the judge, there is an opportunity to do justice while at the same time, moving cases and saving homes that can be saved.
Posted by kevin on June 1, 2013 under Foreclosure Blog |
The Government’s Making Homes Affordable programs, including the much maligned HAMP modification program, were in effect through December 31, 2013. If you have read previous blogs, you know that I was not a fan of the prior versions of HAMP. Not the least of my criticisms was that HAMP does not apply to GSE loans; that is, Fannie Mae, Freddie Mac etc. However, the latest re-incarnation (which hit the public last fall with handbook at the end of 2012) has some good things to say about it. One major problem, however, was that since the program was ending at the end of 2013, many homeowners would not file in a timely manner.
On May 30, 2013, the feds took some of the pressure off. Jack Lew, the new Treasury Secretary, announced that the HAMP program (along with the short sale- deed in lieu program and the unemployment program, and others) will continue through December 31, 2015. A supplemental directory (gives us the details) is due to be published next week. In addition, on the same day, FHFA announced that the programs for Fannie Mae, Freddie Mac, VA and FHA will also continue through the end of 2015. Even though the GSE programs do not allow principal forgiveness at this time, they are worth looking into.
If you look at the Home Page of my foreclosure website, you will see that our main emphasis is on fighting foreclosure through the litigation process. That was because the Making Homes Affordable programs (including HAMP) stunk the place out. And our experience indicated that aggressive litigation was the best path to securing a respectable modification. Now, as the programs are getting better with age, I am reconsidering a limited change to our approach. Yes, we litigate when necessary. But if you are the proper candidate, we will assist with modification proposals even if no litigation is involved. Be on the lookout for changes to our HOME page.
Posted by kevin on May 24, 2013 under Foreclosure Blog |
Over the last two weeks, there have been two unpublished appellate division opinions which tighten the screws on the borrowers in default judgment situations. One case, Walsh, involved Aurora Loan Services, which was the servicing arm of Lehman Brothers. Right off the bat, you know that Aurora probably did not lend the money to the borrower but why quibble over details. Interestingly enough, the panel consisted of only two judges. I guess they knew there would not be a tie. The borrower was pro se but did raise some interesting issues which the undermanned panel swatted away like a mosquito on an August evening. Basically, default judgment was entered and the sheriff sale was put off 11 times. Walsh argued lack of standing. The court said that standing was not jurisdictional and that failure to prove standing does not equal a void judgment under Rule 4:50.
Oddly enough, the second case, Cole, also involved a two judge panel, a default judgment with 11 adjourned sheriff’s sales and a standing argument. (Note that both opinions seem to infer that the mediation was protracted to the detriment of the lender when anyone who has been through the mediation process knows that it is the lender who drags out the process.) In this case, we had a Fremont loan (another notorious predatory lender examined and sanctioned by the feds). The MERS assignment of mortgage (which Judge Todd in Raftogianis said is at best a distraction and does not transfer the mortgage loan) was executed after the complaint was filed. No problem says the panel because no answer was filed, and the process was delayed to the detriment of the lender.
Two points: First, most of the recent default judgment cases have said that standing is not jurisdictional. None of the cases, however, mention two NJ Supreme Court cases (Baby T and Watkins) which both state that if the plaintiff does not prove standing, the court does not have the right to decide the substantive issues of the case. Sure sounds like the NJ Supremes are saying that standing is jurisdictional, or something close to it. I argued this in Polanco and was ignored by that panel. My client did not want to take this issue up to the Supreme Court because of the expense. I could not afford to work pro bono on that appeal so the case died on the appellate level. Why are the courts avoiding the clear language in two Supreme Court cases which appear to say the opposite of what is now a commonplace holding in foreclosure cases? I have my theories, but…
The second point is the more practical point; that is, the standard to vacate a default judgment in a foreclosure case in NJ is now almost insurmountable. I did it in Bagley with a very favorable set of facts. But there have not been many decisions like Bagley that have come down the line in the last couple of years. And those more recent cases have a chilling effect on defense counsel. For an attorney, the days of financially rolling dice on these cases are over. Borrowers are going to have to subsidize this type of litigation. Or better yet, avoid the issue in its entirely by hiring counsel when you get a Notice of Intent.
Posted by kevin on May 9, 2013 under Foreclosure Blog |
Historically, MBIA wrote insurance on municipal bonds. It made good, but not spectacular, money for years. In the early 2000’s, however, it saw how much $ AIG was making on insuring mortgage backed securities (“MBS’s”), and wanted in. To induce investment in MBS’s, the sponsor would offer insurance or credit default swaps to investors. MBIA would be paid a premium to issue that insurance. An easy way to make lot’s of money because the MBS’s were rated triple A by S&P, or other rating agencies. However, notwithstanding the triple A rating, the mortgages that backed the MBS’s were ticking timebombs which started to go off in 2007. The results were disasterous for companies like MBIA.
Countrywide (“CW”) was one of the leading purveyors of toxic mortgages. It sold many of its loans to securitized trusts. MBIA wrote the insurance on these MBS’s. When the proverbial s*%t hit the fan, MBIA had to pay out about $3 billion in claims. By that time, Bank of America (“BOA”) had bought out CW. MBIA sued BOA on the grounds that the representations and warranties made in the various prospectuses that securitized CW mortgages were nothing but a pack of lies. These were not safe investments made to well qualified borrowers. They were predatory loans that should never have been written in the first place. After years of litigation, BOA agreed to pay MBIA $1.7 billion the case.
A victory? For MBIA, yes. But what about the average borrower who got screwed by CW? I mean CW lied to MBIA and the investors about the quality of the loans. Borrowers were lied to or taken advantage of by CW who put the borrower in loans that the borrowers could not afford. Without the underlying bad loans, there would be no MBS’s, no investors, and no insurance or credit default swaps. So, does the borrower have a new defense that the various chancery judges in NJ will be eager to enforce?
Don’t bet on it. I am afraid that most Jersey judges will ignore the argument on the grounds that the borrowers do not have standing to raise the breach of warranty issue because the borrower is not a party to or a third party beneficiary of the Pooling & Servicing Agreement (“PSA”). That’s precious considering that the breaches of warranty and misrepresentations deal with the underlying loans made by the banks to the borrowers. Without borrowers, there would be no representations and warranties.
We have lots of laws, but who do they protect?
Posted by kevin on May 4, 2013 under Foreclosure Blog |
Right now, with the new HAMP guidelines, modifications are more available, and fairer, than before. Although my website states that we fight foreclosures (and we do), we are also for the first time encouraging clients to actively engage in the modification process.
That being said, I have been interviewing many prospective clients who are in foreclosure because they defaulted on a modification granted in 2009 or earlier. Here is the scenario. The borrower got an option arm or similar ARM type loan with an initial interest rate of 10% or greater. The loan was either a “no doc” or stated income loan. The borrower was not represented by a lawyer. On its face, there may be TILA violations, consumer fraud violations and predatory lending issues. The borrower defaulted and then the servicer, usually unsolicited, offers a modification which takes all the arrearages and charges (late and attorneys fees and escrow advances) and adds them to the loan. Then, the interest rate is dropped to about 6-8%. They don’t ask for an application, tax returns, paystubs or anything. And it is not negotiable-it is “take it or leave it”- known as a contract of adhesion. Finally, the modification agreement has buried in it a clause that says that if you accept the mod, you waive all defenses on the original note.
You can’t afford the mod but you take it because the alternative is that you are out on the streets. Inevitably, you default. The bank recites the original loan and modification. You take the position that the loan was unconsicionable so you have defenses. The lender says, “not so fast”, the original predatory, unconscionable deal cannot be considered by the court based on waiver of defenses claue in the modification agreement. In other words, the lender gets a free pass after they sucked you in on a bad loan to begin with.
So far, I have been able to argue around this point on motions to set aside default or default judgment. And, I have fashioned some arguments that attack the lender’s position that the underlying loan is off the table. However, I am convinced that if the borrower just argues that the waiver of defenses in the modification agreement is void because it is a contract of adhesion, many New Jersey judges will hold against you..
In New York, however, NYCRR Section 419.11 states that servicer shall not require a homeowner to waive legal claims and defenses as a condition of a loan modification. Now, this is just a regulation and not a statute, but it does give the borrower’s attorney in New York a stronger footing to argue against waiver clauses in modifications. (Remember, Regulation Z dealing with Truth in Lending is a regulation and not a statute but courts routinely accept it.
So, contact your State senator or assemblyman and tell him or her that New Jersey should adopt a statute that outlaws waiver of defense claims in modification agreements. In the meanwhile, I am scouring cases from around the country that hold that such contracts of adhesion are void because they violate public policy.
Lenders routinely lobby State and federal representatives. It is about time that consumers do the same.
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.
Posted by kevin on March 23, 2013 under Foreclosure Blog |
New Jersey instituted a mediation program a few years back. The Courts claim that around 40% of the people who apply for mediation get some type of resolution. Now, resolution is a vague term and I do not know whether resolution = modification or can include short sales or deeds in lieu of foreclosure. In other words, I cannot vouch for the purported success rates claimed by the program.
That being said, two recent events impact on the mediation program. First, effective March 1, 2013, the program was de-funded. NJ was using some of its money from the $25 billion settlement to fund the mediation program. Those moneys have been used up, and not replaced by the Christie Administration. HUD counselors and ‘Free” attorneys for borrowers are no longer being paid so they stopped taking on new clients as of 2/28. My understanding is that mediators are still getting paid but that will end also. The judiciary wants lawyers to volunteer to be advocates for borrowers or mediators. One of the judges at the last Bench-Bar conference questioned how long the program will be available.
The second event is that the courts are setting time limits on applying to the program. Before, you could apply anytime before final judgment was entered. That could extend the foreclosure process for months. Now, a homeowner has 60 days from the service of the summons and complaint to file for mediation. After the 60 day period, you can get mediation only upon court order. If you read the prior blog, you will note that courts are clamping down on borrowers who are trying to set aside default judgments. The later you file your motion, the less the chance that the court will set aside the default judgment. You should expect the same treatment with getting orders to allow mediation after the 60 day window closes. In other words, the later you wait, the less likely the court will allow you to take advantage of mediation
What has not changed is that the mediation program is available to only homeowners who reside at the premises which can contain no more than three units.
What is interesting is that the federal HAMP program, as a result of the $25 billion settlement, does not allow a lender/servicer to go forward with a sale or start a foreclosure if the borrower has asked for a modification until a decision has been reached as to whether a modification will be granted. That is called double tracking. However, NJ does not seem to have any problem with double tracking since the mediation notice specifically states that a request for mediation will not stop the progress of the foreclosure action.
Posted by kevin on March 17, 2013 under Foreclosure Blog |
For the better part of 3 years, legal scholars and commentators of mortgage crisis have commented the the Federal government (and many state governments including NJ) has not prosecuted criminally one major bank or Wall Street investment house notwithstanding that there have been numerous incidents of outright fraud in the origination of loans, and the sale of loans to both GSE’s and in private securitization. Frontline had a show on this about a month ago. Lanny Breuer, the head of DOJ criminal division, tapped danced around the issue, and pointed out all the mortgage brokers that were indicted. Little guys without the funds to put together a defense. Yet, the higher ups at the investment houses and the “too big to fail” banks have skated.
Finally, about 2 weeks ago, Eric Holder admitted to a Senate committee that “too big to fail” is, in fact, “too big to jail”. What a disgrace. People, who are not in foreclosure because they continue to work hard and pay their mortgage every month, have lost 40-50% of their pension money and more than 50% of the value of their homes. Why? Because the too big to fail banks broke the law. But nothing is being done. Small monetary fines in relation to the money lost is but a slap on the wrist, and gives these banks and Wall Street no incentive to change their ways.
It no better on the State level. The NJ Supremes held that lenders had to strictly comply with Notice of Intent requirements but waffled on the remedy issue thereby reversing the trend of cases which were decidedly pro-borrower.
Now, there have been a series of cases (Polanco, Russo and this week DeCastro) where three appellate panels have ruled that a foreclosure plaintiff can sell your house without proving that it owns or holds the underlying note if the defendants did not answer the complaint in a timely manner. In Polanco, the plaintiff was listed as a securitized trust. However, research indicated that the trust did not exist. In three sets of submissions to the court, the plaintiff was challenged to prove standing, but did not address the issue. Plaintiff restricted its argument to the fact that the borrower had not responded to the court proceeding until hit with a sale notice. Technically true because the borrower opted to deal with the servicer. Polanco got what they call “double tracked”. The servicer led him down the primrose path and then rejected a short sale after ok’ing it, while plaintiff’s attorneys moved forward to judgment. Dual tracking was declared improper by the Justice Department in the $25 billion settlement. The new HAMP guidelines specifically say you can’t double track. Little consolation for Polanco and his family, though.
In Russo and DeCastro, the appellate panels stated that lack of standing (right person to sue) is not a meritorious defense under Rule 4:50 while deals with setting aside default judgments. Note the in two separate rulings, however, the NJ Supremes said that if a plaintiff does not prove standing, then the court cannot decide the substantive issues of the case. Unless it is explained to me a little better, it would seem that the current foreclosure rulings are at odds with established NJ Supreme court rulings.
I am disappointed by the comments of Breuer and Holder and the decisions of the appellate division especially in regard to standing. I am one of those lawyers (and citizens) that believe that the courts are there to protect the weak from the strong- not the other way around. Clearly, that is not happening. Doing foreclosure work for 3 years now, I get the vibe that the courts want to just get over this mortgage problem. But it should not translate into lowering standards of proof for the plaintiff at the expense of borrower’s homes.
What is the practical lesson? If you find yourself in arrears on your mortgage, try to work out a modification. If you need a lawyer’s help in this regard, get it. If you are served with a Notice of Intent to Foreclose or Complaint, seek out help right away from a lawyer who is active in foreclosure defense. Don’t sit your rights.
Posted by kevin on March 5, 2013 under Foreclosure Blog |
If you receive a notice of intent to foreclose, and do not run to a lawyer, you are a fool. If you get served with a foreclosure complaint but do nothing because you are working with the servicer to get a modification, you are a fool. If you get papers from your adversary saying that they are submitting their final judgment package to the Foreclosure Unit and do nothing, you are a fool. And if you wait until you get notice of a sheriff’s sale before you run to a lawyer (and expect him to pull a rabbit out of his hat for limited fees), you are a fool who will soon be without a house.
The message has been that the majority of chancery judges do not like contested foreclosure cases. The average case does not get to trial for two years. The Administrative Office of the Courts wants foreclosure cases to go to trial within 12 months of the date of the filing of the complaint. If the defendant is not served right away, that could mean that you are going to trial in 6-8 months. Now, some judges are routinely limiting discovery and setting trial dates that are 8 months from trial.
So, do yourself a favor. If you are behind on your mortgage, contact your servicer to see if you can work something out. If not, and you receive a notice of intent to foreclose, at least interview a few attorneys with background in foreclosure defense. Better yet, hire one of those attorneys. If you get served with a complaint, hire counsel immediately and file your answer in a timely manner.
Nowadays, foreclosure cases can be filed electronically through JEFIS. So, that means that the papers can get into the system that much faster. Servicers are regulating the number of foreclosure cases that are filed at any given time so as to not overstress their staffs and, more importantly, not to overstress the Clerk’s office in Trenton. In other words, the process is being speeded up.
If you do not file your answer on time, and the plaintiff enters a default, then you must file a motion to set aside the default in order to file an answer. That means that you have to go before a judge who may not like contested cases. In the old days the policy was that people should have their day in court. Today, I am not so sure if that policy wins the day.
So, remember the old adage, “He who hesitates is lost.”
In future blogs, I will give you examples of recent cases where borrowers took it on the chin for sitting on their hands.
Posted by kevin on February 28, 2013 under Foreclosure Blog |
One of the recurring themes in this blog (and others) has been the dismal record of US governmental agencies in trying to thwart lawlessness on the part of banks and individuals in the securities industry. Whether it was the sell out known as the $25B settlement, or the OCC’s abrupt curtailment of the foreclosure audits or the administration’s about face on Chapter 13 cramdowns, you get the impression that the consumer enforcement agencies are not there for the consumers.
In the latest debacle, the US Supreme Court voted 9-0 against the SEC effectively throwing out an enforcement action against two money managers at Gabelli Funds. The grounds- the SEC did not bring the action within the 5 year statute of limitations. The acts complained of happened between 1999 and 2002. The SEC claims it discovered the violations in 2003 but did not bring the penalty action until 2008. Given that the US Supremes are so divided, it is a real slap in the face of the SEC that they were shot down by a unanimous court.
On one hand, you could say that the SEC was thwarted in trying to protect the public. However, on the other hand, the question is why did it take the SEC 5 years from discovery to file its complaint. Clearly, it could not have been a high priority. Which gets us back to the initial question of whether the agencies are helping the consumer or playing ball with their future employers. Without strong restrictions on going from agencies like the SEC to Wall St, I do not think that you are going to root out this problem.
Posted by kevin on February 20, 2013 under Foreclosure Blog |
In a previous blog, I alerted you of the unpleasant fact that the NJ Court Mediation Program is running out of funds. I have heard nothing official in the last 10 days. However, I was advised that a major HUD counselor is not taking on any new mediation clients.
One thing is for sure (or at least appears to be sure)- Judges do not want to run the mediation program. Now, that is understandable since the judges have to deal with their own out of control calendars. But, on the other hand, what has been lacking in the mediation program? There is no stick for servicers who continue to jerk borrowers around. Wouldn’t or couldn’t a few tough judges straighten that problem out in short order?
Maybe good old fashion settlement conferences can work in the foreclosure arena.
Posted by kevin on February 11, 2013 under Foreclosure Blog |
Last week, the Justice Department filed a civil suit against Standard & Poors for its contribution to the mortgage meltdown. Why did it take almost 5 years?
S&P rates securities based presumably on risk. A high S&P rating (AAA) could mean the difference between selling a security and not selling it. This concept was not lost on the purveyors of mortgage backed securities. It was essential that S&P (and the other raters) deem their higher tranches to be AAA so that insurance companies and pension would buy. As was stated in a recent blog, S&P provided the gift wrapping for the sponsors of securitized trusts.
The problem, however, as brought out by many commentators (and now the feds), was the S&P was taking a bunch of subprime loans none of which could be rated AAA, bundling them together and somehow the bundle was rated AAA. How could you turn chicken feathers into chicken salad?
S&P, in its own defense, is saying that the government is trying to blame them because they did not predict the housing bubble. Well, not really. What the feds are saying is that S&P really did very little analysis before that gave their stamp of approval on questionable securities. Why? Because S&P got paid a lot of money. Moreover, when it started to become evident that there were problems, S&P was pretty slow on the uptick in downgrading these questionable securities.
We can only hope that the feds do not make a quick and cheap settlement so that it could get a headline in the WSJ. The truth should come out. A may lead to a better method of evaluating securities
Posted by kevin on February 6, 2013 under Foreclosure Blog |
NJ set up a mediation program for residential property in foreclosure. To qualify, the property must be owner occupied, and a foreclosure complaint must have been filed already. According to the judges who run the foreclosure bench-bar conferences, about 40% of cases in mediation reach some form of resolution. What “some form of resolution” is, I am not exactly clear. I know that I have not received any permanent modifications through the mediation process.
That being said, mediation does have some good points. First, the servicer has to appear (telephonically but that’s better than nothing) at each hearing. So, you have a live body on the other end of the phone who has read your submission most of the time. Second, the mediation process takes time, and time is the ally of the homeower.
Now, that does not mean that it is not frustrating. You submit papers, get no feedback, and then on the day of the mediation, you are told that the documents are “stale”, or some documents are missing, or that no decision has been made. Mediators try to make the servicers move the case, but the mediators really have no muscle. The only person who can effectively get the attention of the servicer to expedite the process and make meaningful offers is the judge. However, judges have been reluctant to step into that role. (Perhaps they are too overburdened with their court calendars.)
Rumors have been swirling around the last few months that the mediation program will be cut or discontinued because of a lack of funding. At the bench-bar conference last week, it was announced that the mediation program will end in the beginning of March, 2013 unless the Chief Justice can come up with additional funding. Of course, the CJ does not have the ability to print money, so he is looking to the Governor for money. I have not heard anything from the governor’s office on this.
There has been some talk about lawyers running the mediation on a pro bono (free) basis. Frankly, I do not see any attorney doing more than 1-2 cases on a pro bono basis. Moreover, I do not see many HUD counselors working for nothing either.
Stay tuned. This may get intersting.
Posted by kevin on December 31, 2012 under Foreclosure Blog |
With the advent of the mortgage crisis and subsequent recession, the Federal Reserve increased purchases mortgaged backed securities. The purpose was to reduce interest rates and, hopefully, to get the economy moving by keeping interest rates low. Interest rates on mortgages have fallen to under 3.4% on a fixed rate 30 year loan. However, in a recent WSJ article, it states that according to some economists, interest rates should be down to about 2.8% based on the historic price relationships between mortgage rates and yields on MBS’s. Who is gloming the difference? You guessed it, our friendly bankers.
Traditionally, according to the WSJ article, the spread between the bank’s cost of obtaining money and the rate they charge has been about half a percent or 50 basis points. In 2008, the spread increased to 1% or 100 basis points. In October, when the Fed launched its new round of buying MBS’s, the spread increased to 1.6%. Now, supposedly, it is at 1.3%. So, at the height of the spread, the banks were making a 200% profit on the spread. Now, the profit on the spread is down to a meager 160%.
Why? The article appears to say that the banks expenses are up in today’s mortgage industry so they cannot pass the benefit of the Fed action to the borrowers. But it also says that the more volume is moving through an industry whose workforce has shrunk significantly. Wait a minute. More volume means more work, and, theoretically, more revenue. Less workforce means less expense. So, the banks need to take a larger spread because income has increased and expenses have decreased. Or is it, the banks need a bigger spread because they are not getting the volume of loan applications because they refuse to hire adequate staff.
Well, thank goodness the Fed has come along again to provide profits to the Banks with no guarantee of a pass through to the public. It is just like 2009 when the banks used the TARP money to buy government securities (a risk free arbitrage) and refused to lend money out to small business but instead gave out record bonuses
I can understand that there might be some added expense in underwriting a given loan since one aftereffect of the mortgage crisis is that banks must actually perform underwriting that complies with the law (as opposed to giving anyone with a pulse a mortgage). That takes more time. But the bulk of the additional time is spent by the borrower or the mortgage broker who has to put together all those extra pieces of paper and jump through all those additional hoops in order to get a re-fi.
I am not the only one who thinks that the banks are making a windfall at the expense of the Fed, and, ultimately, the taxpayer. A Fed study indicates that banks earn more on mortgages today than from 2005-8, and that commercial banks reported record income from mortgages for the third quarter of 2012.
What does this mean? Well, the sad fact is that the government continues down the wrong path in trying to put an end to the housing crisis which will probably drag on for another 3-5 years. What the Fed is doing now (did in TARP and in the Obama bailout) is like giving gifts to recalcitrant children with the hope that they behave properly. That is not a winning strategy for overwhelmed parents or overwhelmed central banks.
For the borrower, understand that your mortgage lender is not your friend no matter how many mailings you receive that your lender understands your problem and wants to help. If you have a problem with your loan that is going to end in bankruptcy or foreclosure, understand that your lender is your adversary and conduct yourself appropriately. That means getting proper, experienced legal representation early on in the game. Develop a realistic strategy and follow though.
Posted by kevin on December 26, 2012 under Foreclosure Blog |
In the last blog, we focused on mortgage modifications and pointed out that lenders (or more probably servicers) can be less than straightforward in their dealings with borrowers or their representatives. Well, the lenders do not just jerk around the little guys; they do it across the board.
In conjunction with the AG/DOJ investigation of the mortgage industry’s servicing operations which led to the $25B settlement, the Office of Inspector General investigated servicer operations at the 5 “Too Big to Fail” Banks for the time period October 1, 2008 to September 30, 2010. The OIG report documented questionable practices used by servicers including employing foreclosure “mills” and “robosigning” sworn documents in thousands of cases.
What the reports also stated was that all five of the lenders (BOA, WF, JPM-Chase, Citi and Ally) hampered the investigation of the OIG. At Ally, the bank’s attorneys refused to allow OIG investigators to interview responsible personnel. Ally failed to produce documents in a timely manner, and when it did, Ally provided incomplete information. WF intially refused to produce 9 persons for questioning, but relented on the condition that WF management and attorneys attend the interview as facilitators.
Chase management provided explanation statements to bolster shaky testimony of employees and limited access to verifying documents. BOA attorneys refused to allow employees to answer certain questions posed by OIG, conferred with employees before they answered a question (presumably during the hearing) and did not turn over requested documents.
In addition to the stonewalling, the OIG report indicated (what everyone in NJ knows) that foreclosure law firms working for the servicers improperly prepared and signed documents.
So, if you are trying to get a modification in Bergen County and have been danced around the floor by your servicer who has led you to believe that it is your lender, just remember- the big banks have done and continue to play games with federal and state regulators. In NJ, until the distinguished judges put their foot down, the people and the judicial system both will continue to suffer at the hands of the lenders.
Posted by kevin on December 17, 2012 under Foreclosure Blog |
I meet with people every week who complain that they spent months getting jerked around by servicers and still could not get an affordable, permanent modification on their mortgage loan. They turn to a mortgage modification company with equally poor results. They read in newspapers or blogs that modification companies are scamming the public because they take fees up front and do not get the mod. The prospective client believes they were ripped off because the government tells them that a reputable mod company will get you a permanent mod and not charge you if they fail. In fact, some state statutes require that.
After working in foreclosure defense since 2009, I can tell you that no modification company can live up to those standards unless they represent only the top tier of their customer base. Why? Because the mod companies have little or no control over the process. They are, in effect packagers of information. They are stuck with your situation as far as arrearages, whether you have a job and what your income is, and the value of your property. Then, they are stuck with the critieria and decisions of the servicers over whom they have absolutely no control.
If you spend 8 months of your time trying to get a mortgage mod and don’t get it, how could you expect that the modification company will get the process completed successfully in a couple of weeks? Moreover, how can you reasonably expect the mod company to do thousands of dollars of work for you for free or for a nominal fee on the outside chance that you get a permanent mod. I certainly would not want to roll dice based on a situation over which I have little or no control.
That being said, I would assume that there are legitimate modification companies out there. I also assume there are a lot of less than reputable mod companies out there who prey on desperate people in bad situations. But how can you know who is legit? Mod companies are not rated in Consumer Reports or Angie’s List. So, my advice is to be skeptical. Do not give a mod company a large upfront payment (I heard of people who have paid upwards of $8,000). Make sure that the money you fork over is in line with the work that is being performed. Ask for their statistics (produced not in-house but by third parties) of getting permanent mods . Check on line and with the BBB about complaints. Understand that even a good, honest mod company is not a magician.
Be realistic about what you can get. If you are out of work or get paid off the books, the chances of getting a mortgage mod are slim or none. Do not expect that a mod company can do any better.
Posted by kevin on December 8, 2012 under Foreclosure Blog |
Last week, the Wall St. Journal ran the above captioned editorial in which it chides the government for losing mortgage crisis cases which are directed against individual bankers. While admitting that the government has had some small success in suing banks (which settle without any admission of guilt or liability), WSJ states that when the Obama Administration tries to prosecute a specific individual for a specific crime, it turns out there was no crime.
To support its position, the WSJ then cited two civil cases brought by the SEC involving collateral debt obligations or CDO’s where the defendants got off. First, these were not criminal cases. Second, CDO’s are complex and pretty much involve high stakes gambling between big time players. It is a difficult case to prove that one billlionaire got taken advantage of by another billionaire, and who really cares. Not much jury appeal and little wonder why these cases are not winnable. These types of cases are bad examples to support a premise that no crimes were committed.
The editorial goes on to say that pundits are saying that the government should go after the CEO’s. WSJ’s retort is if you cannot prove criminality against the lower level guys that were supposedly doing the bad things, how could you nail the CEO’s who are removed by layers of buffers. Sort of sounds like Michael Corleone before the Senate committee in Godfather II.
The next point made by WSJ is that people are blaming incompetence at the SEC or at the Department of Justice. But WSJ finds no fault with the quality of the regulators.
Finally, the WSJ concludes by saying that the fact that Washington can’t find a real criminal should focus public attention back on the real crime. That was Beltway policy. In effect, the WSJ is blaming the entire housing crisis on the government.
Now, that is a pretty disingenuous editorial. Sort of reminds me why I gave up my New York Times subscription. Allow me to briefly retort.
First, there is a difference between criminal prosecutions and civil lawsuits. The main difference is the level of proof needed to win. In a criminal matter, the prosecutor must prove that the defendant is guilty beyond a reasonable doubt. That is a tough standard. Given the complexity of the underlying financial transactions, and the money that defendants have to spend on top notch lawyers, criminal cases are not easy to win. That is why you see that most of the cases brought are not by the Department of Justice, which handles criminal matters, but the SEC and the civil sections of AG’s offices which handle civil matters.
Second, does the WSJ really believe that the CEO’s of the major banks and investment houses did not know that their underlings were peddling bad paper to the public? I doubt it. They knew that the securitized trusts were putting hundreds of millions of dollars in the firm’s coffers during the heyday. You mean to say that the guys in the penthouse never discussed how the young hot shots were bringing in gazillions of dollars to the firm. I do not think so. (The real question is why didn’t the Justice Dept use Sarbannes Oxley to go after the CEO. That law makes CEO’s liable.)
Third, the SEC is not what it used to be, unfortunately. I was an intern at SEC Enforcement in the mid 1970’s. Stanley Sporkin was then Director of Enforcement. He was one tough guy who had no qualms about going after investment banks or commercial banks. SEC enforcement was feared and kept bankers in line. Now, SEC enforcement is headed up by the ex-general counsel of Deutsche Bank, a big time player in securitized trusts, CDO’s, and other derivatives. Now, I am not saying that the current director is rolling over for Wall St ( I’ll let other say that); however, he is no Stanley Sporkin. And the WSJ knows that.
Finally, the WSJ concludes by saying that the fact that Washington can’t find a real criminal should focus public attention back on the real crime. That was Beltway policy. In effect, the WSJ is blaming the entire housing crisis on the government.
There is an element of truth to this accusation. The government, by re-pushing the Community Redevelopment Act, by repealing Glass Steagall, by allowing Fannie Mae and Freddie Mac to threw out underwriting standards, by bailing out the banking system with TARP, by failing to allow Chapter 13 cramdown, and by allowing servicers to make a mockery out of HAMP, allowed the banksters to run wild. Just like Prohibition allowed Al Capone to establish a criminal empire. Yeah, there is political blame.
And that may be the real problem. When I was an intern at SEC, my boss told me that best way to investigate a complex situation was to follow the money. If you follow the money in the mortgage crisis, it seems like the bulk of it went to the banks. The federal government did not do that by accident. So, why would the federal government want to throw in jail the very people it invested in.
Posted by kevin on November 17, 2012 under Foreclosure Blog |
In my last blog, I observed that the SEC was in negotiations with JP Morgan to settle the agency’s action relating to fraudulent loans sold to investors by Bear Stearns. I questioned whether JP Morgan would get the proverbial “slap on the wrist” or whether the sanctions would be substantial. I was not holding my breathe for substantial sanctions.
Yesterday, it was announced that the fine would be $300 million. Sounds like alot of money, but you have to put it into context. Bear Stearns probably did hundreds of mortgaged backed securitized trusts from 2003 to 2007. In fact, the Schneiderman lawsuit in NY alleges that even after a memo circulated Bear Stearns in June, 2006 which indicated that 60% of AHM loans in its trusts were at least 30 days delinquent (of course investors not told that), Bear Stearns issued at least 30 more trusts.
My review of most mortgaged backed securitized trusts indicates the average trust contains at least a billion dollars of loans. So, from June, 2006 until taken over by JP Morgan in or about March, 2008, Bear Stearns issued over $30 billion of securitized trusts. That means investors paid Bear Stearns or its affiliates over $30 billion dollars for bad deals. $300 million/ $30 billion. Now, I am not a whiz at math, but that sounds like a fine of a whopping 1% of what was earned in the last 18 months of the alleged ongoing fraud (issues dried up by the end of 2007. Just want to send out an “Atta boy” to the SEC.
To put this in perspective, your home probably has lost 30% of its value since 2007-8.
Posted by kevin on November 13, 2012 under Foreclosure Blog |
On October 2, 2012, I blogged that the NY AG, Eric Schneiderman, sued JP Morgan, purchaser of the imploded Bear Stearns based on BS’s sale of mortgage backed securities. Yesterday, it was reported that the SEC’s staff recommended settlement will with JP Morgan based on the BS mortgage backed securities and will not bring charges against individuals. The dollar amount of the “slap on the wrist” has not been set but JP Morgan will not be required to admit to any wrongdoing. Looks like an investigation into the same areas that Schneiderman is tackling in his lawsuit. How will this impact on the Schneiderman lawsuit considering that Schneiderman and SEC enforcement chief, Robert Khazami, are both on the federal mortgage task force that President Obama announced with great fanfare at his last State of the Union message (but did nothing until just before the election..
What is the purpose of the various investigations? Is it to make a news splash and then get some settlement money out of the “too big to fail” banks that pretty much ruined our economy. Or is it to get to the bottom of this mess, gets the facts and punish the wrongdoers? It looks like the SEC staff does not have the stomach to do the latter. Where do these staff members go to work after they leave government service? I hate to sound cynical but I am sure that it is not some consumer non profit.
So, what is going to happen with the lawsuit brought by Schneiderman? Another quick settlement with check written but no real investigation and no punishment of the bad guys? We shall see. It would be a shame if Schneiderman follows suit with the SEC staff.
Posted by kevin on October 22, 2012 under Foreclosure Blog |
In February, 2012, 5 Too Big to Fail banks, the federal government and 49 of the States announced a $25B settlement of the “robo-signing” investigation. From this settlement, States recently received $2.5 billion from the major banks for foreclosure prevention and related help for homeowners. But much of that is not being used for those purposes.
So what is supposed to happen to that money?
The answer to that should be found in the Consent Judgment, the document signed by all 49 states, the federal government and the banks, AND by the federal judge approving the settlement. Actually there are five consent judgments, one for each of the banks, but all containing identical language for our purposes. This language says:
“To the extent practicable, such funds shall be used for purposes intended to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial fraud, or unfair or deceptive acts or practices and to compensate the States for costs resulting from the alleged unlawful conduct of the Defendants. Such permissible purposes for allocation of the funds include, but are not limited to, supplementing the amounts paid to state homeowners under the Borrower Payment Fund, funding for housing counselors, state and local foreclosure assistance hotlines, state and local foreclosure mediation programs, legal assistance, housing remediation and anti-blight projects, funding for training and staffing of financial fraud or consumer protection enforcement efforts, and civil penalties.”
(See pp. B-2 and B-3 of Exhibit B of the Consent Judgment.)
But the money is not being used for these purposes in many states, according to two different sources.
A report by Enterprise Community Partners called $2.5 Billion: Understanding How States are Spending their Share of the National Mortgage Settlement says that “despite the language contained in the settlement, a number of states have diverted the settlement funds away from housing and foreclosure prevention activities.”
A more recent article by ProPublica, the independent investigative organization, is titled “Billion Dollar Bait & Switch: States Divert Foreclosure Deal Funds.” Its analysis concludes that “[s]tates have diverted $974 million from this year’s landmark mortgage settlement to pay down budget deficits or fund programs unrelated to the foreclosure crisis… . That’s nearly forty percent of the $2.5 billion in penalties paid to the states under the agreement.” This interactive map and table shows each state’s use of the funds.
How can this happen? Easy. No one has the public’s back on this. Why? Because one must conclude cynically that the real purpose of the settlement was not to help the people but to help the big banks. It was the big bank’s that bought off a huge potential liability for a few pennies on the dollar. Now that the States have some of that money in their hands, who is there to protect the borrowers that need help to save their homes? You would think, their elected officials. However, it appears, that for the most part, this may not be the case.
Posted by kevin on October 12, 2012 under Foreclosure Blog |
RealtyTrac reported that foreclosure activity around the country dropped to the lowest point since July, 2007. True or false? Good news or not good news?
When you delve deeper into the numbers, you see that the biggest decreases were in so-called “non-judicial” states. In those states, the lender is not required to file a lawsuit to obtain a foreclosure judgment. What happens is the borrower, at closing, signs a Deed of Trust. Under the terms of that document, upon default, the trustee is allowed to foreclose after proper notice. The process is very quick and certainly not owner/borrower friendly.
In states requiring judicial foreclosure, foreclosures are actually up. For example, Florida shows a 24% increase in foreclosures. RealtyTrac says that you could expect an increase in the judicial foreclosure states especially where the courts temporarily halted foreclosures during the robo-signing controversy.
Well, New Jersey is a judicial foreclosure state and foreclosures were put on a hold for about a year beginning in late December, 2010 because of the robo-signing scandal. Inventory of mortgages in default increased. Then, lenders put a hold on foreclosures pending the Supreme Court decision in Guillaume. That happened in late February. At that time, the talk among the foreclosure bar (that means attorneys active in foreclosure practice) estimated that New Jersey was backed up over 75,000 foreclosures. You can rest assured that the lenders are not going to walk away from these properties.
So, why do we not see a deluge of foreclosure activity in New Jersey. Well, my opinion is that the lenders realize that the real estate market is weak. If they flood the market with thousands of foreclosed homes, the market will only get weaker. Better to sit on properties and spread out the process so that the lender can get a better price on each foreclosed home.
Sorry to be the bearer of not so good news.
Posted by kevin on October 10, 2012 under Foreclosure Blog |
Yesterday, the feds filed suit in Manhattan against Wells Fargo for bilking the Federal Housing Administration out of hundreds of millions of dollars. The complaint alleges misconduct going back to 2001 whereby WF recklessly issued mortgages and made false certifications about their condition to FHA which then insured the loans. Many of these loans went bad and FHA was left “holding the bag”.
I love the quote from Preet Bharara, the US attorney who said.”Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance”.
Banks need a license from the State or federal government to do business. That license comes with strings attached. The bank has to follow the law, including the directives of its regulators. One for the fundamental regulations involving mortage loans is that the lender is required to make a mortgage loan based primarily on the ability of the borrower to repay the loan and not on the value of the collateral. Deficient underwriting (or no underwriting standards) leads to making loans that people cannot afford to repay. This not only hurts the borrower, but his or her community, the people who bought the loans and the government which insured those loans.
So what the government is alleging is that WF hired a lot of incompetent people who ignored the basic tenets of mortgage lending, lent money to people who could not afford to pay it back (definition of a predatory loan), and lied to the FHA about it. Frankly, it appears that the US attorney is giving WF the benefit of the doubt in his statement by inferring that WF was just negligent or reckless. Many believe that WF and the other ‘too big to fail banks’ knew exactly what they were doing – they were making lots of money and passing the bad paper on to investors and the government (= taxpayers= you and me) who got stuck with the loses.
We are seeing a slew of activity by prosecutors on the eve of the Presidential election. One must wonder why it took so long. I hope that when the election is over and the dust has cleared, these lawsuits do not evaporate.
Posted by kevin on October 8, 2012 under Foreclosure Blog |
In its editorial page, the Wall Street Journal took a shot at NY AG, Eric Schneiderman, for filing a suit against JP Morgan Chase for misrepresentations made by Bear Stearns (later bought by JPM at request of feds) to investors of mortgage backed securities. Somehow, WSJ thinks that 1) BS (how appropriate) was “sloppy” in bundling loans into securitized trusts rather than knowingly or recklessly putting loans into the trusts and screwing investors; 2) the fact that BS bounced loans back to loan originators but did not pass the savings along to duped investors was OK because it was somehow allowed by the trust documents, and 3) it was unfair to JPM to help the government out and then get sued.
Let’s deal with those arguments. First, BS was just sloppy. I guess the WSJ would want you to believe that originators and mortgage brokers were making loans, and then afterwards BS got the bright idea to package those loans. So, BS went out and bought loans for a given securitized trust. Unfortunately, BS got hoodwinked and got stuck with lots of bad loans. Don’t think it happened that way. BS put together hundreds of trusts which contained thousands of loans. Given the time constraints of marketing securitized trusts, the issuer cannot willy nilly buy loans for a trust. BS made deals upfront with originators and brokers to fund mortgages, and to buy them if they met with BS’s underwriting guidelines. So, BS was telling the originators and brokers exactly what type of loans it would buy. I just settled a case with JPM involving BS trusts. The loan originator, in a sworn deposition, testified that BS told him what had to be in the loan documents and what the borrower had to produce to get the loan. According to the broker, without following BS’s underwriting guidelines, BS would not buy the loans. So, BS not only knew what it was getting but got exactly what it asked for.
Second, trusts require insurance including credit default swaps, to protect investors against the bad loans within the trust. One of those was Ambac which sued BS and JPM because BS was bouncing loans back to originators (and getting a refund) while it made a claim against the insurance. So, BS was getting paid twice. Of course, those loans fell out of the trust. Say 10% fell out of the trust. That means that if BS did not pass the savings along to investors, the investors were being short changed by 10% of the proceeds used to fund that trust. WSJ praises BS for it slickness in drafting documents which did require a pass thru to investors. So, in reality, BS either beat the insurer or the investor or both. Very slick.
Finally, JPM purchased BS at an incredible discount. Why? Because JPM knew that it was buying a lot of crappy paper, and paid accordingly for the assets of BS. So, JPM had to know that there would be fallout from the BS purchase. I recently settled a case with JPM over predatory loans made based on BS underwriting criteria. Got a fair amount of money from JPM. I am sure that JPM was not taken by surprise when they first say my lawsuit.
I like the WSJ and read it everyday. However, I do not buy everything it tries to sell.
Posted by kevin on October 2, 2012 under Foreclosure Blog |
Eric Schneiderman, the New York AG appointed by Obama to co-chair the federal/state probe into the 2008 mortgage meltdown (called, I believe, the Residential Mortgage Backed Securities Working Group), filed suit against JP Morgan Chase alleging widespread fraud by the company’s Bear Stearns unit in the sale of mortgaged backed securities.
You may recall that Schneidermann was a real carnivore who threatened to go after not only the big banks but the securitized trusts. Together with AG Biden in Delaware and the tough women AG’s in California, Massachusetts, Illinois and Arizona, Schneiderman was standing up to the big banks on improper/illegal servicing practices. Then, the President appointed Schneiderman to the chair of the Working Group, the $25 Billion settlement went through, the servicer/banks are still conning the public into thinking that they are effecting meaningful loan modifications, and nothing much happened on the litigation front until yesterday. Forgive me if I appear cynical, but isn’t there an election in about a month.
Cynicism aside, this appears to be a positive event. It is alleged that Bear Stearns, which was bought by JP Morgan, defrauded investors by packaging and selling mortgages that they knew had a high likelihood of defaulting. Damages to investors are in the billions of dollars. Schneiderman is seeking unspecified damages. If Schneiderman aggressively litigates this matter, a substantial recovery could be in the cards. More importantly, a positive result can lead to more actions be AG’s and investors. One can only hope. On the other hand, if we see a settlement for pennies on the dollar, similar to the $25 Billion settlement, we can conclude that the government just wants to sweep this continuing mess under the carpet. Time will tell.
The federal statute of limitations is 5 years, and most state statutes of limitations for these types of offenses is six years. So time is running out. Let’s hope that the Working Group and the various AG’s “man up” and go after the banksters.
Posted by kevin on October 1, 2012 under Foreclosure Blog |
Predatory lending is sort of a catch all phrase dealing with lender impropriety. Last week, I was speaking with a judge whom I have known for years. He was assigned a mortgage foreclosure case because of the overflow calendar in his county. He said that the borrower’s attorney was claiming that the loan was predatory but the rationale for that conclusion was lacking in the judge’s opinion. I was asked how I would define a predatory loan. My response was that it could entail false advertising, a bait and switch, taking advantage of unsophisticated borrowers, equity stripping and the like. However, the definition which makes the most sense, and is consistently mentioned in OCC Advisory Letters is that a predatory loan is a mortgage loan that is based primarily on the value of the collateral and not primarily on the ability of the borrower to repay the loan.
Now, using that definition, we see that the vast majority of predatory loans happen with no-doc loans or stated income loans. No doc is self explanatory- the lender does not even require the borrower to list an income on the application. A stated income loan (sometimes called a liar loan) has an income stated in the application but the lender does nothing to verify the amount of income. In other words, the lender abdicates its due diligence role and then blames the mortgage broker and/or borrower when things go bad. However, the lender is the licensed entity and it is bound by bank regulations to check things like income and the ability to repay.
The judge then asked a pertinent question. Assuming that the loan is predatory, how do you assess damages? I told the judge that is the $64 dollar question. In thinking about that simple but compelling question, I think that I have come up with a simple, and hopefully, compelling argument. If the basis for lending is to put the borrower in a loan that he or she can afford, the appropriate damage is to give the borrower a loan that he or she could afford based on his current income or based on his actual income at the time of the loan. In other words, compel a modification that is affordable. That is what the loan was supposed to look like from the beginning according to OCC guidelines. Of course, lenders will say that such a remedy is too harsh. In selling that theory, the fundamental question to the court should be, why should the lender be obtaining a benefit by its violation of the law.
Posted by kevin on September 11, 2012 under Foreclosure Blog |
A while back, I reviewed the terms of the 25 billion dollar settlement with you. My conclusions were that the settlement was a big victory for servicers who were getting off the hook for a myriad of bad deeds, but that I would have to wait and see about benefits to borrowers in New Jersey.
A report recently came out from the overseer of the settlement who claims that there has been some movement across the country on reductions of principal amounts due on first mortgages. This positive news has been echoed, to a degree, by confirming posts on the listserve of the National Association of Consumer Bankruptcy Attorneys. But most of those posts came from attorneys out West.
I had not heard any news of principal reductions on first mortgages in NJ. But that does not mean that it is not happening. So, I reached out to attorneys on both sides, mediators and HUD counsellors to get an idea of what types of settlements are available. To my disappointment but not surprise, I did not hear much about modifications involving reductions in principal on first mortgages. What the lenders and their servicers are offering are deep discounts on or forgiveness of second mortgages, usually on properties that are underwater.
Big deal! Prior to the settlement, you could negotiate, without too much difficulty, a 10% settlement of underwater seconds (sometimes even lower). The second lender, you see, is not in the driver’s seat. Under New Jersey law, the second lender may sue on the Note. But lenders do not waste their money on a useless judgment if the borrower is out of work or underemployed. Moreover, aggressive pursuit of a money judgment on a second may just force the borrower into bankruptcy. If the second lender does not sue on the note, it has three choices. Buy out the first mortgage- very expensive and makes no sense if the property is underwater. Get wiped out in the foreclosure. Or try to make a deal with the borrower. So, this is one of the few situations in recent residential mortgage foreclosure where the borrower has some leverage.
Well, if it is true that lenders are forgiving seconds, that is pretty good for the borrower who is getting the deal. She is not out the few thousand dollars that would have been paid to take out the second. But is it good for the aggregate of borrowers in NJ who are looking to reduce principal and modify into an affordable loan? I question that. The lenders, cynical as ever, are forgiving 50-100K equity lines where they would have received nothing in a foreclosure. What do the lender get, then? They get credit against, in the case of NJ, the $67 million obligation under the 25 billion dollar settlement. So foregoing $5000 saves them from giving a $50,000 or $100,000 reduction in principal on a first.
Clearly, the lenders are following the letter but not the spirit of the 25 billion dollar settlement.
Posted by kevin on September 4, 2012 under Foreclosure Blog |
You have not heard from me for a while. I have been out of work for most of the summer. For years, I have said that I wanted to take the summer off and hang out on the beach. Well, I took the summer off. Unfortunately, I was not on the beach. In June, I had redness and pain in my upper chest. I thought I pulled a muscle lifting weights. It turned out to be a MRSA related abscess which required surgery. I was in the hospital for well over a month and confined to home for a few weeks. But I am getting back to what might be called normal. Went to Court twice last week, and will be attending a mediation tomorrow.
The time off gave me lots of time to think; lots of time to read. Of course, one of the things that I read about and thought about was the whole issue of foreclosure defense. I was not happy with the Guillaume decision. Going into Guillaume, you had a hodge podge of decisions based on the conflicting appellate division decisions. Both the lender bar and the borrower bar wanted a bright line decision. What we got was anything but. Trial judges are allowed to make their own calls. You would think that would give the borrower a 50-50 shot; however, the examples given in the decision , I believe, skewed the issue in favor of lenders. Irrespective of my opinion on the opinion (an Austin Powers moment), I would have been happier with a straight up or down ruling.
I read the daily opinions. I am not happy with the analysis on standing issues. I believe Judge Todd in Raftogianis and Judge Wizmur (Bankruptcy Chief Judge) in Kemp provided the strongest analyses and basically got it right. Lenders, however, have jumped on a stray statement called “dicta” in the Mitchell decision which appears to say that standing could be based on NJSA 46:9-9 assignment of mortgage. This takes us back to the pre-Raftogianis era when people were losing their homes based on questionable MERS assigments usually drafted by the plaintiff’s attorneys. What makes it worse is that the leading case on NJSA 46:9-9 states that the statute only applies to non-negotiable instruments. Of course, Mitchell dealt with a negotiable instrument so—whatever. This is an issue that needs to go up on appeal.
A summer of pondering has led me to at least the following conclusion- a borrower in foreclosure, more than ever before, needs an experienced attorney to wade thru the verbiage (euphemistic term) to present a forceful defense.
In future blogs, I will talk more about the $25B settlement and how it will impact our approach to representation of borrowers.
Posted by kevin on July 20, 2012 under Foreclosure Blog |
Over the last 25 years, there has been both Federal and New Jersey legislation that is to protect the consumer. Although such legislation is “on the books”, does it really protect the borrowers in mortgage related situations?
I am not so sure. Why? Because it is not enough to have a law on the books. The consumer protection law must be vigorously pursued by the appropriate enforcement agencies. That has not happened.
Last week, the Wall St. Journal ran an article that said that the SEC (which is supposed to regulate Wall St.) is pushing up against the 5 year statute of limitations in actions against investment banks and their employees for violations of the law relating to the 2008 mortgage meltdown and ensuing recession. They are rushing to file lawsuits at the last minute. Given that the actions of the large banks and Wall St went a long way to putting the US (and the world) in a terrible financial situation, to date, no investment bankers or executives at the “too big to fail” banks have been prosecuted or sent to jail. How could that be?
Also, last week, the news informed us that Barclay’s Bank was caught trying to manipulate the LIBOR by supplying false information as to interest rates. The LIBOR is used to to adjust interest rates involving adjustable rate mortgages. Articles have appeared which indicated that the Treasury Secretary had been aware of possible manipulations of the LIBOR but did nothing other than send a note to his British counterpart. Clearly, the government is protecting someone, but that someone is not you.
How could that happen? Why aren’t the staff at the SEC or the Federal Reserve doing more to protect the consumer? When I as intern at SEC enforcement years ago, my boss said when trying piece together a complex securities fraud, you had to follow the money. Well, many of the staff of these government agencies go to work for Wall St or the large when they leave government service. You draw your own conclusions.
If you are having problems with your lender, you would be naive to think that the government, whether federal or state, is going to step in to help you. You must help yourself. Make sure that you are protected (as best as you can be) by hiring competent legal counsel, experts, and the like. Your home may depend on it
Posted by kevin on June 5, 2012 under Foreclosure Blog |
To review, a servicer collects the monthly mortgage payments and distributes those payments to the lender, the taxing authority, and the insurance company. It gets a fee for providing this service. Most servicers are affiliated with large banks- too big to fail banks.
The servicer, in many instances, was the original lender or the purchaser from the original lender, who then sold the loans to FANNIE, FREDDIE or a securitized trust.
Since the servicer is involved in the collection and distribution of payments, it is the entity that coordinates foreclosure or bankruptcy activities on the part of the lenders. It was the entity most likely to be involved in robo-signing, issuing questionable certifications or affidavits in foreclosure litigation, and even forging instruments. The AG’s were looking primarily at the servicers, and the AG’s had claims of approximately a trillion dollars or more against these servicers. These AG claims go away based on the settlement. Now, you as a borrower can raise these defenses in a foreclosure action. But you do not have the same clout that a State AG has to pursue litigation. Moreover, you have to deal with state procedural rules which put a time limit on the ability to set aside a judgment based on fraudulent papers. Therefore, your chances of hitting a home run against the servicers are limited.
Imagine if you could get off the hook on your debts by putting up 25 billion to wipe out of trillion dollars of liability. You could pay off a million dollar mortgage for $25,000. How come the government did not give you that deal? It has something to do with a concept known as moral hazard. Many in the banking industry and government think that it sends a bad message to allow people to walk away from their mortgage obligation. Notwithstanding that many got hoodwinked into deals that they could not afford. However, those same people have no problem with bailing out the banks. In other words, a different set of rules apply to the too big to fail banks. Go figure.
Posted by kevin on May 13, 2012 under Foreclosure Blog |
A couple of months ago, we informed you that the various Attorneys General entered into a settlement with the 5 largest servicers over robo-signing and other servicing irregularities. In the next few posts, I want to explain to you the terms of the settlement. However, before we can get into the details, we need to understand the basics. Why was the deal made with servicers and not lenders?
What is a servicer and how does it differ from your lender? It is not always clear. In fact, most borrowers think that their servicer is actually their lender. If you go on the Freddie Mac website, a borrower is advised to contact its lender for details and then in parentheses it says (servicer). So, Freddie Mac is acknowledging the confusion.
A lender is the entity that gives the borrower the money or buys the loan from the original lender. A servicer is an entity that collects your mortgage payments on behalf of the lender and distributes those payments pursuant to the terms of the loan agreements. In the old days (before 1970), the entity that lent you the money actually collected your payments and did the bookkeeping associated with your mortgage loan. So, the lender and the servicer were one and the same.
For purposes of this paper, let’s refer to the lender as a bank. Historically, the bank made a mortgage loan and made its money, primarily, on interest payments. They serviced their own loans; that is, they collected the money, paid the taxes and insurance, performed the paperwork, and dealt with any defaults on the loan by foreclosure or otherwise.
With the advent of Fannie Mae, Freddie Mac, and later private securitizations, however, a marketplace was set up where banks could sell their mortgage loans to investors. By selling their loans, the bank would get most, if not all of its money back, and thereby have money to make more loans. So, instead of making its money primarily from interest payments, banks started to become involved in high volume lending and made the bulk of their money on first mortgages on the fees that it charged to the borrowers. Those fees included application fees, points, credit report fees and the like.
When banks started selling their loans, they quickly noticed that investors who wanted to buy the income stream of the mortgage notes did not necessarily want to collect the payments each month and perform the paperwork. But banks, especially large banks, had the infrastucture already in place to do the servicing. So, what happened? The banks that sold the loans to investors, in some cases, made a deal with the investor to service the loans that it sold- for a fee.
Now to finish off the scenario, many large banks did not sell all their loans. For the most part, large banks retained or held their second mortgages. In this circumstance, the bank acted in the like it did in the old days- it was both lender and servicer.
How did the servicers get involved in the 25 Billion dollar settlement? Well, although foreclosures are supposed to be brought in the name of the lender, the reality is that the servicer is the entity that deals with the defaulted loan. The servicer is the one that calls or writes to the borrower to find out why payments have stopped and whether the loan could be put back on track by modification, forbearance, short sale or the like. In addition, it is the servicer that has all the information necessary to prosecute the foreclosure. So, the servicer usually hires the lawyers, appraisers, real estate people, litigation support companies and the like on the behalf of the lender. And it was the servicer that was involved in all the shenanigans relating to robo-signing, lost notes, improper charges, fraudulent endorsements and more which were being investigated by the various AG’s and led to the 25 billion dollar settlement.
Posted by kevin on March 4, 2012 under Foreclosure Blog |
Since November, we have awaited anxiously for the NJ Supreme Court decision US Bank, NA v. Guillaume. This was touted to be the definitive ruling on the Notice of Intent to Foreclose (NOI) requirements under the Fair Foreclosure Act (FFA). Well, the decision was released this week.
The FFA requires the mortgage lender to send to the mortgage debtors an NOI prior to filing a foreclosure complaint relating to a residential mortgage. The NOI statute states that the notice must contain 11 different points of information. One of the critical points of information is the name and address of the Lender. However, the FFA does not say what the penalty should be if the mortgage lender fails to comply with the NOI requirements.
There have been 5 major cases dealing with the NOI requirement before Guillaume. The first decision indicated that substantial compliance was good enough (in other words, you did not have to include all 11 items of information). Under this case, the plaintiff could leave out the name and address of the lender. Decisions 2-5 said that you had to strictly comply; that is, you had to include the name and address of the lender. One case seems to suggest that dismissal of the complaint was not necessary for a violation (Frankly, it is not clear to me what that court was saying on this issue). Two cases said that dismissal without prejudice was appropriate but not necessary. The fifth case said dismissal with prejudice was mandatory. Dismissal was the remedy favored by borrowers.
Because the decisions on the remedy for a violation of the NOI requirements were not uniform, judges were coming down with different decisions based on the same facts. Whether the case was dismissed, in effect, depended on which judge was assigned the case. This is not good.
In Guillaume, the borrowers sat on their rights for the better part of 16 months, a default judgment had been entered against them, and a sheriff’s sale had been scheduled. That is when the Guillaumes finally retained an attorney. (Message to all readers-that is a big mistake.) On a motion to set aside the default judgment, it was argued that the plaintiff failed to comply with the NOI requirements. The trial court refused to dismiss, and told the plaintiff to send out a revised notice which included the name and address of the lender. Two revised notices were sent but both were deficient. Still the trial court would not vacate the default or dismiss the case. The appellate level decision in Guillaume said substantial compliance was good enough. If plaintiff gave the name of the servicer, it satisfied the purpose of the statute. That decision did not even mention the 5 major cases on the issue.
The case went up to the Supreme Court. The lenders, in effect, put all new foreclosures on hold, pending the decision of the Supreme Court. Attorneys for both sides were happy that the Supreme Court was finally going to decide what the remedy for a FFA violation was. Good or bad, we would have a definitive decision and be able to advise our clients.
The Supreme Court held that a lender must strictly comply with the NOI requirements- in other words, the notice had to include the name and address of the lender. That was definitive. Then, the Court said that since the Legislature did not provide a remedy, they would consider the appropriate remedy. So far, so good. Then, the Court said that foreclosures are decided by chancery judges. In the old days, chancery courts were called courts of equity. Traditionally equity allowed judges wide flexibility in making their rulings based on the specific facts before them. So in keeping with this tradition,, the Supreme Court said that if there was an NOI violation, the judges were free to shape their own remedies as long as they did not abuse their discretion.
What does that mean in practical terms? Judge A could decide to dismiss. Judge B could decide to stay the case for 30 days so that a new NOI could be sent. Judge C could decide something different. As long as the given judge does not abuse his or her discretion, the ruling cannot be overturned on appeal. No clarity.
So, we waited a decade to get a definitive decision on the NOI requirement, and did not get a definitive decision. That is disappointing.
