Cash-strapped homeowners in Kwa-Zulu-Natal are opting to let their properties go through bank-approved forced sales, rather than their being repossessed.
Estate agency Chas Everitt said sales of this type accounted for 30 percent of its sales between June last year and July this year.
Another estate agency reported selling at least 30 “distressed” properties in the past three months as desperate homeowners battled under the strain of a global economic recession, job losses and high debt levels.
In a recent judgment involving applications by Absa against three defaulting homeowners, Durban High Court Acting Judge Peter Olsen noted that national statistics provided by Absa “indicate the extent of the problem with which the bank is confronted”.
The figures showed that more than 5 000 section 129 notices – notifying consumers they were in default – had been sent out between December and May. The average amount of debt involved in each month was R532 million.
Nedbank said the number of homes being repossessed had decreased as clients took up other options, including reduced instalments. Those who could not pay had taken advantage of the bank’s assisted sales programme which entailed marketing and selling their homes through estate agents.
Standard Bank spokesman Erik Larsen said while the number of repossessions had decreased, they remained at historically high levels and consumers were under pressure.
Durban estate agents said areas such as Kloof, Hillcrest, Queensburgh and Pinetown and the North and South Coasts were particularly hard-hit, with dozens of home-owners having to sell through bank-assisted sales or risk repossession.
Clint Ellice, principal of the Chas Everitt International Upper Highway office, said he had been taken aback by the volume of distressed sales, and expected the number to increase.
“The average prices are between R800 000 and R1 million. The highest was R3.6m.”
Annatjie Angelo, owner and principal of Harcourt Tops, based in Pinetown, agreed that distressed sales were becoming prevalent. In the past three months, the agency had sold 30 such homes.
Greg Wilson, of Claudine Hickman Properties, said 20 percent of sales by the group’s Queensburgh office were distressed sales.
“It is more widespread than that and is occurring in a lot of areas.”
An employee at auction company Peter Maskell Auctioneers said many people were selling their second homes or holiday properties, especially on the South Coast.
The company had carried out several valuations in Kloof, which was the first step when a bank intends to take legal action against the homeowner.
Pam Golding Properties’ national general manager, Richard Day, said distressed sales were occurring across the province and high-value properties in the traditional greater Durban North and Highway areas were not immune to lifestyle changes.
Ecomomist Mike Schussler, of economists.co.za, said the property industry was expected to remain a buyer’s market for five years.
The judgment by Acting Judge Olsen puts more barriers in place for banks to overcome before they may apply for a default judgment against homeowners.
He suggested that the practice of sending Section 129 notices by registered mail was not enough. Ordinary post could also be used, with multiple letters being sent to the owner’s home address, work address and any other provided.
Greg Allen, of law firm Easton-Berry Inc, which acted for Absa, said the three cases had been adjourned indefinitely and the judge had asked that the section 129 notices be sent again by registered mail and by fax, e-mail or in person.
Allen said the acting judge had also ordered that in similar cases where summons had been issued, the banks would be required to bring applications so the court could give a directive setting out the steps that needed to be followed to conform to National Credit Act requirements.
Source: IoL
Showing posts with label Foreclosure. Show all posts
Showing posts with label Foreclosure. Show all posts
Tuesday, July 31, 2012
Friday, July 13, 2012
Foreclosures rise after bank settlement
Foreclosure notifications increased for the second consecutive month in June, as lenders rushed to foreclose homes in the wake of the Obama administration's settlement with the largest banks on mortgage fraud.
RealtyTrac, the online foreclosure marketplace, said that 311,010 properties started foreclosure during the second quarter of the year, a 9 percent increase from the previous quarter and a 6 percent increase from the second quarter of 2011. The company said in its 2012 midyear report that this was the first year-over-year increase in quarterly foreclosure starts since the fourth quarter of 2009.
Daren Blomquist, Vice President of Realtytrac, told the WSWS in a telephone interview that the growth in foreclosure starts is largely attributed to the bank fraud settlement. “We expected that the settlement to loosen up the logjam of delayed foreclosures; that's what happened in April as it was finalized and in May and June we saw two months of increasing starts.”
“The settlement involves the nation’s five biggest lenders; but others are looking at it as something to live by,” he added. “It is freeing up lenders to move forward more confidently; as long as they abide by those guidelines they won’t be accused of improperly foreclosing.”
In the fall of 2010 it emerged that the largest banks were engaged in a practice known as “robo-signing,” in which employees would fraudulently claim to have seen foreclosure documents in order to speed along foreclosures with missing paperwork.
This prompted a coordinated investigation by the 50 state attorney generals into the practice. In January 2012, the Obama administration worked out a settlement with the five biggest banks that put an end to the states’ investigations in exchange for a pitiful cash settlement.
Under the terms of the deal, 750,000 foreclosed homeowners might receive a check for $1,500 to $2,000, if they can show that they were improperly evicted.
Banks started foreclosures on 12 percent of delinquent loans in June, the highest level since early 2009, according to separate data from Fitch ratings.
California, which was the center of the real estate bubble and subsequent collapse, saw the biggest increase in foreclosure starts, which increased 18 percent over the previous year, according to Realtytrac. This boosted California’s foreclosure rate to the highest in the nation.
The midyear report from Realtytrac report showed that one in 126 housing units had at least one foreclosure filing in the first six months of the year.
May was the first time in 28 months that there was a year-over-year increase in foreclosure starts, and June continued the trend. Some 109,999 properties started the foreclosure process in May. That was up 12 percent from the previous month and 16 percent from May of 2011. This was the highest number of foreclosure starts since October 2011.
In May, New Jersey had a 64 percent increase in foreclosure activity. Indiana had a 45 percent increase, and Pennsylvania had a 32 percent increase compared to the previous six months.
Blomquist said that the wave of delayed foreclosures would have a negative effect on the housing market: “In the short term it will continue to weigh down housing prices as these properties are listed.”
The continuing impact of home foreclosures was amply demonstrated when the city of San Bernardino, California, filed for bankruptcy Tuesday, becoming the second-largest US city to do so. San Bernardino has been devastated by the collapse of the housing bubble, and has consistently had among the highest foreclosure rates in the country.
The city had 2,527 properties in foreclosure this month, amounting to 3.5 percent of all housing units, according to Realtytrac. This is over triple the national average of 1.02 percent.
Source: World Socialist Web Site
RealtyTrac, the online foreclosure marketplace, said that 311,010 properties started foreclosure during the second quarter of the year, a 9 percent increase from the previous quarter and a 6 percent increase from the second quarter of 2011. The company said in its 2012 midyear report that this was the first year-over-year increase in quarterly foreclosure starts since the fourth quarter of 2009.
Daren Blomquist, Vice President of Realtytrac, told the WSWS in a telephone interview that the growth in foreclosure starts is largely attributed to the bank fraud settlement. “We expected that the settlement to loosen up the logjam of delayed foreclosures; that's what happened in April as it was finalized and in May and June we saw two months of increasing starts.”
“The settlement involves the nation’s five biggest lenders; but others are looking at it as something to live by,” he added. “It is freeing up lenders to move forward more confidently; as long as they abide by those guidelines they won’t be accused of improperly foreclosing.”
In the fall of 2010 it emerged that the largest banks were engaged in a practice known as “robo-signing,” in which employees would fraudulently claim to have seen foreclosure documents in order to speed along foreclosures with missing paperwork.
This prompted a coordinated investigation by the 50 state attorney generals into the practice. In January 2012, the Obama administration worked out a settlement with the five biggest banks that put an end to the states’ investigations in exchange for a pitiful cash settlement.
Under the terms of the deal, 750,000 foreclosed homeowners might receive a check for $1,500 to $2,000, if they can show that they were improperly evicted.
Banks started foreclosures on 12 percent of delinquent loans in June, the highest level since early 2009, according to separate data from Fitch ratings.
California, which was the center of the real estate bubble and subsequent collapse, saw the biggest increase in foreclosure starts, which increased 18 percent over the previous year, according to Realtytrac. This boosted California’s foreclosure rate to the highest in the nation.
The midyear report from Realtytrac report showed that one in 126 housing units had at least one foreclosure filing in the first six months of the year.
May was the first time in 28 months that there was a year-over-year increase in foreclosure starts, and June continued the trend. Some 109,999 properties started the foreclosure process in May. That was up 12 percent from the previous month and 16 percent from May of 2011. This was the highest number of foreclosure starts since October 2011.
In May, New Jersey had a 64 percent increase in foreclosure activity. Indiana had a 45 percent increase, and Pennsylvania had a 32 percent increase compared to the previous six months.
Blomquist said that the wave of delayed foreclosures would have a negative effect on the housing market: “In the short term it will continue to weigh down housing prices as these properties are listed.”
The continuing impact of home foreclosures was amply demonstrated when the city of San Bernardino, California, filed for bankruptcy Tuesday, becoming the second-largest US city to do so. San Bernardino has been devastated by the collapse of the housing bubble, and has consistently had among the highest foreclosure rates in the country.
The city had 2,527 properties in foreclosure this month, amounting to 3.5 percent of all housing units, according to Realtytrac. This is over triple the national average of 1.02 percent.
Source: World Socialist Web Site
Friday, May 11, 2012
Deutsche bank pays $202M in New York mortgage fraud deal
Deutsche Bank agreed to pay $202 million to settle civil fraud charges brought by the federal government over the practices of a subsidiary it acquired five years ago, authorities announced.
A federal judge in Manhattan approved the deal reached by representatives of the Frankfurt, Germany-based bank and the government.
Under the agreement, Deutsche Bank AG admitted that it didn't follow all federal housing regulations when it made substantial profits between 2007 and 2009 from the resale of risky mortgages through its subsidiary MortgageIT.
According to the agreement, Deutsche Bank admitted that it was in a position to know that MortgageIT's operations did not conform fully to all of the government's regulations, policies and handbooks. The subsidiary employed more than 2,000 people at branches in all 50 states. The bank agreed to pay $202.3 million to the U.S. Department of Justice within a month.
Deutsche Bank said in a statement Thursday that it was pleased to put the issue behind it.
"This marks a significant step in resolving our mortgage-related exposures," the bank said.
The government said in its lawsuit the bank's failures caused the government to foot the bill for loans that defaulted.
MortgageIT had been a Federal Housing Administration lender operating with government oversight for almost a decade. The mortgage insurance is issued by the FHA.
The lawsuit against Deutsche Bank sought to recover more than $386 million that the Department of Housing and Urban Development has paid out in FHA insurance claims and related costs arising out of MortgageIT's approval of more than 3,100 mortgages, including 1,400 loans that have defaulted so far. It said HUD had paid more than $97 million in FHA claims and related costs arising out of more than 600 mortgages that defaulted within six months.
HUD sets the rules for the FHA mortgage insurance program, including requirements relating to the adequacy of the borrower's income to meet mortgage payments, the borrower's creditworthiness and the appropriateness of the valuation of the property being purchased.
The lawsuit said Deutsche Bank and MortgageIT failed to comply with HUD rules and regulations regarding required quality control procedures, and then lied about their purported compliance.
In a release Thursday, U.S. Attorney Preet Bharara said Deutsche Bank and the subsidiary "treated FHA insurance as free government money to backstop lending practices that did not follow the rules."
He said the compensation agreed to by Deutsche Bank will significantly compensate HUD for the losses it incurred.
Source: Sowetan
A federal judge in Manhattan approved the deal reached by representatives of the Frankfurt, Germany-based bank and the government.
Under the agreement, Deutsche Bank AG admitted that it didn't follow all federal housing regulations when it made substantial profits between 2007 and 2009 from the resale of risky mortgages through its subsidiary MortgageIT.
According to the agreement, Deutsche Bank admitted that it was in a position to know that MortgageIT's operations did not conform fully to all of the government's regulations, policies and handbooks. The subsidiary employed more than 2,000 people at branches in all 50 states. The bank agreed to pay $202.3 million to the U.S. Department of Justice within a month.
Deutsche Bank said in a statement Thursday that it was pleased to put the issue behind it.
"This marks a significant step in resolving our mortgage-related exposures," the bank said.
The government said in its lawsuit the bank's failures caused the government to foot the bill for loans that defaulted.
MortgageIT had been a Federal Housing Administration lender operating with government oversight for almost a decade. The mortgage insurance is issued by the FHA.
The lawsuit against Deutsche Bank sought to recover more than $386 million that the Department of Housing and Urban Development has paid out in FHA insurance claims and related costs arising out of MortgageIT's approval of more than 3,100 mortgages, including 1,400 loans that have defaulted so far. It said HUD had paid more than $97 million in FHA claims and related costs arising out of more than 600 mortgages that defaulted within six months.
HUD sets the rules for the FHA mortgage insurance program, including requirements relating to the adequacy of the borrower's income to meet mortgage payments, the borrower's creditworthiness and the appropriateness of the valuation of the property being purchased.
The lawsuit said Deutsche Bank and MortgageIT failed to comply with HUD rules and regulations regarding required quality control procedures, and then lied about their purported compliance.
In a release Thursday, U.S. Attorney Preet Bharara said Deutsche Bank and the subsidiary "treated FHA insurance as free government money to backstop lending practices that did not follow the rules."
He said the compensation agreed to by Deutsche Bank will significantly compensate HUD for the losses it incurred.
Source: Sowetan
Wednesday, April 4, 2012
Major Financial Crime Using Intelligence and Partnerships to Fight Fraud Smarter
Homeowners tricked into signing away the deeds to their own homes. The elderly and vulnerable used to make a fast and illegal buck, even by very people who take care of them. Billions in hard-earned investor dollars vanishing in a seeming flash, sometimes through a single scam.
Financial crime is a real and insidious threat—one that takes a significant toll on the economy and its many victims.
Today, Director Robert S. Mueller talked about the impact of financial crime and the Bureau’s longstanding role in combating it in a keynote speech before the Miami Chamber of Commerce.
The Director explained that even in the post 9/11 world—with its needed focus on terrorism and other national security threats—the FBI continues to take its criminal responsibilities seriously. “What has changed,” he said, “is that we make greater use of intelligence and partnerships to better focus our limited resources where we can have the greatest impact—for example, on combating large-scale financial fraud.”
It’s all about working smarter, using new information-sharing efforts, intelligence-driven investigations, and task force-based approaches to leverage the talents and resources within and among agencies to get a bigger bang for the buck, so to speak, in fighting financial fraud.
Among the innovations and initiatives outlined by the Director:
Three years ago, we established the Financial Intelligence Center to strengthen our financial intelligence collection and analysis. “This center helps us to see the entire picture of financial crimes. It provides tactical analysis of financial intelligence data, identifies potential criminal enterprises, and enhances investigations. It also coordinates with FBI field offices to complement their resources and to identify emerging economic threats.”
Today, we have more than 500 agents and analysts using intelligence to identify emerging health care fraud schemes, and field offices target fraud through coordinated initiatives, task forces and strike teams, and undercover operations.
The Miami office has led the way by creating the first Health Care Fraud Strike Force, which is now a national initiative. Through the strike force, the Bureau works closely with federal, state, local, and private sector partners to uncover fraud and recover taxpayer funds. “Last year, our combined efforts returned $4.1 billion dollars to the U.S. Treasury, to Medicare, and to other victims of fraud.”
As the result of a new forensic accountant program, we now have 250 forensic accountants “trained to catch financial criminals” and “ready to respond quickly to high-profile financial investigations across the country.”
In the last four years, we have nearly tripled the number of special agents investigating mortgage fraud. “Our agents and analysts are using intelligence, surveillance, computer analysis, and undercover operations to identify emerging trends and to find the key players behind large-scale mortgage fraud.”
In 2010, the FBI began embedding agents at the Securities and Exchange Commission (SEC). “This allows us to see tips about securities fraud as they come into the SEC’s complaint center…to identify fraud trends more quickly and to push intelligence to our field offices.”
Everyone has a role in fighting fraud, including business and community leaders. “You can learn to recognize financial fraud and unscrupulous business practices, to better protect yourself and your companies,” Mueller said. “And you can alert us when you see these activities take place.”
Please do
To report fraud, visit our tips page or contact your nearest FBI office.
Resources: Read the Director’s Speech
Source: Federal Bureau of Investigation
Financial crime is a real and insidious threat—one that takes a significant toll on the economy and its many victims.
Today, Director Robert S. Mueller talked about the impact of financial crime and the Bureau’s longstanding role in combating it in a keynote speech before the Miami Chamber of Commerce.
The Director explained that even in the post 9/11 world—with its needed focus on terrorism and other national security threats—the FBI continues to take its criminal responsibilities seriously. “What has changed,” he said, “is that we make greater use of intelligence and partnerships to better focus our limited resources where we can have the greatest impact—for example, on combating large-scale financial fraud.”
It’s all about working smarter, using new information-sharing efforts, intelligence-driven investigations, and task force-based approaches to leverage the talents and resources within and among agencies to get a bigger bang for the buck, so to speak, in fighting financial fraud.
Among the innovations and initiatives outlined by the Director:
Three years ago, we established the Financial Intelligence Center to strengthen our financial intelligence collection and analysis. “This center helps us to see the entire picture of financial crimes. It provides tactical analysis of financial intelligence data, identifies potential criminal enterprises, and enhances investigations. It also coordinates with FBI field offices to complement their resources and to identify emerging economic threats.”
Today, we have more than 500 agents and analysts using intelligence to identify emerging health care fraud schemes, and field offices target fraud through coordinated initiatives, task forces and strike teams, and undercover operations.
The Miami office has led the way by creating the first Health Care Fraud Strike Force, which is now a national initiative. Through the strike force, the Bureau works closely with federal, state, local, and private sector partners to uncover fraud and recover taxpayer funds. “Last year, our combined efforts returned $4.1 billion dollars to the U.S. Treasury, to Medicare, and to other victims of fraud.”
As the result of a new forensic accountant program, we now have 250 forensic accountants “trained to catch financial criminals” and “ready to respond quickly to high-profile financial investigations across the country.”
In the last four years, we have nearly tripled the number of special agents investigating mortgage fraud. “Our agents and analysts are using intelligence, surveillance, computer analysis, and undercover operations to identify emerging trends and to find the key players behind large-scale mortgage fraud.”
In 2010, the FBI began embedding agents at the Securities and Exchange Commission (SEC). “This allows us to see tips about securities fraud as they come into the SEC’s complaint center…to identify fraud trends more quickly and to push intelligence to our field offices.”
Everyone has a role in fighting fraud, including business and community leaders. “You can learn to recognize financial fraud and unscrupulous business practices, to better protect yourself and your companies,” Mueller said. “And you can alert us when you see these activities take place.”
Please do
To report fraud, visit our tips page or contact your nearest FBI office.
Resources: Read the Director’s Speech
Source: Federal Bureau of Investigation
Saturday, March 31, 2012
Foreclosure rescue scheme is a scam
A foreclosure rescue scheme is a scam that targets those whose house is facing potential foreclosure. The scheme preys on desperate homeowners whose mortgages are in default by offering to prevent the foreclosure. There are various ways in which foreclosure rescue schemes work, causing different types of harm to the homeowners, but all ultimately with the likely end result of the owner being forced out of his/her home and losing even more money.
Source: http://en.wikipedia.org/wiki/Foreclosure_rescue_scheme
Source: http://en.wikipedia.org/wiki/Foreclosure_rescue_scheme
Sunday, February 19, 2012
Obama administration brokers pro-bank mortgage fraud settlement
The Obama administration announced on Thursday a settlement between five major banks and the federal and state governments over massive fraud relating to home foreclosures. The terms of the agreement are entirely favorable to the banks, while doing little or nothing to aid the millions of people who have been devastated by the collapse of the US housing market.
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks.
Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone.
In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal.
Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program.
Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures.
About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets.
The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.”
An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets.
“I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.”
In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks.
Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone.
In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal.
Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program.
Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures.
About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets.
The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.”
An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets.
“I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.”
In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
Thursday, February 16, 2012
Foreclosures (2012 Robosigning and Foreclosure Abuse Settlement)
The end of the housing boom in 2006 set in motion a vicious circle that led to disaster for millions of homeowners whose property has been seized or threatened, and for the lenders themselves, who have had to write off tens of billions in losses. Foreclosures helped accelerate the fall of property values, helping to spur more foreclosures. The losses they created brought the financial system to the brink of collapse in the fall of 2008. The steep recession that followed led to even greater homeowner delinquencies, as homeowners who lost their jobs often lost their homes. Tens of millions of others found themselves in homes worth less than their mortgages, unable to sell or refinance. All told, roughly four million families lost their homes to foreclosure between the beginning of 2007 and early 2012.
In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’' — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011. In February 2012, government authorities and five of the nation’s biggest banks agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected. Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. And because of a complicated formula being used to distribute the money, federal officials say the ultimate benefits provided to homeowners could equal a larger sum — $45 billion in the event all 14 major servicers participate. The aid is to be distributed over three years, but there are incentives for banks to provide the money in the next 12 months. In addition to disagreements over the total amount, negotiations had been held up over the question of how much latitude authorities would have in pursuing investigations into mortgage abuses. In the agreement’s expected final form, the releases are mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents.
The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud. Officials will also be able to pursue any allegations of criminal wrongdoing. The banks involved in the settlement in February were Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.
In a sign of how pervasive the problems were, an audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation. The courts have also become more aggressive about challenging foreclosures. In January 2011, Massachusetts’s top court voided the seizure of two homes by Wells Fargo & Company and US Bancorp after the banks failed to show that they held the mortgages at the time of the foreclosures, and courts in several states are considering similar cases.
Background
The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.
Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to dealwith the foreclosure process.
The revelations about the sloppy paperwork emboldened homeowners and law enforcement officials in many states to challenge notarizations — including those by so-called robo-signers,’ employees who approved hundreds of documents in a day — and to question whether lenders rightfully hold the notes underlying foreclosed properties. Evictions were expected to slow sharply — good news for many homeowners. But at the same time, the freezes further disrupted an already shaky housing market.
As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed. In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.
The swelling outcry over fast-and-loose foreclosures thrust the Obama administration back into the uncomfortable position of sheltering the banking industry from the demands of an angry public. While Mr. Obama did block a law passed by Congress that was seen as unintentionally making it easier to speed up foreclosures, his aides spoke out against calls from many Democrats for a national freeze on evictions, fearing that a moratorium could hurt still-shaky banks.
The Three Waves
Overall, there have been three distinct waves in foreclosures. The initial spike involved speculators who gave up property because of plunging real estate prices, and the secondary shock centered on borrowers whose introductory interest rates expired and were reset higher. The third wave represents standard mortgages, known as prime, written to people who had decent credit ratings, but who have lost their jobs in the economic downturn and are facing the loss of homes they had considered safe.
Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis. Economy.com said in 2009 that it expected that 60 percent of the mortgage defaults that year would be set off primarily by unemployment, up from 29 percent in 2008.
The slowdown in evictions may give such borrowers time to accumulate some capital or more leverage in settlement talks with their lender. Some analysts said that could conceivably help the housing market get back on its feet, by ending the undermining effect of a steady stream of foreclose houses going up for sale. Others, however, worried that blocking sales in an already weak market would drive prices down even further, continuing a spiral that has been deeply destructive to banks and communities.
A Mess Years in the Making
Interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials.
Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners.
To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.
And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids,” walk-in hires who often barely knew what a mortgage was.
At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage. And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.
San Francisco Foreclosure Audit
Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings released in February 2012 suggest how pervasive foreclosure irregularities may be across the nation.
The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.
Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.
In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.
In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.
The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.
The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”
Source: New York Times
In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’' — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011. In February 2012, government authorities and five of the nation’s biggest banks agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected. Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. And because of a complicated formula being used to distribute the money, federal officials say the ultimate benefits provided to homeowners could equal a larger sum — $45 billion in the event all 14 major servicers participate. The aid is to be distributed over three years, but there are incentives for banks to provide the money in the next 12 months. In addition to disagreements over the total amount, negotiations had been held up over the question of how much latitude authorities would have in pursuing investigations into mortgage abuses. In the agreement’s expected final form, the releases are mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents.
The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud. Officials will also be able to pursue any allegations of criminal wrongdoing. The banks involved in the settlement in February were Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.
In a sign of how pervasive the problems were, an audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation. The courts have also become more aggressive about challenging foreclosures. In January 2011, Massachusetts’s top court voided the seizure of two homes by Wells Fargo & Company and US Bancorp after the banks failed to show that they held the mortgages at the time of the foreclosures, and courts in several states are considering similar cases.
Background
The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.
Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to dealwith the foreclosure process.
The revelations about the sloppy paperwork emboldened homeowners and law enforcement officials in many states to challenge notarizations — including those by so-called robo-signers,’ employees who approved hundreds of documents in a day — and to question whether lenders rightfully hold the notes underlying foreclosed properties. Evictions were expected to slow sharply — good news for many homeowners. But at the same time, the freezes further disrupted an already shaky housing market.
As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed. In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.
The swelling outcry over fast-and-loose foreclosures thrust the Obama administration back into the uncomfortable position of sheltering the banking industry from the demands of an angry public. While Mr. Obama did block a law passed by Congress that was seen as unintentionally making it easier to speed up foreclosures, his aides spoke out against calls from many Democrats for a national freeze on evictions, fearing that a moratorium could hurt still-shaky banks.
The Three Waves
Overall, there have been three distinct waves in foreclosures. The initial spike involved speculators who gave up property because of plunging real estate prices, and the secondary shock centered on borrowers whose introductory interest rates expired and were reset higher. The third wave represents standard mortgages, known as prime, written to people who had decent credit ratings, but who have lost their jobs in the economic downturn and are facing the loss of homes they had considered safe.
Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis. Economy.com said in 2009 that it expected that 60 percent of the mortgage defaults that year would be set off primarily by unemployment, up from 29 percent in 2008.
The slowdown in evictions may give such borrowers time to accumulate some capital or more leverage in settlement talks with their lender. Some analysts said that could conceivably help the housing market get back on its feet, by ending the undermining effect of a steady stream of foreclose houses going up for sale. Others, however, worried that blocking sales in an already weak market would drive prices down even further, continuing a spiral that has been deeply destructive to banks and communities.
A Mess Years in the Making
Interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials.
Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners.
To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.
And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids,” walk-in hires who often barely knew what a mortgage was.
At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage. And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.
San Francisco Foreclosure Audit
Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings released in February 2012 suggest how pervasive foreclosure irregularities may be across the nation.
The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.
Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.
In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.
In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.
The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.
The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”
Source: New York Times
Friday, February 10, 2012
Obama administration brokers pro-bank mortgage fraud settlement
The Obama administration announced on Thursday a settlement between five major banks and the federal and state governments over massive fraud relating to home foreclosures. The terms of the agreement are entirely favorable to the banks, while doing little or nothing to aid the millions of people who have been devastated by the collapse of the US housing market.
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks. Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone. In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal. Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program. Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures. About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets. The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.” An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets. “I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.” In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks. Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone. In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal. Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program. Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures. About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets. The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.” An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets. “I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.” In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
Wednesday, February 8, 2012
Push to Avert Foreclosures Hits Court Logjam
New York has been among the most aggressive states in trying to protect homeowners from foreclosure, granting new legal protections and turning courts across the state into teeming negotiation centers working to keep people in their homes. But four years into the foreclosure crisis, the state’s courts are largely at a stalemate, facing an estimated 100,000 foreclosure cases — a record number — with tens of thousands more expected. Courts statewide have been mired in often hopeless cases involving loans that have left bus drivers and grocery clerks, among others, owing $700,000 or more on homes that have fallen in value.
As the Obama administration works on new mortgage-relief programs, lawyers and officials say New York’s experience shows the limits of a state’s ability to cope with the national foreclosure morass. “We are a shining example of somebody’s best efforts falling short through no fault of our own,” said Paul Lewis, a senior official in the New York court system who has been helping coordinate foreclosure cases since the start of the crisis.
Special funding to provide lawyers for homeowners has largely dried up, with more than 75 percent of New York City residents going into foreclosure court without a lawyer, state data shows. The state’s judges have grown increasingly vocal about what some of them have called “outrageous” conduct, “patently false” statements and “inexcusable” actions by lenders’ lawyers.
The hearings that form the core of New York’s approach — special settlement conferences, which are required to try to modify mortgages to make them affordable — have become comic exercises slowed by endless paperwork, requests for additional information and the mysterious loss of documents. During a day of more than 30 of the conferences in State Supreme Court in Queens last week, homeowners with screaming children and wheelchair-bound grandmothers appeared befuddled by the paper chase. Some of the cases had already been taken up in the settlement conferences as many as nine times, over many months, only to be delayed each time until yet another meeting. “We don’t have the full file,” said a bank’s lawyer during one of the conferences. “Unfortunately, I wasn’t able to review the documents,” said another lender’s lawyer in another case a few minutes later. “We should have received it, but it didn’t get into our system,” said a third. A fourth lawyer conceded that the homeowners had mailed information to the bank, but said that “only fax and e-mail” were acceptable.
On several occasions the court official who conducted the conferences that day, Tracy Catapano-Fox, mentioned to homeowners the system’s Catch-22: as they rush to gather newly demanded tax and bank records, information they supplied earlier to address other questions grows too old to be useful.
Completed applications turn back into incomplete ones, leading to more delays to collect more information while the newest information, in turn, grows stale. Ms. Catapano-Fox told one homeowner after another of the trap that awaited them. “I have psychic powers,” she said with a sympathetic grimace, having conducted hundreds of the conferences. “There’s no question that the next time we come in here, they will claim that the documents are stale.”
In the hallway after the latest of what he said had been a dozen monthly appearances in his yearlong foreclosure case, Juan Adon, a Jamaica homeowner, said he was baffled. “It doesn’t make any sense,” he said. Ms. Catapano-Fox had dryly mentioned during his hearing that there was a notation in his file indicating that the bank’s representative had said in August that it needed no additional information. Yet it seemed that nothing had happened.
Statewide, after some 82,000 of the settlement conferences were held, with many cases taken up multiple times, just 4,253 cases reached settlements during the 11-month period ending in September, according to a recent report by the chief administrator of the state courts. And some of those settlements led to the loss of homes anyway. “We are concerned that the gains we have made are being lost,” the report said. “We’re at a fork in the road,” said Anne Erickson, president of the Empire Justice Center, which represents low-income homeowners. “We can continue leading the way or we can watch the whole thing unravel.”
Lawyers say the difficulties encountered in the New York courts show how complex the task of working through the jumble of subprime mortgages can be, made worse by issues like “robo-signing,” the practice of having foreclosure documents signed by lenders in such high numbers that they could not possibly have been reviewed carefully.
After attention on robo-signing abuses that led to improper foreclosures, the New York courts adopted a rule in 2010 to try to repair what its chief judge, Jonathan Lippman, called “a deeply flawed process.” The rule required lawyers who pursued foreclosure suits to file a certification stating they had personally checked the accuracy of the claims about a homeowner’s loan.
Court officials quickly noticed that, while banks’ lawyers continued to file foreclosure cases at a rapid rate, they adopted a new strategy that seemed to be aimed at evading the new requirement. They filed the cases, causing damage to people’s credit ratings and adding to the fees they paid, but did not push the cases far enough to set off the requirement for the lawyer’s certification.
Around the state, court officials estimate there may be 25,000 or more such “shadow” cases in addition to the 75,000 already moving through the courts. In the cases in which lawyers do file the newly required certification, some judges have ruled that the lawyers had changed the mandated wording or otherwise resisted compliance.
The difficulties posed by the lawyer’s certification requirement are only the latest problem in the foreclosure docket to irritate judges. In a March ruling, a frustrated Queens judge, Anna Culley, described a foreclosure case that was much like many others. In one settlement conference, the bank asked for additional banking records from the homeowner, the judge wrote.
At another session, it demanded pay stubs. In a third, it asked for tax forms. In a fourth, it asked for all the paperwork to be resubmitted. At two meetings, the bank’s representative said a modification of the mortgage had been granted, lowering the required payments. But after two and a half years, the judge wrote, the bank had yet to modify the loan, and the foreclosure case was still pending.
Source: New York Times
As the Obama administration works on new mortgage-relief programs, lawyers and officials say New York’s experience shows the limits of a state’s ability to cope with the national foreclosure morass. “We are a shining example of somebody’s best efforts falling short through no fault of our own,” said Paul Lewis, a senior official in the New York court system who has been helping coordinate foreclosure cases since the start of the crisis.
Special funding to provide lawyers for homeowners has largely dried up, with more than 75 percent of New York City residents going into foreclosure court without a lawyer, state data shows. The state’s judges have grown increasingly vocal about what some of them have called “outrageous” conduct, “patently false” statements and “inexcusable” actions by lenders’ lawyers.
The hearings that form the core of New York’s approach — special settlement conferences, which are required to try to modify mortgages to make them affordable — have become comic exercises slowed by endless paperwork, requests for additional information and the mysterious loss of documents. During a day of more than 30 of the conferences in State Supreme Court in Queens last week, homeowners with screaming children and wheelchair-bound grandmothers appeared befuddled by the paper chase. Some of the cases had already been taken up in the settlement conferences as many as nine times, over many months, only to be delayed each time until yet another meeting. “We don’t have the full file,” said a bank’s lawyer during one of the conferences. “Unfortunately, I wasn’t able to review the documents,” said another lender’s lawyer in another case a few minutes later. “We should have received it, but it didn’t get into our system,” said a third. A fourth lawyer conceded that the homeowners had mailed information to the bank, but said that “only fax and e-mail” were acceptable.
On several occasions the court official who conducted the conferences that day, Tracy Catapano-Fox, mentioned to homeowners the system’s Catch-22: as they rush to gather newly demanded tax and bank records, information they supplied earlier to address other questions grows too old to be useful.
Completed applications turn back into incomplete ones, leading to more delays to collect more information while the newest information, in turn, grows stale. Ms. Catapano-Fox told one homeowner after another of the trap that awaited them. “I have psychic powers,” she said with a sympathetic grimace, having conducted hundreds of the conferences. “There’s no question that the next time we come in here, they will claim that the documents are stale.”
In the hallway after the latest of what he said had been a dozen monthly appearances in his yearlong foreclosure case, Juan Adon, a Jamaica homeowner, said he was baffled. “It doesn’t make any sense,” he said. Ms. Catapano-Fox had dryly mentioned during his hearing that there was a notation in his file indicating that the bank’s representative had said in August that it needed no additional information. Yet it seemed that nothing had happened.
Statewide, after some 82,000 of the settlement conferences were held, with many cases taken up multiple times, just 4,253 cases reached settlements during the 11-month period ending in September, according to a recent report by the chief administrator of the state courts. And some of those settlements led to the loss of homes anyway. “We are concerned that the gains we have made are being lost,” the report said. “We’re at a fork in the road,” said Anne Erickson, president of the Empire Justice Center, which represents low-income homeowners. “We can continue leading the way or we can watch the whole thing unravel.”
Lawyers say the difficulties encountered in the New York courts show how complex the task of working through the jumble of subprime mortgages can be, made worse by issues like “robo-signing,” the practice of having foreclosure documents signed by lenders in such high numbers that they could not possibly have been reviewed carefully.
After attention on robo-signing abuses that led to improper foreclosures, the New York courts adopted a rule in 2010 to try to repair what its chief judge, Jonathan Lippman, called “a deeply flawed process.” The rule required lawyers who pursued foreclosure suits to file a certification stating they had personally checked the accuracy of the claims about a homeowner’s loan.
Court officials quickly noticed that, while banks’ lawyers continued to file foreclosure cases at a rapid rate, they adopted a new strategy that seemed to be aimed at evading the new requirement. They filed the cases, causing damage to people’s credit ratings and adding to the fees they paid, but did not push the cases far enough to set off the requirement for the lawyer’s certification.
Around the state, court officials estimate there may be 25,000 or more such “shadow” cases in addition to the 75,000 already moving through the courts. In the cases in which lawyers do file the newly required certification, some judges have ruled that the lawyers had changed the mandated wording or otherwise resisted compliance.
The difficulties posed by the lawyer’s certification requirement are only the latest problem in the foreclosure docket to irritate judges. In a March ruling, a frustrated Queens judge, Anna Culley, described a foreclosure case that was much like many others. In one settlement conference, the bank asked for additional banking records from the homeowner, the judge wrote.
At another session, it demanded pay stubs. In a third, it asked for tax forms. In a fourth, it asked for all the paperwork to be resubmitted. At two meetings, the bank’s representative said a modification of the mortgage had been granted, lowering the required payments. But after two and a half years, the judge wrote, the bank had yet to modify the loan, and the foreclosure case was still pending.
Source: New York Times
Monday, February 6, 2012
Company Faces Forgery Charges in Mortgage Foreclosures
One of the largest companies that provided home foreclosure services to lenders across the nation, DocX, has been indicted on forgery charges by a Missouri grand jury — one of the few criminal actions to follow reports of widespread improprieties against homeowners.
A grand jury in Boone County, Mo., handed up an indictment Friday accusing DocX of 136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes. Lorraine O. Brown, the company’s founder and former president, was indicted on the same charges. Employees of DocX, a unit of Lender Processing Services of Jacksonville, Fla., executed and notarized millions of mortgage documents for big banks and loan servicers over the years. Lender Processing closed the company in April 2010, after evidence emerged of apparent forgeries in these documents, a practice now called robo-signing.
Chris Koster, the Missouri attorney general, will prosecute the case. “The grand jury indictment alleges that mass-produced fraudulent signatures on notarized real estate documents constitutes forgery,” Mr. Koster said in a statement. “Today’s indictment reflects our firm conviction that when you sign your name to a legal document, it matters.”
Mr. Koster said his office’s investigation was continuing. This suggests he may hope to persuade Ms. Brown to cooperate in his investigation of the parent company. If convicted, Ms. Brown could face up to seven years in prison for each forgery count. DocX could be fined up to $10,000 for each forgery conviction. Scott Rosenblum, a lawyer at Rosenblum, Schwartz, Rogers & Glass who represents DocX said: “We have not had an opportunity to review the indictment at this point. The company intends to enter a plea of not guilty.”
According to the indictment, Ms. Brown acted “knowingly in concert with DocX and its employees” to mislead and defraud the Boone County recorder of deeds. The documents central to the indictments were deeds of release, which eliminate a previous claim on an asset. Such releases are typically issued when a mortgage has been paid off.
A lawyer for Ms. Brown said that she intends to enter a not guilty plea and that she had no criminal intent.
Since evidence of pervasive foreclosure improprieties emerged, state officials have mostly brought civil suits against the institutions and law firms that filed the fraudulent documents. Individuals in Nevada, for example, have been charged with notary fraud, but beyond that matter, criminal cases arising from foreclosure practices have been uncommon.
The Missouri grand jury found that the person whose name appeared on 68 documents executed on behalf of a lender — someone named Linda Green — was not the person who had signed the papers. The documents were submitted to the Boone County recorder of deeds as though they were genuine, Mr. Koster said.
A recent civil lawsuit against Lender Processing by the attorney general of Nevada found that former workers at one of its divisions had described their work as “surrogate signers.” One worker who was quoted in the complaint said she had been paid $11 an hour and told that her job was “to sign somebody else’s signature on documents.” The person said she had signed roughly 2,000 documents a day for months, according to the lawsuit.
In addition to deed releases, DocX surrogate signers routinely executed assignments of mortgage, which reflect changes in ownership. The indictment is only the latest legal assault on the company and its parent, Lender Processing. In August 2011, American Home Mortgage Servicing, a large loan servicer, sued Lender Processing contending that more than 30,000 residential mortgages that it had handled across the country contained “improper execution, notarization and recording of assignments of mortgage.” DocX executed such paperwork for American Home from April 2008 through November 2009, the lawsuit said.
Last April, Lender Processing signed a consent order with the nation’s top financial regulators, agreeing to remediate improperly executed mortgage documents and to correct its default business practices. Michelle Kersch, a Lender Processing spokeswoman, said recently that the company now executed documents “with stringent controls in place” to ensure compliance with all rules.
This article has been revised to reflect the following correction:
Correction: February 8, 2012
An article on Tuesday about indictments on forgery charges of the loan processing firm DocX and its founder and former president, Lorraine O. Brown, misstated the given name for the lawyer representing the company. He is Scott Rosenblum, not Chris. (The lawyer defending Ms. Brown is Chris Rosenbloom.)
Source: New York Times
A grand jury in Boone County, Mo., handed up an indictment Friday accusing DocX of 136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes. Lorraine O. Brown, the company’s founder and former president, was indicted on the same charges. Employees of DocX, a unit of Lender Processing Services of Jacksonville, Fla., executed and notarized millions of mortgage documents for big banks and loan servicers over the years. Lender Processing closed the company in April 2010, after evidence emerged of apparent forgeries in these documents, a practice now called robo-signing.
Chris Koster, the Missouri attorney general, will prosecute the case. “The grand jury indictment alleges that mass-produced fraudulent signatures on notarized real estate documents constitutes forgery,” Mr. Koster said in a statement. “Today’s indictment reflects our firm conviction that when you sign your name to a legal document, it matters.”
Mr. Koster said his office’s investigation was continuing. This suggests he may hope to persuade Ms. Brown to cooperate in his investigation of the parent company. If convicted, Ms. Brown could face up to seven years in prison for each forgery count. DocX could be fined up to $10,000 for each forgery conviction. Scott Rosenblum, a lawyer at Rosenblum, Schwartz, Rogers & Glass who represents DocX said: “We have not had an opportunity to review the indictment at this point. The company intends to enter a plea of not guilty.”
According to the indictment, Ms. Brown acted “knowingly in concert with DocX and its employees” to mislead and defraud the Boone County recorder of deeds. The documents central to the indictments were deeds of release, which eliminate a previous claim on an asset. Such releases are typically issued when a mortgage has been paid off.
A lawyer for Ms. Brown said that she intends to enter a not guilty plea and that she had no criminal intent.
Since evidence of pervasive foreclosure improprieties emerged, state officials have mostly brought civil suits against the institutions and law firms that filed the fraudulent documents. Individuals in Nevada, for example, have been charged with notary fraud, but beyond that matter, criminal cases arising from foreclosure practices have been uncommon.
The Missouri grand jury found that the person whose name appeared on 68 documents executed on behalf of a lender — someone named Linda Green — was not the person who had signed the papers. The documents were submitted to the Boone County recorder of deeds as though they were genuine, Mr. Koster said.
A recent civil lawsuit against Lender Processing by the attorney general of Nevada found that former workers at one of its divisions had described their work as “surrogate signers.” One worker who was quoted in the complaint said she had been paid $11 an hour and told that her job was “to sign somebody else’s signature on documents.” The person said she had signed roughly 2,000 documents a day for months, according to the lawsuit.
In addition to deed releases, DocX surrogate signers routinely executed assignments of mortgage, which reflect changes in ownership. The indictment is only the latest legal assault on the company and its parent, Lender Processing. In August 2011, American Home Mortgage Servicing, a large loan servicer, sued Lender Processing contending that more than 30,000 residential mortgages that it had handled across the country contained “improper execution, notarization and recording of assignments of mortgage.” DocX executed such paperwork for American Home from April 2008 through November 2009, the lawsuit said.
Last April, Lender Processing signed a consent order with the nation’s top financial regulators, agreeing to remediate improperly executed mortgage documents and to correct its default business practices. Michelle Kersch, a Lender Processing spokeswoman, said recently that the company now executed documents “with stringent controls in place” to ensure compliance with all rules.
This article has been revised to reflect the following correction:
Correction: February 8, 2012
An article on Tuesday about indictments on forgery charges of the loan processing firm DocX and its founder and former president, Lorraine O. Brown, misstated the given name for the lawyer representing the company. He is Scott Rosenblum, not Chris. (The lawyer defending Ms. Brown is Chris Rosenbloom.)
Source: New York Times
Wednesday, January 25, 2012
A Mortgage Investigation
In the State of the Union address, President Obama promised a fresh investigation into mortgage abuses that led to the financial meltdown. The goal, he said, is to “hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans.”
Could this be it, finally? An investigation that results in clarity, big fines and maybe even jail time? There is good reason to be skeptical. To date, federal civil suits over mortgage wrongdoing have been narrowly focused and, at best, ended with settlements and fines that are a fraction of the profits made during the bubble. There have been no criminal prosecutions against major players. Justice Department officials say that it reflects the difficulty of proving fraud — and not a lack of prosecutorial zeal. That is hard to swallow, given the scale of the crisis and the evidence of wrongdoing from private litigation, academic research and other sources.
This new investigation could be the real thing. Eric Schneiderman, the New York State attorney general, will be a co-chairman of the group, and he has refused to support a settlement being worked out between big banks most responsible for foreclosure abuses and federal agencies and some state attorneys general. He rightly objected to the fact that in exchange for providing some $20 billion worth of mortgage relief — mainly by reducing the principal on homeowners’ loans — the banks wanted release from legal claims that have never been fully investigated, including those related to potential tax, trust and securities violations in mortgage loans.
In the past year, the Obama administration has pushed back against Mr. Schneiderman, even as other attorneys general also left the settlement talks. By choosing him now to help run the investigation, the president appears to be embracing the call for a much broader inquiry that, properly executed, could result in a far bigger settlement. For now, the administration is saying that the new investigation and the settlement talks will both proceed. It would be better to settle with the banks only after officials have a full picture of any and all violations.
There are reasons to be wary. Some of the federal officials who will also be involved with the investigation — including Eric Holder Jr., the United States attorney general, and Lanny Breuer, the leader of the Justice Department’s criminal division, who will be a co-chairman — have not distinguished themselves in the pursuit of mortgage fraud. To win and retain public trust, both the administration and all the group’s co-chairmen — there are also four other officials from the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service — must agree on several steps immediately.
The administration must ensure that the group has ample resources. The co-chairmen must hire a tough-as-nails prosecutor with a successful track record in financial fraud to drive the investigation forward. And the group must move quickly and vigorously, issuing subpoenas and filing cases. It is not starting from scratch; various agencies have all had separate investigations under way.
President Obama’s credibility is on the line. To restore public faith in the financial system, nothing less than a full investigation and full accountability will do.
Source: New York Times
Could this be it, finally? An investigation that results in clarity, big fines and maybe even jail time? There is good reason to be skeptical. To date, federal civil suits over mortgage wrongdoing have been narrowly focused and, at best, ended with settlements and fines that are a fraction of the profits made during the bubble. There have been no criminal prosecutions against major players. Justice Department officials say that it reflects the difficulty of proving fraud — and not a lack of prosecutorial zeal. That is hard to swallow, given the scale of the crisis and the evidence of wrongdoing from private litigation, academic research and other sources.
This new investigation could be the real thing. Eric Schneiderman, the New York State attorney general, will be a co-chairman of the group, and he has refused to support a settlement being worked out between big banks most responsible for foreclosure abuses and federal agencies and some state attorneys general. He rightly objected to the fact that in exchange for providing some $20 billion worth of mortgage relief — mainly by reducing the principal on homeowners’ loans — the banks wanted release from legal claims that have never been fully investigated, including those related to potential tax, trust and securities violations in mortgage loans.
In the past year, the Obama administration has pushed back against Mr. Schneiderman, even as other attorneys general also left the settlement talks. By choosing him now to help run the investigation, the president appears to be embracing the call for a much broader inquiry that, properly executed, could result in a far bigger settlement. For now, the administration is saying that the new investigation and the settlement talks will both proceed. It would be better to settle with the banks only after officials have a full picture of any and all violations.
There are reasons to be wary. Some of the federal officials who will also be involved with the investigation — including Eric Holder Jr., the United States attorney general, and Lanny Breuer, the leader of the Justice Department’s criminal division, who will be a co-chairman — have not distinguished themselves in the pursuit of mortgage fraud. To win and retain public trust, both the administration and all the group’s co-chairmen — there are also four other officials from the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service — must agree on several steps immediately.
The administration must ensure that the group has ample resources. The co-chairmen must hire a tough-as-nails prosecutor with a successful track record in financial fraud to drive the investigation forward. And the group must move quickly and vigorously, issuing subpoenas and filing cases. It is not starting from scratch; various agencies have all had separate investigations under way.
President Obama’s credibility is on the line. To restore public faith in the financial system, nothing less than a full investigation and full accountability will do.
Source: New York Times
Thursday, December 22, 2011
Regulator Fines Barclays Capital Over Subprime Mortgages
The Financial Industry Regulatory Authority said on Thursday that it had fined Barclays Capital $3 million for misrepresenting information about subprime mortgage securities the bank had sold from 2007 to 2010.
Finra, as the nonprofit self-regulator is known, said in a statement that Barclays Capital had provided inaccurate data about the delinquency rates of mortgages packed into three securities. The misrepresentations “contained errors significant enough to affect an investor’s assessment of subsequent securitizations,” according to the agency.
That data was then referenced for five additional subprime securities, the agency said.
“Barclays did not have a system in place to ensure that delinquency data posted on its Web site was accurate,” J. Bradley Bennett, the agency’s enforcement chief, said in a statement. “Therefore, investors were supplied inaccurate information to assess future performance of RMBS investments.”
Barclays Capital neither admitted nor denied wrongdoing, though it consented to the fine. A spokeswoman for the bank declined comment.
Finra has fined several investment banks in the last two years, including Merrill Lynch and Credit Suisse in May and Deutsche Bank in July 2010.
Source: New York Times
Finra, as the nonprofit self-regulator is known, said in a statement that Barclays Capital had provided inaccurate data about the delinquency rates of mortgages packed into three securities. The misrepresentations “contained errors significant enough to affect an investor’s assessment of subsequent securitizations,” according to the agency.
That data was then referenced for five additional subprime securities, the agency said.
“Barclays did not have a system in place to ensure that delinquency data posted on its Web site was accurate,” J. Bradley Bennett, the agency’s enforcement chief, said in a statement. “Therefore, investors were supplied inaccurate information to assess future performance of RMBS investments.”
Barclays Capital neither admitted nor denied wrongdoing, though it consented to the fine. A spokeswoman for the bank declined comment.
Finra has fined several investment banks in the last two years, including Merrill Lynch and Credit Suisse in May and Deutsche Bank in July 2010.
Source: New York Times
Tuesday, November 1, 2011
Allied Home Mortgage Is Sued Over Bad Loans
The federal government sued one of the nation’s largest privately held mortgage brokers on Tuesday, saying its decade-long lending practices amounted to fraud and cost the government hundreds of millions of dollars and forced thousands of American homeowners to lose their homes.
The lawsuit in United States District Court in Manhattan sought unspecified damages and civil penalties and named as defendants Allied Home Mortgage Corporation; its founder, Jim Hodge; and Jeanne Stell, the company’s executive vice president and director of compliance.
Joe James, a company spokesman, said he was aware of the lawsuit but had not yet seen it. He declined further comment. At a news conference, Preet Bharara, the United States attorney based in Manhattan, said Allied had carried out its fraud through its authority to originate mortgage loans insured by the Department of Housing and Urban Development, or HUD. “The losers here were American taxpayers, and the thousands of families who faced foreclosure because they were could not ultimately fulfill their obligations on mortgages that were doomed to fail,” he said.
The prosecutor said the investigation continued, and “if and when we have sufficient evidence for a criminal case, we’ll bring it.” Helen Kanovsky, HUD’s general counsel, said the agency had stopped insuring loans for Allied and was seeking to prevent Mr. Hodge from participating in any government programs again after seeing the destruction that the fraud had caused in communities across the country.
According to the lawsuit, nearly 32 percent of the 112,324 home loans originated by Allied from Jan. 1, 2001, to the end of 2010 have defaulted, resulting in more than $834 million in insurance claims paid by HUD. The lawsuit said the default rate climbed to “a staggering 55 percent” in 2006 and 2007, at the height of the housing boom, when the government paid $170 million to settle Allied’s failed loans. It said an additional 2,509 loans are now in default and that HUD could face $363 million more in claims.
Allied, based in Houston, operated 600 or more branches at once but only maintained two quality control employees in its corporate office, requiring branch managers to assume financial responsibility for their branches, the lawsuit said. “Allied thus operated its branches like franchises, collecting revenue while the branches were profitable, then closing them without notice when they were not, leaving the branch managers liable for the branch’s financial obligations,” the lawsuit said.
The government said Allied had failed to impose its internal quality control plan, “effectively allowing its shadow branches to operate independently of any scrutiny whatsoever,” the lawsuit said.
Source: new York Times
The lawsuit in United States District Court in Manhattan sought unspecified damages and civil penalties and named as defendants Allied Home Mortgage Corporation; its founder, Jim Hodge; and Jeanne Stell, the company’s executive vice president and director of compliance.
Joe James, a company spokesman, said he was aware of the lawsuit but had not yet seen it. He declined further comment. At a news conference, Preet Bharara, the United States attorney based in Manhattan, said Allied had carried out its fraud through its authority to originate mortgage loans insured by the Department of Housing and Urban Development, or HUD. “The losers here were American taxpayers, and the thousands of families who faced foreclosure because they were could not ultimately fulfill their obligations on mortgages that were doomed to fail,” he said.
The prosecutor said the investigation continued, and “if and when we have sufficient evidence for a criminal case, we’ll bring it.” Helen Kanovsky, HUD’s general counsel, said the agency had stopped insuring loans for Allied and was seeking to prevent Mr. Hodge from participating in any government programs again after seeing the destruction that the fraud had caused in communities across the country.
According to the lawsuit, nearly 32 percent of the 112,324 home loans originated by Allied from Jan. 1, 2001, to the end of 2010 have defaulted, resulting in more than $834 million in insurance claims paid by HUD. The lawsuit said the default rate climbed to “a staggering 55 percent” in 2006 and 2007, at the height of the housing boom, when the government paid $170 million to settle Allied’s failed loans. It said an additional 2,509 loans are now in default and that HUD could face $363 million more in claims.
Allied, based in Houston, operated 600 or more branches at once but only maintained two quality control employees in its corporate office, requiring branch managers to assume financial responsibility for their branches, the lawsuit said. “Allied thus operated its branches like franchises, collecting revenue while the branches were profitable, then closing them without notice when they were not, leaving the branch managers liable for the branch’s financial obligations,” the lawsuit said.
The government said Allied had failed to impose its internal quality control plan, “effectively allowing its shadow branches to operate independently of any scrutiny whatsoever,” the lawsuit said.
Source: new York Times
Friday, September 2, 2011
Federal Regulators Sue Big Banks Over Mortgages
A bruising legal fight pitting the country’s most powerful banks against the full force of the United States government began Friday, as federal regulators filed suits against 17 financial institutions that sold the mortgage giants Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured.
The suits are the latest legal salvo fired at the banks accusing them of misdeeds during the housing boom. Investors fled financial shares Friday amid growing concern that the litigation could last for years and undermine earnings and balance sheets in the process. The complaints were filed just as the stock market closed Friday afternoon, but with word leaking out of the impending legal action during the trading session, shares of Bank of America fell more than 8.3 percent, while JPMorgan Chase dropped 4.6 percent and Goldman fell 4.5 percent. “The suits only add to the uncertainty that dogs the industry,” said Mike Mayo, an analyst with Crédit Agricole. “Banks should pay for what they did wrong, but at the same time they shouldn’t be treated as a big piñata that has the effect of delaying the housing recovery. If banks have to pay for loans they made five years ago, are they going to make new ones?”
After the savings and loan crisis in the late 1980s and early 1990s, years of litigation followed. The mortgage bust and the subsequent financial crisis have spawned a similar legal fight, said Jaret Seiberg, a financial policy analyst with MF Global in Washington. “It’s going to be exceedingly difficult and take years to play out,” he said. “There’s not much incentive for either side to settle.” The litigation represents a more intense effort by the federal government to go after the financial services industry for its supposed mortgage failures. Indeed, the cases were brought on the basis of 64 subpoenas issued a year ago, giving the government an edge in its investigation that private investors suing the banks lack.
The Obama administration as well as regulators like the Federal Reserve have been criticized for going too easy on the banks, which benefited from a $700 billion bailout package shortly after the collapse of Lehman Brothers in the autumn 2008. Much of that money has been repaid by the banks — but the rescue of the mortgage giants Fannie and Freddie has already cost taxpayers $153 billion, and the federal government estimates the effort could cost $363 billion through 2013. Even though the banks already face high legal bills from actions brought by other plaintiffs, including private investors, the suits filed Friday could cost the banks far more. In the case against Bank of America, for example, the suit claims that Fannie and Freddie bought more than $57 billion worth of risky mortgage securities from the bank and two companies it also acquired, Merrill Lynch and Countrywide Financial.
In addition to suing the companies, the complaints also identified individuals at many institutions responsible for the machinery of turning subprime mortgages into securities that somehow earned a AAA grade from the rating agencies. The filing did not cite a figure for the total losses the government wanted to recover, but in a similar case brought in July against UBS, the F.H.F.A. is trying to recover $900 million in losses on $4.5 billion in securities. A similar 20 percent claim against Bank of America could equal a $10 billion hit. In a suit that identifies 23 securities that Bank of America sold for $6 billion, the company “caused hundreds of millions of dollars in damages to Fannie Mae and Freddie Mac in an amount to be determined at trial.”
Within minutes of the filing of the suits, several banks responded with a preview of the legal arguments they will make in the coming months, namely that Fannie and Freddie were sophisticated investors who should have known the securities were not without risk, and that the losses were caused not by fraud or misrepresentation but by underlying difficulties in the housing market. In a statement, Bank of America said Fannie and Freddie “claimed to understand the risks inherent in investing in subprime securities and continued to invest heavily in those securities even after their regulator told them they did not have the risk management capabilities to do so.” In spite of that warning, Bank of America said, the government-controlled mortgage giants “are now seeking to hold other market participants responsible for their losses.”
Other large banks also assembled huge amounts of so-called private label mortgage-backed securities for Fannie and Freddie that declined sharply in value after the housing bubble burst in 2007. JPMorgan Chase sold $33 billion, while Morgan Stanley sold over $10 billion and Goldman Sachs sold more than $11 billion. A who’s who of foreign banks were also big bundlers and sellers of these securities, like Deutsche Bank with $14.2 billion, Royal Bank of Scotland at $30.4 billion, and Credit Suisse selling $14.1 billion. All were sued Friday. “We believe the claims brought by the F.H.F.A. are unfounded,” said Frank Kelly, a spokesman for Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more, often after hand-picking the loans they now claim should not have been included in the offerings.“
Buried in the filings themselves, however, is a damning portrait of the excesses of the housing bubble, when borrowers were able to obtain home loans without basic proof of income or creditworthiness, and banks appeared only too happy to mine profits taking the risky loans and assembling them into securities that could be sold to investors. In the complaint against Goldman Sachs, for example, the suit says that “Goldman was not content to simply let poor loans pass into its securitizations.” In addition, the giant investment bank “took the fraud further, affirmatively seeking to profit from this knowledge.”
When an outside analytics firm, Clayton, identified potential problems in the underlying mortgages Goldman was turning into securities, the suit said, “Goldman simply ignored and did not disclose the red flags revealed by Clayton’s review.” Goldman Sachs declined to comment, as did JPMorgan Chase, Morgan Stanley, Credit Suisse and Citigroup.
Similar behavior in terms of warnings provided by Clayton transpired at Bank of America, Citigroup, Deutsche Bank, RBS and UBS, according to the complaints.
Source: New York Times
The suits are the latest legal salvo fired at the banks accusing them of misdeeds during the housing boom. Investors fled financial shares Friday amid growing concern that the litigation could last for years and undermine earnings and balance sheets in the process. The complaints were filed just as the stock market closed Friday afternoon, but with word leaking out of the impending legal action during the trading session, shares of Bank of America fell more than 8.3 percent, while JPMorgan Chase dropped 4.6 percent and Goldman fell 4.5 percent. “The suits only add to the uncertainty that dogs the industry,” said Mike Mayo, an analyst with Crédit Agricole. “Banks should pay for what they did wrong, but at the same time they shouldn’t be treated as a big piñata that has the effect of delaying the housing recovery. If banks have to pay for loans they made five years ago, are they going to make new ones?”
After the savings and loan crisis in the late 1980s and early 1990s, years of litigation followed. The mortgage bust and the subsequent financial crisis have spawned a similar legal fight, said Jaret Seiberg, a financial policy analyst with MF Global in Washington. “It’s going to be exceedingly difficult and take years to play out,” he said. “There’s not much incentive for either side to settle.” The litigation represents a more intense effort by the federal government to go after the financial services industry for its supposed mortgage failures. Indeed, the cases were brought on the basis of 64 subpoenas issued a year ago, giving the government an edge in its investigation that private investors suing the banks lack.
The Obama administration as well as regulators like the Federal Reserve have been criticized for going too easy on the banks, which benefited from a $700 billion bailout package shortly after the collapse of Lehman Brothers in the autumn 2008. Much of that money has been repaid by the banks — but the rescue of the mortgage giants Fannie and Freddie has already cost taxpayers $153 billion, and the federal government estimates the effort could cost $363 billion through 2013. Even though the banks already face high legal bills from actions brought by other plaintiffs, including private investors, the suits filed Friday could cost the banks far more. In the case against Bank of America, for example, the suit claims that Fannie and Freddie bought more than $57 billion worth of risky mortgage securities from the bank and two companies it also acquired, Merrill Lynch and Countrywide Financial.
In addition to suing the companies, the complaints also identified individuals at many institutions responsible for the machinery of turning subprime mortgages into securities that somehow earned a AAA grade from the rating agencies. The filing did not cite a figure for the total losses the government wanted to recover, but in a similar case brought in July against UBS, the F.H.F.A. is trying to recover $900 million in losses on $4.5 billion in securities. A similar 20 percent claim against Bank of America could equal a $10 billion hit. In a suit that identifies 23 securities that Bank of America sold for $6 billion, the company “caused hundreds of millions of dollars in damages to Fannie Mae and Freddie Mac in an amount to be determined at trial.”
Within minutes of the filing of the suits, several banks responded with a preview of the legal arguments they will make in the coming months, namely that Fannie and Freddie were sophisticated investors who should have known the securities were not without risk, and that the losses were caused not by fraud or misrepresentation but by underlying difficulties in the housing market. In a statement, Bank of America said Fannie and Freddie “claimed to understand the risks inherent in investing in subprime securities and continued to invest heavily in those securities even after their regulator told them they did not have the risk management capabilities to do so.” In spite of that warning, Bank of America said, the government-controlled mortgage giants “are now seeking to hold other market participants responsible for their losses.”
Other large banks also assembled huge amounts of so-called private label mortgage-backed securities for Fannie and Freddie that declined sharply in value after the housing bubble burst in 2007. JPMorgan Chase sold $33 billion, while Morgan Stanley sold over $10 billion and Goldman Sachs sold more than $11 billion. A who’s who of foreign banks were also big bundlers and sellers of these securities, like Deutsche Bank with $14.2 billion, Royal Bank of Scotland at $30.4 billion, and Credit Suisse selling $14.1 billion. All were sued Friday. “We believe the claims brought by the F.H.F.A. are unfounded,” said Frank Kelly, a spokesman for Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more, often after hand-picking the loans they now claim should not have been included in the offerings.“
Buried in the filings themselves, however, is a damning portrait of the excesses of the housing bubble, when borrowers were able to obtain home loans without basic proof of income or creditworthiness, and banks appeared only too happy to mine profits taking the risky loans and assembling them into securities that could be sold to investors. In the complaint against Goldman Sachs, for example, the suit says that “Goldman was not content to simply let poor loans pass into its securitizations.” In addition, the giant investment bank “took the fraud further, affirmatively seeking to profit from this knowledge.”
When an outside analytics firm, Clayton, identified potential problems in the underlying mortgages Goldman was turning into securities, the suit said, “Goldman simply ignored and did not disclose the red flags revealed by Clayton’s review.” Goldman Sachs declined to comment, as did JPMorgan Chase, Morgan Stanley, Credit Suisse and Citigroup.
Similar behavior in terms of warnings provided by Clayton transpired at Bank of America, Citigroup, Deutsche Bank, RBS and UBS, according to the complaints.
Source: New York Times
Friday, July 22, 2011
Foreclosure Fraud Victims Lose Their Shirt and Their Homes
He was their last hope—about 250 Southern California homeowners facing foreclosure and eviction believed him when he said he could save their homes. But in reality, he was their worst nightmare—he ended up fleecing the homeowners for approximately $1 million…and not a single home was saved in the process.
Last week, Jeff McGrue, owner of a Los Angeles-area foreclosure relief business, was sentenced to 25 years in prison for defrauding people who were at the end of their rope. Even the federal judge who sentenced him called him “heartless.”
It all started in late 2007, when McGrue—and several other conspirators who have pled guilty—orchestrated the scheme primarily through his company Gateway International. He paid unwitting real estate agents and others to serve as “consultants” to recruit customers who were facing foreclosure or were “upside-down” on their mortgages—meaning they owed more than their homes were worth. Many of the customers didn’t understand English or the contracts they were signing.
How the scam worked. McGrue and associates told the homeowners that “bonded promissory notes” drawn on a U.S. Treasury Department account would be sent to lenders to pay off mortgage loans and stop foreclosure proceedings; that lenders were required by law to accept the notes; and that homeowners could buy their homes back from Gateway and receive $25,000, regardless of whether they decided to re-purchase.
The payback for McGrue? The homeowners had to fork over an upfront fee ranging from $1,500 to $2,000…sign over the titles of their homes to Gateway…and pay Gateway half of their previous mortgage amount as rent for as long as they lived in the house.
Of course, nothing that McGrue told his victims was true: he didn’t own any bonds or have a U.S. Treasury account, plus the Treasury doesn’t even maintain accounts that can be used to make third-party payments. Lenders weren’t legally obligated to accept bonded promissory notes, which were worthless anyway. And Gateway International had no intention of selling back the properties to the homeowners. Evidence shown at McGrue’s trial revealed that it was his intent to re-sell the homes, once they were titled in Gateway’s name, to unsuspecting buyers.
The FBI began its investigation in 2008, after receiving a complaint from one of the victims.
During these uncertain economic times, there are many unscrupulous people looking to line their pockets at the expense of others’ misfortunes. One of the most effective ways to defend yourself against foreclosure fraud is awareness. According to the Federal Trade Commission, if you or someone you know is looking for a loan modification or other help to save a home, avoid any business that:
Contact your local authorities or your state’s attorney general if you think you’ve been a victim of foreclosure fraud.
Source: FBI
Last week, Jeff McGrue, owner of a Los Angeles-area foreclosure relief business, was sentenced to 25 years in prison for defrauding people who were at the end of their rope. Even the federal judge who sentenced him called him “heartless.”
It all started in late 2007, when McGrue—and several other conspirators who have pled guilty—orchestrated the scheme primarily through his company Gateway International. He paid unwitting real estate agents and others to serve as “consultants” to recruit customers who were facing foreclosure or were “upside-down” on their mortgages—meaning they owed more than their homes were worth. Many of the customers didn’t understand English or the contracts they were signing.
How the scam worked. McGrue and associates told the homeowners that “bonded promissory notes” drawn on a U.S. Treasury Department account would be sent to lenders to pay off mortgage loans and stop foreclosure proceedings; that lenders were required by law to accept the notes; and that homeowners could buy their homes back from Gateway and receive $25,000, regardless of whether they decided to re-purchase.
The payback for McGrue? The homeowners had to fork over an upfront fee ranging from $1,500 to $2,000…sign over the titles of their homes to Gateway…and pay Gateway half of their previous mortgage amount as rent for as long as they lived in the house.
Of course, nothing that McGrue told his victims was true: he didn’t own any bonds or have a U.S. Treasury account, plus the Treasury doesn’t even maintain accounts that can be used to make third-party payments. Lenders weren’t legally obligated to accept bonded promissory notes, which were worthless anyway. And Gateway International had no intention of selling back the properties to the homeowners. Evidence shown at McGrue’s trial revealed that it was his intent to re-sell the homes, once they were titled in Gateway’s name, to unsuspecting buyers.
The FBI began its investigation in 2008, after receiving a complaint from one of the victims.
During these uncertain economic times, there are many unscrupulous people looking to line their pockets at the expense of others’ misfortunes. One of the most effective ways to defend yourself against foreclosure fraud is awareness. According to the Federal Trade Commission, if you or someone you know is looking for a loan modification or other help to save a home, avoid any business that:
- Offers a guarantee to get you a loan modification or stop the foreclosure process;
- Tells you not to contact your lender, lawyer, or a housing counselor;
- Requests upfront fees before providing you with any services;
- Encourages you to transfer your property deed to title to them;
- Accepts payment only by cashier’s check or wire transfer; or
- Pressures you to sign papers you haven’t had the chance to read thoroughly or that you don’t understand.
Contact your local authorities or your state’s attorney general if you think you’ve been a victim of foreclosure fraud.
Source: FBI
Thursday, April 14, 2011
Critical weaknesses in servicers’ foreclosure governance processes
The Federal Reserve Systemn has found critical weaknesses in servicers’ foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party vendors, including foreclosure attorneys.
While it is important to note that findingsvaried across institutions, the weaknesses at each servicer,individually or collectively, resulted in unsafe and unsound practices and violations of applicable federal and state law and requirements.4
This report captures only the significant issues found across servicers reviewed, not necessarily findings at each servicer. The results elevated the agencies’ concern that widespread risks may be presented—to consumers, communities, various market participants, and the overall mortgage market. The servicers included in this review represent more than two-thirds of the servicing market. Thus, the agencies consider problems cited within this report to have widespread consequences for the national housing market and borrowers.
The interagency reviews identified significant weaknesses in several areas.
Foreclosure process governance.
Foreclosure governance processes of the servicers were underdeveloped
and insufficient to manage and control operational, compliance, legal, and reputational risk associated with an increasing volume of foreclosures.
Weaknesses included:
• •
inadequate policies, procedures, and independent control infrastructure covering all aspects of the foreclosure process;
• •
inadequate monitoring and controls to oversee foreclosure activities conducted on behalf of servicers by external law firms or other third-party vendors;
• •
lack of sufficient audit trails to show how information set out in the affidavits (amount of indebtedness, fees, penalties, etc.) was linked to the servicers’ internal records at the time the affidavits were executed;
• •
inadequate quality control and audit reviews to ensure compliance with legal requirements, policies and procedures, as well as the maintenance of sound operating environments; and
• •
inadequate identification of financial, reputational, and legal risks, and absence of internal communication about those risks among boards of directors and senior management.
• • Organizational structure and availability of staffing. Examiners found inadequate organization and staffing of foreclosure units to address the increased volumes of foreclosures.
• • Affidavit and notarization practices.
Individuals who signed foreclosure affidavits often did not personally check the documents for accuracy or possess the level of knowledge of the information that they attested to in those affidavits. In addition, some foreclosure documents indicated they were executed under oath, when no oath was administered.
Examiners also found that the majority of the servicers had improper notary practices which failed to conform to state legal requirements.
These determinations were based primarily on servicers’ self-assessments of their foreclosure processes and examiners’ interviews of servicer staff involved in the preparation of foreclosure documents.
Documentation practices.
Examiners found some— but not widespread—errors between actual fees charged and what the servicers’ internal records indicated, with servicers undercharging fees as frequently as overcharging them. The dollar amountof overcharged fees as compared with the servicers’ internal records was generally small.
Third-party vendor management.
Examiners generally found adequate evidence of physical control and possession of original notes and mortgages. Examiners also found, with limited exceptions, that notes appeared to be properly endorsed and mortgages and deeds of trust appeared properly assigned.
The agencies expect federally regulated servicers to have the necessary policies and procedures in place ensure that notes are properly endorsed mortgages assigned, so ownership can be determined at time of foreclosure.Where serve as document custodians for themselves or other investors, require controls tracking systems safeguard physical security maintenance critical loan documents.
The agencies expect federally regulated servicers to have the necessary policies and procedures in place ensure that notes are properly endorsed mortgages assigned, so ownership can be determined at time of foreclosure. Where serve as document custodians for themselves or other investors, require controls tracking systems safeguard physical security maintenance critical loan documents.
The review did find that, in some cases, the third-party law firms hired by the servicers were nonetheless filing mortgage foreclosure complaints or lost-note affidavits even though proper documentation existed.
• • Quality control (QC) and audit.
Examiners found weaknesses in quality control and internal auditing procedures at all servicers included in the review.
Source: Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS)
While it is important to note that findingsvaried across institutions, the weaknesses at each servicer,individually or collectively, resulted in unsafe and unsound practices and violations of applicable federal and state law and requirements.4
This report captures only the significant issues found across servicers reviewed, not necessarily findings at each servicer. The results elevated the agencies’ concern that widespread risks may be presented—to consumers, communities, various market participants, and the overall mortgage market. The servicers included in this review represent more than two-thirds of the servicing market. Thus, the agencies consider problems cited within this report to have widespread consequences for the national housing market and borrowers.
The interagency reviews identified significant weaknesses in several areas.
Foreclosure process governance.
Foreclosure governance processes of the servicers were underdeveloped
and insufficient to manage and control operational, compliance, legal, and reputational risk associated with an increasing volume of foreclosures.
Weaknesses included:
• •
inadequate policies, procedures, and independent control infrastructure covering all aspects of the foreclosure process;
• •
inadequate monitoring and controls to oversee foreclosure activities conducted on behalf of servicers by external law firms or other third-party vendors;
• •
lack of sufficient audit trails to show how information set out in the affidavits (amount of indebtedness, fees, penalties, etc.) was linked to the servicers’ internal records at the time the affidavits were executed;
• •
inadequate quality control and audit reviews to ensure compliance with legal requirements, policies and procedures, as well as the maintenance of sound operating environments; and
• •
inadequate identification of financial, reputational, and legal risks, and absence of internal communication about those risks among boards of directors and senior management.
• • Organizational structure and availability of staffing. Examiners found inadequate organization and staffing of foreclosure units to address the increased volumes of foreclosures.
• • Affidavit and notarization practices.
Individuals who signed foreclosure affidavits often did not personally check the documents for accuracy or possess the level of knowledge of the information that they attested to in those affidavits. In addition, some foreclosure documents indicated they were executed under oath, when no oath was administered.
Examiners also found that the majority of the servicers had improper notary practices which failed to conform to state legal requirements.
These determinations were based primarily on servicers’ self-assessments of their foreclosure processes and examiners’ interviews of servicer staff involved in the preparation of foreclosure documents.
Documentation practices.
Examiners found some— but not widespread—errors between actual fees charged and what the servicers’ internal records indicated, with servicers undercharging fees as frequently as overcharging them. The dollar amountof overcharged fees as compared with the servicers’ internal records was generally small.
Third-party vendor management.
Examiners generally found adequate evidence of physical control and possession of original notes and mortgages. Examiners also found, with limited exceptions, that notes appeared to be properly endorsed and mortgages and deeds of trust appeared properly assigned.
The agencies expect federally regulated servicers to have the necessary policies and procedures in place ensure that notes are properly endorsed mortgages assigned, so ownership can be determined at time of foreclosure.Where serve as document custodians for themselves or other investors, require controls tracking systems safeguard physical security maintenance critical loan documents.
The agencies expect federally regulated servicers to have the necessary policies and procedures in place ensure that notes are properly endorsed mortgages assigned, so ownership can be determined at time of foreclosure. Where serve as document custodians for themselves or other investors, require controls tracking systems safeguard physical security maintenance critical loan documents.
The review did find that, in some cases, the third-party law firms hired by the servicers were nonetheless filing mortgage foreclosure complaints or lost-note affidavits even though proper documentation existed.
• • Quality control (QC) and audit.
Examiners found weaknesses in quality control and internal auditing procedures at all servicers included in the review.
Source: Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS)
Wednesday, April 13, 2011
Pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing
The Federal Reserve Board on Wednesday announced formal enforcement actions requiring 10 banking organizations to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.
The Board is taking these actions to ensure that firms under its jurisdiction promptly initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable law, and are safe and sound.
The 10 banking organizations are: Bank of America Corporation; Citigroup Inc.; Ally Financial Inc.; HSBC North America Holdings, Inc.; JPMorgan Chase & Co.; MetLife, Inc.; The PNC Financial Services Group, Inc.; SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Company. Collectively, these organizations represent 65 percent of the servicing industry, or nearly $6.8 trillion in mortgage balances. All 10 actions require the parent holding companies to improve holding company oversight of residential mortgage loan servicing and foreclosure processing conducted by bank and nonbank subsidiaries.
In addition, the enforcement actions order the banking organizations that have servicing entities regulated by the Federal Reserve (Ally Financial, SunTrust, and HSBC) to promptly correct the many deficiencies in residential mortgage loan servicing and foreclosure processing. Those deficiencies were identified by examiners during reviews conducted from November 2010 to January 2011.
The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties. These monetary penalties will be in addition to the corrective actions that the banking organizations are expected to take pursuant to the enforcement actions.
The enforcement actions complement the actions under consideration by the federal and state regulatory and law enforcement agencies, and do not preclude those agencies from taking additional enforcement action. The Federal Reserve continues to work with other federal and state authorities to resolve these matters.
The actions taken Wednesday require each servicer to take a number of actions, including to make significant revisions to certain residential mortgage loan servicing and foreclosure processing practices. Each servicer must, among other things, submit plans acceptable to the Federal Reserve that:
strengthen coordination of communications with borrowers by providing borrowers the name of the person at the servicer who is their primary point of contact;
ensure that foreclosures are not pursued once a mortgage has been approved for modification, unless repayments under the modified loan are not made;
establish robust controls and oversight over the activities of third-party vendors that provide to the servicers various residential mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and
strengthen programs to ensure compliance with state and federal laws regarding servicing, generally, and foreclosures, in particular.
The Federal Reserve will closely monitor progress at the firms in addressing these matters and will take additional enforcement actions as needed.
In addition to the actions against the banking organizations, the Federal Reserve on Wednesday announced formal enforcement actions against Lender Processing Services, Inc. (LPS), a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc. (MERS), which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions. These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries, and at MERS and its subsidiary. The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX, LLC, and LPS Default Solutions, Inc., provided to servicers in connection with foreclosures. MERS is required to address significant weaknesses in, among other things, oversight, management supervision, and corporate governance. The LPS action is being taken jointly with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, while the MERS action is being taken jointly with those agencies and the Federal Housing Finance Agency.
The Federal Reserve Board based its enforcement actions on the findings of the interagency reviews of the major mortgage servicers, LPS, and MERS. A summary of the findings from the reviews of the mortgage servicers is available in the Interagency Review of Foreclosure Policies and Practices, which is simultaneously being released by the Federal Reserve Board and the other agencies.
Attachments:
Source: Board of Governors of the Federal Reserve System
The Board is taking these actions to ensure that firms under its jurisdiction promptly initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable law, and are safe and sound.
The 10 banking organizations are: Bank of America Corporation; Citigroup Inc.; Ally Financial Inc.; HSBC North America Holdings, Inc.; JPMorgan Chase & Co.; MetLife, Inc.; The PNC Financial Services Group, Inc.; SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Company. Collectively, these organizations represent 65 percent of the servicing industry, or nearly $6.8 trillion in mortgage balances. All 10 actions require the parent holding companies to improve holding company oversight of residential mortgage loan servicing and foreclosure processing conducted by bank and nonbank subsidiaries.
In addition, the enforcement actions order the banking organizations that have servicing entities regulated by the Federal Reserve (Ally Financial, SunTrust, and HSBC) to promptly correct the many deficiencies in residential mortgage loan servicing and foreclosure processing. Those deficiencies were identified by examiners during reviews conducted from November 2010 to January 2011.
The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties. These monetary penalties will be in addition to the corrective actions that the banking organizations are expected to take pursuant to the enforcement actions.
The enforcement actions complement the actions under consideration by the federal and state regulatory and law enforcement agencies, and do not preclude those agencies from taking additional enforcement action. The Federal Reserve continues to work with other federal and state authorities to resolve these matters.
The actions taken Wednesday require each servicer to take a number of actions, including to make significant revisions to certain residential mortgage loan servicing and foreclosure processing practices. Each servicer must, among other things, submit plans acceptable to the Federal Reserve that:
strengthen coordination of communications with borrowers by providing borrowers the name of the person at the servicer who is their primary point of contact;
ensure that foreclosures are not pursued once a mortgage has been approved for modification, unless repayments under the modified loan are not made;
establish robust controls and oversight over the activities of third-party vendors that provide to the servicers various residential mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and
strengthen programs to ensure compliance with state and federal laws regarding servicing, generally, and foreclosures, in particular.
The Federal Reserve will closely monitor progress at the firms in addressing these matters and will take additional enforcement actions as needed.
In addition to the actions against the banking organizations, the Federal Reserve on Wednesday announced formal enforcement actions against Lender Processing Services, Inc. (LPS), a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc. (MERS), which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions. These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries, and at MERS and its subsidiary. The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX, LLC, and LPS Default Solutions, Inc., provided to servicers in connection with foreclosures. MERS is required to address significant weaknesses in, among other things, oversight, management supervision, and corporate governance. The LPS action is being taken jointly with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, while the MERS action is being taken jointly with those agencies and the Federal Housing Finance Agency.
The Federal Reserve Board based its enforcement actions on the findings of the interagency reviews of the major mortgage servicers, LPS, and MERS. A summary of the findings from the reviews of the mortgage servicers is available in the Interagency Review of Foreclosure Policies and Practices, which is simultaneously being released by the Federal Reserve Board and the other agencies.
Attachments:
- Interagency Review of Foreclosure Policies and Practices (PDF)
- Consent Order for Bank of America Corp. (97 KB PDF)
- Consent Order for Citigroup Inc. and CitiFinancial Credit Co. (140 KB PDF)
- Consent Order for Ally Financial, Inc., ResCap, GMAC Mortgage, and Ally Bank (493 KB PDF)
- Consent Order for HSBC North America Holdings, Inc. and HSBC Finance Corp. (87 KB PDF)
- Consent Order for JPMorgan Chase & Co. and EMC Mtge. (165 KB PDF)
- Consent Order for MetLife, Inc. (25 KB PDF)
- Consent Order for PNC Financial Svs. Group, Inc. (25 KB PDF)
- Consent Order for SunTrust Banks, Inc., SunTrust Bank, and SunTrust Mortgage (76 KB PDF)
- Consent Order for U.S. Bancorp (25 KB PDF)
- Consent Order for Wells Fargo & Co. (25 KB PDF)
- Consent Order for LPS (47 KB PDF)
- Consent Order for MERS (48 KB PDF)
Source: Board of Governors of the Federal Reserve System
Tuesday, March 15, 2011
"Structural Incentives" for Abuse: Mortgage Service Providers Must be Better Policed
In recent months, the mortgage servicing industry has emerged from the shadows to take its place as one of the great villains of the mortgage meltdown and foreclosure crisis. Last fall, state attorney generals across the country launched a concerted probe of the industry and compiled a mountain of evidence of deceptive and abusive practices that have had devastating effects on homeowners struggling to avoid foreclosure. The suit filed in just one state, Nevada, against one lender -- Bank of America and its servicers -- runs 152 pages and is filled with horror stories. (See below)
Charges of foreclosure fraud, in which servicers fabricated documents for foreclosure proceedings, are among the least of the abuses uncovered by the probe. More heartbreaking are the stories of homeowners who drained their savings or ran up debt to continue making payments as part of mortgage modifications deals, only to have their homes foreclosed on anyway. Or the stories of homeowners who were outright lied to about the status of their modification requests or the reasons that these requests were denied.
It would be bad enough if the banks had only thumbed their nose at the Obama Administration's effort to give people a chance to modify loans. But the banks and their servicers managed to behave even more badly than that by using the existence of the modification programs as an opportunity to exploit some of the most desperate people in America. It is no exaggeration to say that stringing along and sucking dry struggling homeowners appears to have become a business model of the mortgage industry.
Last week, the attorney generals announced preliminary settlement terms that would extract $20 billion from the nation's largest banks as punishment for their abuses and those of their mortgage servicers, and use these funds to help modify mortgages. (See the document below).
This proposed deal has been drawing fire from conservatives, including Virginia's Attorney General Ken Cuccinelli who likened helping struggling homeowners to "welfare." Meanwhile, Republican Senator Richard Shelby called the deal "nothing less than a regulatory shakedown."
In fact, the tough stance of the AGs should have ordinary folks -- and those who purport to speak for them -- on their feet cheering. While the Obama Administration has generally coddled the banks when it comes to pushing for mortgage modifications, the AGs are trying to achieve real justice in face of the overwhelming evidence of illegal, abusive, and unethical behavior that has been systematic across the nation and driven by a bottom line focus on profits.
If there is a problem with the deal, it is that it doesn't go far enough and only begins the process of bringing a rogue sector of the mortgage industry -- the servicers -- under control.
The basic problem is that mortgage servicers now have what Fed governor Sarah Bloom Raskin has called "structural incentives" to mislead, cheat, and exploit struggling homeowners. As Raskin explained in a speech last November:
The servicer makes money, to oversimplify a bit, by maximizing fees earned and minimizing expenses while performing the actions spelled out in its contract with the investor. In the case, for instance, of a homeowner struggling to make payments, a foreclosure almost always costs the investor money, but may actually earn money for the servicer in the form of fees. Proactive measures to avoid foreclosure and minimize cost to the investor, on the other hand, may be good for the homeowner, but involve costs that could very well lead to a net loss to the servicer. In the case of a temporary forbearance for a homeowner, for example, the investor and homeowner both could win--if the forbearance allows the homeowner to get back on their feet and avoid foreclosure--but the servicer could well lose money. In the case of a permanent modification, the investor and homeowner could both be considerably better off relative to foreclosure, but the servicer could again lose money. . . .
Even in the case of a servicer who has every best intention of doing "the right thing," the bottom-line incentives are largely misaligned with everyone else involved in the transaction, and most certainly the homeowners themselves.
Got all that?
Basically, Raskin is making a point others have stressed elsewhere: Which is that the front lines of the foreclosure crisis are being manned by an industry that actually has a self-interest in extending this crisis to boost earnings. And, as we've seen in other parts of the financial and real estate sector, companies and managers hungry for profits in a lightly regulated wild west environment all too often will bend the rules, even when it has devastating effects on people's lives.
While some servicers are independently owned, many are subsidiaries of the banks. Either way, as Raskin explained in her speech, the fee structures that servicers still operate under were designed for good times, when loan servicing was easy -- not bad times, when "loss mitigation" requires some real heavy lifting by servicers that cuts into profits. Until the fee structures are changed to incentivize servicers to do the right thing, which will mean higher costs for the banks, further abuses are inevitable regardless of any settlement imposed by the AGs.
Also, it should be obvious by now that the federal government needs to exercise more oversight around the foreclosure process -- an area now regulated by the states. The Obama Administration is working on this and the Office of the Comptroller of the Currency, led by John Walsh, has begun drafting "New National Mortgage Servicing Standards." Walsh outlined some of the ideas behind these standards in testimony before a Senate Committee last month. He stressed that the process is still in a preliminary stage.
One things seems certain, though: Despite the well-documented suffering of homeowners at the hands of mortgage servicers, opponents of regulation are likely to do their best to torpedo steps to prevent future abuses. That is the way Washington works these days.
Source: PolicyShop
Charges of foreclosure fraud, in which servicers fabricated documents for foreclosure proceedings, are among the least of the abuses uncovered by the probe. More heartbreaking are the stories of homeowners who drained their savings or ran up debt to continue making payments as part of mortgage modifications deals, only to have their homes foreclosed on anyway. Or the stories of homeowners who were outright lied to about the status of their modification requests or the reasons that these requests were denied.
It would be bad enough if the banks had only thumbed their nose at the Obama Administration's effort to give people a chance to modify loans. But the banks and their servicers managed to behave even more badly than that by using the existence of the modification programs as an opportunity to exploit some of the most desperate people in America. It is no exaggeration to say that stringing along and sucking dry struggling homeowners appears to have become a business model of the mortgage industry.
Last week, the attorney generals announced preliminary settlement terms that would extract $20 billion from the nation's largest banks as punishment for their abuses and those of their mortgage servicers, and use these funds to help modify mortgages. (See the document below).
This proposed deal has been drawing fire from conservatives, including Virginia's Attorney General Ken Cuccinelli who likened helping struggling homeowners to "welfare." Meanwhile, Republican Senator Richard Shelby called the deal "nothing less than a regulatory shakedown."
In fact, the tough stance of the AGs should have ordinary folks -- and those who purport to speak for them -- on their feet cheering. While the Obama Administration has generally coddled the banks when it comes to pushing for mortgage modifications, the AGs are trying to achieve real justice in face of the overwhelming evidence of illegal, abusive, and unethical behavior that has been systematic across the nation and driven by a bottom line focus on profits.
If there is a problem with the deal, it is that it doesn't go far enough and only begins the process of bringing a rogue sector of the mortgage industry -- the servicers -- under control.
The basic problem is that mortgage servicers now have what Fed governor Sarah Bloom Raskin has called "structural incentives" to mislead, cheat, and exploit struggling homeowners. As Raskin explained in a speech last November:
The servicer makes money, to oversimplify a bit, by maximizing fees earned and minimizing expenses while performing the actions spelled out in its contract with the investor. In the case, for instance, of a homeowner struggling to make payments, a foreclosure almost always costs the investor money, but may actually earn money for the servicer in the form of fees. Proactive measures to avoid foreclosure and minimize cost to the investor, on the other hand, may be good for the homeowner, but involve costs that could very well lead to a net loss to the servicer. In the case of a temporary forbearance for a homeowner, for example, the investor and homeowner both could win--if the forbearance allows the homeowner to get back on their feet and avoid foreclosure--but the servicer could well lose money. In the case of a permanent modification, the investor and homeowner could both be considerably better off relative to foreclosure, but the servicer could again lose money. . . .
Even in the case of a servicer who has every best intention of doing "the right thing," the bottom-line incentives are largely misaligned with everyone else involved in the transaction, and most certainly the homeowners themselves.
Got all that?
Basically, Raskin is making a point others have stressed elsewhere: Which is that the front lines of the foreclosure crisis are being manned by an industry that actually has a self-interest in extending this crisis to boost earnings. And, as we've seen in other parts of the financial and real estate sector, companies and managers hungry for profits in a lightly regulated wild west environment all too often will bend the rules, even when it has devastating effects on people's lives.
While some servicers are independently owned, many are subsidiaries of the banks. Either way, as Raskin explained in her speech, the fee structures that servicers still operate under were designed for good times, when loan servicing was easy -- not bad times, when "loss mitigation" requires some real heavy lifting by servicers that cuts into profits. Until the fee structures are changed to incentivize servicers to do the right thing, which will mean higher costs for the banks, further abuses are inevitable regardless of any settlement imposed by the AGs.
Also, it should be obvious by now that the federal government needs to exercise more oversight around the foreclosure process -- an area now regulated by the states. The Obama Administration is working on this and the Office of the Comptroller of the Currency, led by John Walsh, has begun drafting "New National Mortgage Servicing Standards." Walsh outlined some of the ideas behind these standards in testimony before a Senate Committee last month. He stressed that the process is still in a preliminary stage.
One things seems certain, though: Despite the well-documented suffering of homeowners at the hands of mortgage servicers, opponents of regulation are likely to do their best to torpedo steps to prevent future abuses. That is the way Washington works these days.
Source: PolicyShop
Friday, October 15, 2010
Foreclosure Fraud Propped Up Mortgage-Backed Securities -- And Protected Banks That Issued Them
The reason they're faking the mortgage documentation? If the bankers admit what's wrong with the chain of title conveyance, the mortgage loans are no longer eligible for the trusts the bankers sold to investors -- and under their own terms of agreement, the chain of title was breached, "true sale" was probably not achieved and the liability reverts to the banks.
Investors are likely to sue to recover their money. The government will probably stand behind Fannie Mae and Freddie Mac investors, but private banks are another matter. Some major dominoes seem likely to fall.
MorIt's important that we don't fall for the media misdirection here: It's not "poor banks getting screwed by mortgage deadbeats." It's really "poor investors getting screwed by banks who knowingly sold them worthless mortgage bonds." Felix Salmon:
This kind of information was valuable to Citigroup: it showed them that the quality of the loan pool was much lower than you’d think just by looking at the ostensible underwriting standards.
Armed with this information, Citigroup would do two things. First of all, it would take those 582 rejects and put most of them back to the underwriter. Essentially, they said, the loans weren’t as advertised, and they didn’t want them. But Citi would still keep some of them in the pool.
But remember that Clayton had tested only a small portion of the loans in the pool. So Citi knew that if there were a bunch of bad loans among the loans that Clayton tested, there were bound to be even more bad loans among the loans that Clayton had not tested. And those loans it couldn’t put back to the originator, because Citi didn’t know exactly which loans they were.
If there had been any common sense in the investment banks, that would have been the end of the deal. But there wasn’t. Rather than simply telling the originator that its loan pool wasn’t good enough, the investment banks would instead renegotiate the amount of money they were paying for the pool.
This is where things get positively evil. The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.
In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. And the less money they paid for the pool, the more profit they could make when they turned it into mortgage bonds and sold it off to investors.
Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors, who were kept in the dark about that fact.
I talked to one underwriting bank — not Citi — which claimed that investors were told that the due diligence had been done: on page 48 of the prospectus, there’s language about how the underwriter had done an “underwriting guideline review”, although there’s nothing specifically about hiring a company to re-underwrite a large chunk of the loans in the pool, and report back on whether they met the originator’s standards.
In any case, it’s clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back. Prosecutors, too, are reportedly looking at these deals, and I can’t imagine they’ll like what they find.
The bank I talked to didn’t even attempt to excuse its behavior. It just said that Clayton’s taste-testing was being done by the bank — the buyer of the loan portfolio — rather than being done on behalf of bond investors. Well, yes. That’s the whole problem. The bank was essentially trading on inside information about the loan pool: buying it low (negotiating for a discount from the originator) and then selling it high to people who didn’t have that crucial information.
This whole scandal has nothing to do with the foreclosure mess, but it certainly complicates matters. It’s going to be a very long time, I think, before the banking system is going to be free and clear of the nightmare it created during the boom.
Investors are likely to sue to recover their money. The government will probably stand behind Fannie Mae and Freddie Mac investors, but private banks are another matter. Some major dominoes seem likely to fall.
MorIt's important that we don't fall for the media misdirection here: It's not "poor banks getting screwed by mortgage deadbeats." It's really "poor investors getting screwed by banks who knowingly sold them worthless mortgage bonds." Felix Salmon:
This kind of information was valuable to Citigroup: it showed them that the quality of the loan pool was much lower than you’d think just by looking at the ostensible underwriting standards.
Armed with this information, Citigroup would do two things. First of all, it would take those 582 rejects and put most of them back to the underwriter. Essentially, they said, the loans weren’t as advertised, and they didn’t want them. But Citi would still keep some of them in the pool.
But remember that Clayton had tested only a small portion of the loans in the pool. So Citi knew that if there were a bunch of bad loans among the loans that Clayton tested, there were bound to be even more bad loans among the loans that Clayton had not tested. And those loans it couldn’t put back to the originator, because Citi didn’t know exactly which loans they were.
If there had been any common sense in the investment banks, that would have been the end of the deal. But there wasn’t. Rather than simply telling the originator that its loan pool wasn’t good enough, the investment banks would instead renegotiate the amount of money they were paying for the pool.
This is where things get positively evil. The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.
In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. And the less money they paid for the pool, the more profit they could make when they turned it into mortgage bonds and sold it off to investors.
Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors, who were kept in the dark about that fact.
I talked to one underwriting bank — not Citi — which claimed that investors were told that the due diligence had been done: on page 48 of the prospectus, there’s language about how the underwriter had done an “underwriting guideline review”, although there’s nothing specifically about hiring a company to re-underwrite a large chunk of the loans in the pool, and report back on whether they met the originator’s standards.
In any case, it’s clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back. Prosecutors, too, are reportedly looking at these deals, and I can’t imagine they’ll like what they find.
The bank I talked to didn’t even attempt to excuse its behavior. It just said that Clayton’s taste-testing was being done by the bank — the buyer of the loan portfolio — rather than being done on behalf of bond investors. Well, yes. That’s the whole problem. The bank was essentially trading on inside information about the loan pool: buying it low (negotiating for a discount from the originator) and then selling it high to people who didn’t have that crucial information.
This whole scandal has nothing to do with the foreclosure mess, but it certainly complicates matters. It’s going to be a very long time, I think, before the banking system is going to be free and clear of the nightmare it created during the boom.
Tuesday, January 5, 2010
State details foreclosure chaos
Sweeping evidence of the case the state attorney general's office has built in its pursuit of foreclosure justice for Florida homeowners is outlined in a 98-page presentation complete with copies of allegedly forged signatures, false notarizations, bogus witnesses and improper mortgage assignments.
The presentation, titled "Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases," was given during an early December conference of the Florida Association of Court Clerks and Comptrollers by the attorney general's economic crimes division. It is one of the first examples of what the state has compiled in its exploration of foreclosure malpractice, condemning banks, mortgage servicers and law firms for contributing to the crisis by cutting corners. "What we got from this is the state has had the opportunity to see where the laws have been broken, and frankly, it is in large part thanks to the work of the defense attorneys," said Palm Beach County Clerk and Comptroller Sharon Bock. "They've been bringing these defenses up in foreclosure cases for years now."
In page after page of copied records, the presentation meticulously documents cases of questionable signatures, notarizations that could not have occurred when they are said to have because of when the notary stamp expires, and foreclosures filed by entities that might not have had legal ability to foreclose.
It also focuses largely on assignments of mortgage, documents that transfer ownership of mortgages from one bank to another. Mortgage assignments became an issue after the real estate boom, when mortgages were sold and resold, packaged into securitized trusts and otherwise transferred in a labyrinthine fashion that made tracking difficult.
As foreclosures mounted, the banks appointed people to create assignments, "thousands and thousands and thousands" of which were signed weekly by people who may not have known what they were signing. In one example, a signature by someone named Linda Green is said to appear on hundreds of thousands of mortgage documents from dozens of banks and mortgage companies, but in varying styles.
In another example, the signature of Scott Anderson, an employee of West Palm Beach-based Ocwen Financial Corp., appears in four styles on mortgage assignments. "No one bothered to take the time and effort to properly execute this stuff," said Boynton Beach attorney James Bonfiglio, who defends foreclosures. "It matters a great deal who signed the documents because people can be sued twice and three times for the same debt if it wasn't properly transferred."
Paul Koches, executive vice president of Ocwen, acknowledged Tuesday that the signatures were not all Anderson's, but that doesn't mean they were forged, he said. Certain employees were given authorization to sign for Anderson on mortgage assignments, which Koches noted do not need to be notarized. Still, Ocwen has since stopped allowing other people to sign for Anderson, Koches said.
The attorney general's office had no comment Tuesday on the presentation, which was not aimed at a specific case. Four of Florida's large foreclosure law firms that represent the banks are under investigation by the state, as well as two companies that serve court summonses on homeowners, and a Jacksonville-based servicing company that the presentation said produced 2,000 mortgage assignments per day.
The office is also part of a 50-state coalition of attorneys general trying to work out agreements with the nation's largest lenders on foreclosure matters.
Source: The Palm Beach Post
The presentation, titled "Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases," was given during an early December conference of the Florida Association of Court Clerks and Comptrollers by the attorney general's economic crimes division. It is one of the first examples of what the state has compiled in its exploration of foreclosure malpractice, condemning banks, mortgage servicers and law firms for contributing to the crisis by cutting corners. "What we got from this is the state has had the opportunity to see where the laws have been broken, and frankly, it is in large part thanks to the work of the defense attorneys," said Palm Beach County Clerk and Comptroller Sharon Bock. "They've been bringing these defenses up in foreclosure cases for years now."
In page after page of copied records, the presentation meticulously documents cases of questionable signatures, notarizations that could not have occurred when they are said to have because of when the notary stamp expires, and foreclosures filed by entities that might not have had legal ability to foreclose.
It also focuses largely on assignments of mortgage, documents that transfer ownership of mortgages from one bank to another. Mortgage assignments became an issue after the real estate boom, when mortgages were sold and resold, packaged into securitized trusts and otherwise transferred in a labyrinthine fashion that made tracking difficult.
As foreclosures mounted, the banks appointed people to create assignments, "thousands and thousands and thousands" of which were signed weekly by people who may not have known what they were signing. In one example, a signature by someone named Linda Green is said to appear on hundreds of thousands of mortgage documents from dozens of banks and mortgage companies, but in varying styles.
In another example, the signature of Scott Anderson, an employee of West Palm Beach-based Ocwen Financial Corp., appears in four styles on mortgage assignments. "No one bothered to take the time and effort to properly execute this stuff," said Boynton Beach attorney James Bonfiglio, who defends foreclosures. "It matters a great deal who signed the documents because people can be sued twice and three times for the same debt if it wasn't properly transferred."
Paul Koches, executive vice president of Ocwen, acknowledged Tuesday that the signatures were not all Anderson's, but that doesn't mean they were forged, he said. Certain employees were given authorization to sign for Anderson on mortgage assignments, which Koches noted do not need to be notarized. Still, Ocwen has since stopped allowing other people to sign for Anderson, Koches said.
The attorney general's office had no comment Tuesday on the presentation, which was not aimed at a specific case. Four of Florida's large foreclosure law firms that represent the banks are under investigation by the state, as well as two companies that serve court summonses on homeowners, and a Jacksonville-based servicing company that the presentation said produced 2,000 mortgage assignments per day.
The office is also part of a 50-state coalition of attorneys general trying to work out agreements with the nation's largest lenders on foreclosure matters.
Source: The Palm Beach Post
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