Continue reading »]]> Mortgage settlement is great — for politicians and banks

The settlement mostly requires mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud.

California Atty. Gen. Kamala D. Harris went before the cameras soon after that, taking credit for “a tremendous victory for California,” which has been perhaps the hardest-hit state in the foreclosure crisis.

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Then there are the banks. The signatories to the deal are Bank of America, Citibank, Wells Fargo & Co., JPMorgan Chase and Ally Financial (formerly GMAC), which handle payments on more than half the nation’s outstanding 27 million home loans and therefore have been at the center of the servicing and foreclosure abuses the settlement is supposed to end.

If you don’t listen too closely, it sounds as if they’re putting up the $25 billion. Not so. The only cold cash the banks are paying is a combined $5 billion, including $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year, with the rest going to the federal and state governments to pay for regulatory programs.

Most of the balance is in mortgage relief for stressed or underwater mortgage holders, including principal reductions, refinancings and other modifications.

How much of this will translate into an outlay of cash by the five banks? Not much, if any.

For one thing, even the government acknowledges that a lender typically benefits when ways are found to keep a home out of foreclosure — a lender loses an average $60,000 on every foreclosure, according to figures the federal government disclosed in connection with the settlement announcement. It’s been institutional resistance and legal entanglements, not economics, that have kept more modifications from going forward.

Many of the loans destined to be modified under the settlement aren’t even owned by the banks, but rather by investors — the banks just collect the checks.

Consequently, as mortgage expert Adam Levitin of Georgetown Law School observes, most of the settlement “is being financed on the dime of MBS [mortgage-backed securities] investors such as pension funds, 401(k) plans, insurance companies and the like — parties that did not themselves engage in any of the wrongdoing covered by the settlement.”

What about homeowners? They don’t get much, especially in relation to the scale of the housing crisis. More than 2 million owners have lost their homes to foreclosure during the last four years; this deal will provide 750,000 with a payment of $2,000 each.

Some 11 million homeowners are underwater by about $700 billion combined, or an average of nearly $65,000 each. In a transport of optimism, federal officials are projecting that this deal will help 2 million of them, to the tune of perhaps $20,000 each. By the way, loans owned by the government-sponsored firms Fannie Mae and Freddie Mac aren’t eligible for this relief. Since they own or control the majority of all outstanding mortgages, that’s a rather large black hole.

Supposedly a big part of the deal is the implementation of new foreclosure standards to end the abuses that made the deal necessary. These standards require banks seeking to foreclose henceforth to submit sworn affidavits that are accurate about the amounts owed and the legal right of the servicer to proceed, and require that the bank officers who sign them to actually examine the documents they swear to have examined.

In other words, no more “robo-signing.” Assertions the banks make in court will have to be “accurate.” Banks will have to give borrowers complete and accurate information about their loans, suspend foreclosure proceedings once they start working on a loan modification, apply mortgage payments promptly, keep accurate loan records and communicate effectively with borrowers.

I believe the technical term for all this is “big whoop.” The provisions mostly require mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud. The rest is pretty much out of the best-practices manual of customer service, which benefits both the customer and the institution.

What the standards do accomplish is to expose how sad our enforcement of the law has been up to now, and how hard it will be to enforce it in the future if this is the best we can do in the face of manifestly illegal behavior. The lesson is: Break the law, and the full weight of the state and federal governments will come down on your head to make you agree not to break the law — in the future.

It may not be long before the euphoria over the settlement evaporates in the realization that the banks that made a travesty of the mortgage market are still getting a pass — not only on their cupidity in making loans to unqualified buyers, but in magnifying their cupidity through forgery, lies and the other building blocks of foreclosure fraud.

In the words of business consultant Susan Webber, who blogs expertly on financial matters under the pen name Yves Smith, “We’ve now set a price for forgeries and fabricating documents. It’s $2,000 per loan.” She observes, quite properly, that the payoff is a minuscule fraction of the costs these practices have imposed on borrowers, the court system and the economy.

The settlement, meanwhile, provides cover for other stealth bailouts. On Thursday, the day of the big parade, the U.S. Office of the Controller of the Currency quietly settled claims against BofA, Wells Fargo, Citibank and JPMorgan Chase related to cease-and-desist orders the agency issued last year over the banks’ crooked mortgage servicing and foreclosure activities.

The agency says it settled those claims for $394 million. The actual figure is zero. That’s because the agency won’t ask for any of the money as long as the banks meet their obligations under the mortgage settlement. This is the kind of fun with math that helped get us into the housing crisis in the first place.

The settlement’s proponents have praised it for preserving the right of prosecutors to continue their investigations into the banks’ misbehavior; California’s Harris crowed that she retains the right to pursue the banks under state fraud laws. But it also narrows the breadth of a promising Massachusetts investigation and may entirely shut down cases brought against BofA by the Arizona and Nevada attorneys general.

Most troubling, compliance with the settlement terms will be overseen by an independent monitor who must rely on the banks’ own figures. If we know anything about these banks, it’s that they’ve moved heaven and earth to evade their past promises to help troubled homeowners. Time and again their loan relief programs have fallen short of their promises. Why should this time be different, when the consequence of their past misbehavior is, when you come down to it, a slap on the wrist?

Prosecutors coast to coast had the mortgage industry dead to rights this time around. That’s why the banks came to the table. The states and the feds were in a position to achieve real homeowner relief and a lasting change in the way Wall Street banks do business. But that fading sound you hear? That’s the parade passing by, leaving Main Street behind.

Michael Hiltzik’s column appears Sundays and Wednesdays. 

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Wrongful Foreclosure Lawsuits – More Nightmares For Mortgage Lenders

The foreclosure crisis is expected to continue in 2011 and beyond. Real estate reporting entities, such as Realty Trac, a well known foreclosure tracking company, predicts more than a million foreclosures will occur in 2011, which is slightly more than occurred in 2010. The foreclosure freeze, placed in effect by a number of big banks in 2010, but now in full bloom again, will have an affect on the increase in foreclosures in 2011.

The real estate industry has been upside down since the crash of the mortgage industry in 2006 which arose out of what is known as “Toxic Mortgages” issued to millions of homeowners that contained adjustable interest rates and negative amortization schedules. Thousands of these mortgages were placed on the books and given to persons who really did not qualify and whose financial documentation was often fraudulently submitted by mortgage brokerages and numerous banks themselves. As the interest rates adjusted upwards and the monthly payments zoomed higher the homeowners could no longer afford to pay.

Homeowners defaulted in droves on their mortgage loans and the ultimately this created sometime called a “mortgage meltdown”. Major banks and stock brokerages failed and went out of business. The U.S. Treasury stepped in and bailed a number of these financial entities out, but the foreclosure process had begun and continues under the weight of a bad economy that has lasted for three years and will likely continue well into 2012 or longer.

Banks and other mortgage lenders have been under a great deal of pressure recently because of the manner in which they have handled processing foreclosures throughout the country. Many mortgage lenders and their servicers have failed to follow foreclosure laws and have engaged in foreclosure fraud which has resulted in homeowners losing their homes through the foreclosure process illegally. These illegal practices have been well documented through court findings and news reports. As a result of these actions by mortgage servicers, a new legal industry has arisen in the form of wrongful foreclosure lawsuits.

Wrongful foreclosure lawsuits are a method of exercising foreclosure rights of homeowners facing foreclosure on their property. They also provide a defense to a foreclosure or a powerful weapon to recover a home that has been taken wrongfully by the mortgage servicer.

TYPES OF FORECLOSURES

There are two types of foreclosures. They are (1) a judicial foreclosure and (2) a non-judicial foreclosure. A judicial foreclosure requires that the bank or loan servicer first file a lawsuit in court and prove to the court that the foreclosure process is proper and that the homeowner has defaulted before the foreclosure sale can legally occur. A non-judicial foreclosure allows for the bank or loan servicer to simply give notice of default to the homeowner and file such notice in the county recorder’s office of the county where the property is located. Thereafter there is a time period (usually around 90 days) that the homeowner must bring the property current after the Notice of Default. If not, then the bank or servicer can file a Notice of Trustee Sale and sell the property at a Trustee’s Sale. This generally occurs within three weeks after the passage of a 90 day Notice of Default.

The crucial difference between a judicial foreclosure and a non-judicial foreclosure is time. A judicial foreclosure could take more than a year. A non-judicial foreclosure can be completed in less than six months. Where the property is located will have affect on whether the foreclosure process will be a judicial or non-judicial process. The mortgage contract also can dictate whether the process will be judicial or non-judicial. If the property is located in a judicial foreclosure state then a court process will be required. If in a non-judicial state then it will be processed through the foreclosure laws governing that foreclosure process. If the property is located in a non-judicial state but the mortgage contract states that any foreclosure will be conducted in a judicial manner, then the contract language will prevail.

THE FORECLOSURE PROCESS Regardless of whether the foreclosure is a judicial or non-judicial foreclosure there are foreclosure laws that must be followed and if the loan servicer does not follow the steps outlined then the foreclosure is subject to stoppage or being set aside if the foreclosure sale occurs. In every state, judicial or non-judicial, loan servicers are required to file or sign affidavits that proper foreclosure process has been followed. These statements, filed under penalty of perjury, must be accurate and true. If they are not the foreclosure may be deemed fraudulent and therefore illegal. Under such circumstances a homeowner, even if truly in default, can bring a wrongful foreclosure lawsuit and stop the foreclosure process or if the property has been sold can seek to set the foreclosure aside and can also seek monetary damages for the loan servicers fraudulent foreclosure.

Recently, many banks and loan servicers have committed fraud by signing bogus documents and submitting them to courts and county recorder offices falsely stating that they have complied with the foreclosure process and obtaining permission from judges to foreclose on the property or, in the case of non-judicial foreclosure, just filing a bogus affidavit in the recorder’s office and completing the sale. This process has become known as “robo signing” because those signing the bogus and fraudulent affidavits have been required by the loan servicer to just sign documents saying they’ve complied with foreclosure laws when in fact they have not. Mortgage lenders such as Bank of America, Wells Fargo and JP Morgan Chase have admitted that such practices occurred. For that reason several banks placed a foreclosure freeze on foreclosures for approximately 90 days the last quarter of 2010 in order to review such filings. Fraudulent affidavit singings were confirmed. The courts are now being flooded with “wrongful foreclosure lawsuits”.

THE BASIS FOR A WRONGFUL FORECLOSURE LAWSUIT

Wrongful foreclosure litigation is based on a number of arguments that can support a homeowner’s claim such as:

• Failure to follow the mortgage contract requirements of notice and opportunity to cure any claimed mortgage delinquencies before commencing a foreclosure on the property. (Many mortgage deed of trusts require such a notice and loan servicers routinely ignore this notice).

• Failure to comply with notice requirements of statutory foreclosure laws.

• Failure to or fraudulently providing an affidavit that foreclosure laws have been complied with before conducting a Trustee’s Sale of the property.

• Failure of the mortgage loan servicer having standing to foreclosure on the property. (The loan servicer or bank does not hold the note on the property and therefore is not the rightful entity foreclosing on the property).

A wrongful foreclosure can be based on any one or a combination of the above arguments for a wrongful foreclosure. One of the most common and now powerful arguments is the fact that the foreclosing entity does not hold the note on the property. Under what is known as the Uniform Commercial Code, a statutory scheme of laws governing negotiable instruments such as checks, bank notes and mortgage notes, and adopted by all the states, only the person or entity that holds the original note has proper standing to sue in court or exercise the foreclosure process.

Most mortgage lenders and services cannot prove they are the current holder of the note because of the large number of mortgages that have been bundled together and sold in packages called mortgage back securities. Each mortgage must have been signed and endorsed by the true holder of the note to the current person or entity claiming it owns the note. These mortgage backed securities were bundled together and sold to large Wall Street brokerages. The notes are more often than not lost, not endorsed or otherwise made unavailable. Therefore, when seeking to foreclosure there is more often than not inability of the loan servicer to show proof that it is the “holder of the note” If it cannot then the foreclosure is bogus. Several courts are now weighing in on this issue and finding in favor of homeowners who make this argument. Most recently the Massachusetts Supreme court ruled on two such cases upholding the lower court’s ruling that U.S. Bank and Wells Fargo wrongfully foreclosed on property because it had not shown it was the holder of the note. Other courts have held the same, including bankruptcy courts in Ohio and California. This is the start of an ominous trend for loan services and banks and a powerful weapon now in the hands of homeowners who will no longer be at the mercy of loan servicers and banks that choose to ignore the rules. Wrongful Foreclosure Lawsuits are the next wave in the mortgage fraud mess.

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The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

And last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

Bank of America, Goldman Sachs and JPMorgan all declined to comment. Frank Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

But privately, financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities. In addition, they contend that investors like A.I.G. as well as Fannie and Freddie were sophisticated and knew the securities were not without risk.

Investors fear that if banks are forced to pay out billions of dollars for mortgages that later defaulted, it could sap earnings for years and contribute to further losses across the financial services industry, which has only recently regained its footing.

Bank officials also counter that further legal attacks on them will only delay the recovery in the housing market, which remains moribund, hurting the broader economy. Other experts warned that a series of adverse settlements costing the banks billions raises other risks, even if suits have legal merit.

The housing finance agency was created in 2008 and assigned to oversee the hemorrhaging government-backed mortgage companies, a process known as conservatorship.

“While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again,” said Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues.

The suits are being filed now because regulators are concerned that it will be much harder to make claims after a three-year statute of limitations expires on Wednesday, the third anniversary of the federal takeover of Fannie Mae and Freddie Mac.

While the banks put together tens of billions of dollars in mortgage securities backed by risky loans, the Federal Housing Finance Agency is not seeking the total amount in compensation because some of the mortgages are still good and the investments still carry some value. In the UBS suit, the agency said it owned $4.5 billion worth of mortgages, with losses totaling $900 million. Negotiations between the agency and UBS have yielded little progress.

The two mortgage giants acquired the securities in the years before the housing market collapsed as they expanded rapidly and looked for new investments that were seemingly safe. At issue in this case are so-called private-label securities that were backed by subprime and other risky loans but were rated as safe AAA investments by the ratings agencies.

In the years before 2007, “the market was so frothy then it was hard to find good quality loans to securitize and hold in your portfolio,” said David Felt, a lawyer who served as deputy general counsel of the finance agency until January 2010. “Fannie and Freddie thought they were taking AAA tranches, and like so many investors, they were surprised when they didn’t turn out to be such quality investments.”

Fannie and Freddie had other reasons to buy the securities, Mr. Rood added. For starters, they carried higher yields at a time when the two mortgage giants could buy them using money borrowed at rock-bottom rates, thanks to the implicit federal guarantee they enjoyed.

In addition, by law Fannie and Freddie were required to back loans to low-to-moderate income and minority borrowers, and the private-label securities were counted toward those goals.

“Competitive pressures and onerous housing goals compelled them to operate more like hedge funds than government-sponsored guarantors, ” Mr. Rood said.

In fact, Freddie was warned by regulators in 2006 that its purchases of subprime securities had outpaced its risk management abilities, but the company continued to load up on debt that ultimately soured.

As of June 30, Freddie Mac holds more than $80 billion in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans. Freddie estimates its total gross losses stand at roughly $19 billion. Fannie Mae holds $38 billion of securities backed by Alt-A and subprime loans, with losses standing at nearly $14 billion.

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There are so many reasons why you should not use a land trust in a real estate transaction in todays real estate investing environment. Listen in as I go over the top 3 reasons why you should stay away from them, whether or not a lender will pay you a fee for negotiating a deed-in-lieu of foreclosure, whether or not a purchase and sales agreement seasons title, what loans are protected from deficit judgments and much more!
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Moore4yourMoney.com – Text MOORE to 72727 for FREE Mobile App- This week Wes has a great program for fixer uppers. The FHA 203k Streamline ReHab loan. This is a way to get money for repairs or upgrades when you buy the home, so you immediately have the funds to get the work completed ASAP. Great for first time buyers!. Check out this video to learn all the details. Wes does Albuquerque mortgage loans.

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