Monday, March 12, 2012

Homeowners battle banks to stop foreclosures...and win

Steven Bridges for msnbc.com

Jewel and Jack Miser stand in front of their home in Sweetwater, Tenn. After trying for more than a year to modify their loan, they won a settlement in court that cut their monthly payment by about 15 percent.  Revenge can be sweet. It can be even sweeter when you use your enemy’s own weapons to extract vengeance.Six years into the worst wave of foreclosures since the Great Depression, shoddy underwriting and legal shortcuts are coming back to haunt mortgage lenders. Homeowners, sick of being pushed around by the banks, are fighting back, sometimes with David and Goliath results.  In 2008, Jewel Miser and her husband Jack began trying to get Bank of America to modify their mortgage when Jack lost his job after a local auto parts factory closed. “We were just a month behind then,” said Jewel. “But I tried every way in the world. And they just put me off and gave me excuses.”

After more than a year of dead ends and red tape, the Sweetwater, Tenn., couple found a lawyer who successfully challenged the shaky paper trail on which the lender relied on to prove it owned the Miser's note. In the resulting settlement, the bank agreed to new loan terms that cut the Miser’s monthly payments by roughly 15 percent, paid their legal fees and stopped the foreclosure.  "I did not want to lose my home," Jewel said. "We had done so much work to it. When you find a home and know it's your home you don't want to lose it. I tried every way in the world."  The Misers and other homeowners who are fighting back in court are using the legal quagmire created by the mortgage lending industry to win loan modifications that lenders have been unwilling or unable to extend voluntarily.

When these homeowners get to court, they find a laundry list of shoddy practices that undercut lenders’ legal claim to foreclose, say consumer attorneys who have pursued these cases. Many cases are tainted by “robo-signers” who failed to properly review files, despite swearing under oath they had done so. Other title claims are undone by improper accounting, including unwarranted fees, and payments that were not credited.  Consumer attorneys also are attacking lenders’ effort to paper over missing links in the chain of documents required to prove that a bank owns a loan and has the right to foreclose. Some of those defective paper trails date to the sloppy underwriting that accompanied the frenzy of mortgage lending in the 2000s, when hundreds of now-defunct lenders churned out a blizzard of notes that were instantly offloaded to investors.  “There are more (homeowner) claims because lenders operated in flagrant disregard of the law,” said Diana Thompson, a veteran consumer attorney with the National Consumer Law Center. “You only have a claim against the lender if the lender didn't do what they were supposed to do.”  

Lenders' disregard for the law is still rampant, according to consumer advocates and regulators. Last month, a survey of 260 consumer attorneys in 45 states by the NCLC found that thousands of homeowners were improperly foreclosed on in just the past year. In more than 80 percent of the cases, the lender scheduled a foreclosure sale while processing a loan modification. In four out of five cases, the attorneys reported, lenders failed to properly credit payments or wrongly claimed homeowners owed bogus fees.  An audit by the San Francisco assessor’s office last month found lenders routinely broke the law in some 400 foreclosure cases over the past three years. Last April, the nation's top two bank regulators, the Federal Reserve and the Office of the Controller of the Currency, reviewed the foreclosure and loan modification practices and found a litany of "deficiencies and weaknesses" that "represent unsafe or unsound practices and violations of applicable law."
Though 49 state attorneys general have settled a sweeping complaint covering a long list of fraudulent and deceptive foreclosure practices, a handful of states are pursuing lawsuits against the mortgage industry. New York Attorney General Eric Schneiderman, named to a federal task force to investigate mortgage fraud, has charged lenders with deceptive and fraudulent foreclosure filings based on a national mortgage electronic registry system, known as MERS. The lawsuit claims that Bank of America, J.P. Morgan Chase and Wells Fargo, “have repeatedly submitted court documents containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have.”

Regulators how vowed to crack down on these practices. Lenders say they are correcting them. "In 2010, we reviewed our processes and procedures and put in place a number of improvements and worked with our regulators," said Jumana Bauwens, a Bank of America spokeswoman. "And we continue to improve our processes and procedures."  But lenders still have more work to do, according to consumer attorneys, judges and mortgage industry professionals. Until reforms are widely adopted, it has fallen to homeowners and their attorneys to try to see that the law is enforced.

Loan modification
Borrowers have been taking their disputes with lenders to court for decades. The latest efforts, though, have been sparked by rising frustration with other means of trying to get a loan modified, say consumer attorneys. Early in the mortgage crisis, millions of homeowners, encouraged by the industry, tried working directly with lenders.  A succession of government-sponsored programs aimed at providing mortgage relief to millions of borrowers have fallen far short of promises.  "They (lenders) advertised all the time: 'If you want get your mortgage modified all you have to do is call,'” said Jewel Miser. "I called about 100 times. Each time they would tell me different things or that it was 'in process' - but they weren't doing anything."  In its review, the OCC also cited widespread failings of lenders’ "voluntary" mortgage relief efforts. 

The government’s highly-touted Home Affordable Modification Program (HAMP) has badly underperformed expectations, according to housing advocates and counselors working with homeowners, largely because the decision to modify a loan still rests entirely with the lender.  Bauwens, the Bank of America spokeswoman, said that since the Misers applied for their loan modification, the process has been streamlined and reviews and decisions are now made much more quickly.   "We are in a very much better position to be able to respond to customers modifications in a much more timely manner," she said.  But consumer attorneys said that, in some cases, homeowners are being denied modifications that should have been made under government guidelines. “Because of the government’s failure to enforce HAMP and failure to hold (lenders) accountable, in many cases in order to get a HAMP modification for which they are complete qualified, homeowners have to hire an attorney and sue their lender,” said Thompson of the NCLC.  That often means a trip to bankruptcy court for a Chapter 13 proceeding, which allows people with a regular income to adjust their debt. Once in court, a foreclosure is typically halted automatically, placing the burden on the lender to have the process re-instated. That forces the lender to prove it owns the mortgage and to account fully for any disputed back payments. When the lender is unable to do so, consumer lawyers say, it is more likely to agree to settle by modifying the loan terms, often by simply lowering the interest charged to current market rates. Lenders rarely forgive principal, even on homes that are deep underwater, say consumer attorneys. But while bankruptcy law prevents a judge from writing down the primary mortgage on residential property, other loans don’t enjoy that protection.  That means judges often are able to force lenders to take deep losses on second and third mortgages, said Raffi Tal, who advises homeowners facing foreclosure at Los Angeles-based Peak Corporate Network. “That by itself is a great advantage to borrowers who can afford to make the first mortgage payment - just by canceling the second (mortgage).”  Some bankruptcy courts, including the Southern District of New York, have established special procedures to speed loan modification negotiations between homeowners and lenders.

But it hasn’t been easy.
Consumer attorneys often are outgunned by big banks. Though more than six million households are either delinquent or in foreclosure, there are fewer than 500 consumer attorneys nationwide who specialize in suing to stop foreclosures, according to the NCLC’s Thompson. As demand for legal help has risen, more lawyers have shifted the focus of their practice to fighting foreclosures. That can include attending seminars focused on the legal arguments used to successfully challenge lenders in court.  For the past six year, Max Gardner has been running "boot camps" out of his Shelby, N.C., farmhouse, training consumer attorneys from across the country in the finer points of turning the mortgage mess to their clients’ advantage. More recently, Gardner has been taking these seminars on the road.  On a recent visit to New York, Gardner summoned several dozen lawyers, mortgage industry veterans and a handful of reporters to an intensive weekend crash course in a grab bag of legal strategies. It included a tour deep into the weeds of the Uniform Commercial Code, a subject that has been known to put law students to sleep. Once trained, the more than 200 boot camp alumni in 39 states communicate via listserv, swapping tips and sharing legal opinions that help them build arguments to stop the next foreclosure.  

Though they’ve won case-by-case victories for individual homeowners, consumer attorneys such as Gardner say regulators continue to turn a blind eye to improper and illegal foreclosures. The industry has been able to keep regulators at bay, he said, by effectively managing public opinion about its role in the foreclosure crisis.  “I think they've done pretty good job - on the other side - of getting across the message that these are just a bunch of deadbeats trying to get a free home,” he said. “And that these (wrongful foreclosures) are just the result of technical problems.”  “So let’s just forget about the system of justice, due process and the rules of evidence and everything else. They’re just glitches. They don't mean much,” he said sarcastically.  For borrowers, those glitches can mean the difference between homelessness and holding onto their house. For lenders, the process of fixing those errors can prove costly. Once challenged in court, some lenders decide it's cheaper to settle the case and move on to the next foreclosure waiting in the pipeline. “I have quite a few cases where the banks just walked away from the foreclosure litigation and either dismissed the action formally or just abandoned the litigation,” said April Charney, a staff attorney with Jacksonville Area Legal Aid, who has defended hundreds of Florida homeowners facing foreclosure since the market crashed in 2006.   

Homeowner victories in court go largely unreported, however. In some cases, lenders demand borrowers keep quiet as a condition of stopping the foreclosure and settling the case. Other borrowers feel intimidated, say consumer lawyers, fearing the lender could find a reason to restart the foreclosure process again. “Unless the loan is paid off, there’s always the risk of further fighting,” said Thompson. “And you just don't want to have the (lender) have a reason to be looking over your client’s payment records with a fine tooth comb.”

Wednesday, March 7, 2012

Government report on Freddie Mac filled with redactions.

Government report on Freddie Mac filled with redactions

A simmering debate on Capitol Hill over how to help more than six million Americans struggling to save their home from foreclosure took a strange twist Wednesday.
The inspector general charged with detecting "fraud, waste and abuse" in government-controlled mortgage giant Freddie Mac issued a performance audit that was compromised by heavy redactions in key sections.
Several of the report's 44 pages included blacked-out figures because of concerns over disclosing "confidential financial, proprietary business, and/or trade secret information," according to the explanation provided by the Federal Housing Finance Agency inspector general's office.
The redactions were made at the request of FHFA "and/or" Freddie Mac, according to the report.
FHFA was established in the wake of the financial collapse to oversee Freddie Mac and Fannie Mae, government-sponsored enterprises that were rescued out at a taxpayer cost of well over $100 billion.
The inspector general's report concluded that Freddie Mac alone could save taxpayers “significant” sums of money if it pressed the companies servicing its mortgages to modify more loans.
How much money could taxpayers save? That we don’t know because the OIG redacted the amounts.
For months, members of Congress have been pressing Fannie and Freddie to move more aggressively to modify loan terms to more affordable levels and write down the balances of underwater homeowners. The two enterprises own more than half of all U.S. residential mortgages.
More than 100 members of Congress have written to Edward DeMarco, acting director of FHFA, urging the agency to help underwater homeowners.
DeMarco has defended the refusal to write down loans on grounds that it would inflict large losses on taxpayers and that other forms of mortgage relief are just as effective. Some members of congress aren't buying it.
Reps. Elijah E. Cummings, D-Md., ranking minority member of the House Committee on Oversight and Government Reform and John F. Tierney, D-Mass., said in a letter to DeMarco last month that, according to a former Fannie Mae employee, a pilot program for principal reductions was cancelled because officials at Fannie were “philosophically opposed” to reducing principal.
Last month, California Attorney General Kamal Harris wrote DeMarco urging a halt to Fannie and Freddie foreclosures until FHFA conducts a “thorough, transparent analysis” of the costs and benefits of principal writedowns. In his response, DeMarco declined the request, saying he would "further delay foreclosures provided those borrowers have been given a meaningful opportunity to avail themselves of a loan modification or some other suitable foreclosure avoidance alternative."  
Here is the inspector general's full explanation for the redaction:
“This report includes redactions requested by the Federal Housing Finance Agency and/or the Federal Home Loan Mortgage Corporation (Freddie Mac). According to them, the redactions are intended to protect from disclosure material that they consider to be confidential financial, proprietary business, and/or trade secret information. They claim further that the redacted information would not ordinarily be publicly disclosed, and, if disclosed, could place (Freddie Mac) at a competitive disadvantage."
A spokeswoman for FHFA declined to comment further.

Thursday, March 1, 2012

Private actions not blocked in major government settlement on unfair foreclosures

March 1, 2012

Matthew Malamud
The $25 billion settlement recently reached between 49 state attorneys general and five mortgage servicers that is intended to help current and former homeowners affected by the foreclosure crisis does not release banks and their third-party servicers from private actions. The settlement includes relief such as principal reduction and refinancing. Diane Thompson, of counsel for the National Consumer Law Center in Boston, said while the settlement won’t solve the foreclosure problem, “it is a good start.”

The $25 billion settlement recently reached between 49 state attorneys general and five mortgage servicers that is intended to help current and former homeowners caught up in the foreclosure crisis may be most notable for what it doesn’t do—release banks and their third-party servicers from private actions.
An executive summary of the settlement indicates that the state attorneys general and banking regulators will no longer pursue civil claims against Ally Financial (formerly GMAC), Bank of America, Citibank, JPMorgan Chase & Co., and Wells Fargo over past conduct related to mortgage loan servicing, foreclosure preparation, and mortgage loan origination services.
The banks will pay a total of $5 billion in penalties and provide eligible current and former homeowners with $20 billion in various forms of relief, such as principal reduction and refinancing. The banks will also adopt new servicing standards, which include ending the mass signing of unverified foreclosure documents, a practice known as “robosigning.”

The settlement also provides compensation to servicemembers who were foreclosed on after January 1, 2006, in violation of the Servicemembers Civil Relief Act, and establishes new protections for servicemembers.

However, the settlement does not affect liability of the banks to homeowners or investors, nor does it clear the banks of any criminal wrongdoing. The executive summary states: “Securitization claims, including claims of state and local pension funds, and including investor claims related to the formation, marketing, or offering of securities, are fully preserved. Other claims that are not released include violations of state fair lending laws, criminal law enforcement, claims of state agencies having independent regulatory jurisdiction, claims of county recorders for fees, and actions to quiet title to foreclosed properties. Of course, the release does not affect the rights of any individuals or entities to pursue their own claims for relief.”
The government is touting the settlement’s size, but those who represent homeowners say $25 billion is just a drop in the bucket. About 750,000 Americans who have lost their homes—a fraction of the total—will receive $2,000 in compensation under the settlement, while as many as 1 million homeowners who currently owe more on their mortgages than their homes are worth could be eligible for as much as $20,000 in principal reductions.

“We’re $700 billion under water,” said Diane Thompson, of counsel for the National Consumer Law Center in Boston. “The money for principal reductions is clearly not going to be enough to solve the problem, but it is a good start.”

Thompson was glad to see that those who lost their homes and opt in to the settlement can still proceed with individual or class action litigation against the servicers. “I suspect that it took a fair amount of work on the part of the attorneys general to get the banks to agree to that and I think it’s extremely important that they did,” she said.

The new servicing standards will add strength and credibility to homeowners’ allegations that banks were not following best practices, Thompson said. “But this settlement involves just five mortgage servicers. Homeowners with mortgages owned by Fannie Mae and Freddie Mac—about half of all mortgages—are not covered. It’s an important step forward, but there’s a lot more work that needs to be done,” she said.

Wednesday, February 29, 2012

Fannie Mae Challenges Bank of America on Rift


By NICK TIMIRAOS
Fannie Mae challenged Bank of America Corp.'s assertion that the two decided by mutual consent in January not to renew their loan-purchase agreement in the middle of a battle over who should pick up the multibillion-dollar tab for bad mortgages.
Rather the mortgage-finance company said in interviews and filings Wednesday that it alone opted against renewing its contract with Bank of America because the bank was resisting demands to buy back defaulted mortgages. "We felt like we had to take that step," Susan McFarland, Fannie's chief financial officer, said in an interview.
The termination means that Bank of America will stop selling Fannie Mae most mortgages after years of being one of its biggest customers. Last week, Bank of America characterized the cancellation as mutual and said that it had pared ties to Fannie after the company changed its policies concerning certain buy-back demands.
Ms. McFarland also pushed back against that assertion. "We have not changed our position on buyback requests. From our vantage point, it's a change in their behavior," she said. Bank of America declined to comment.
Fannie Mae ramped up its dispute with Bank of America as it reported a $2.4 billion net loss for the fourth quarter, compared with from a year-earlier profit of $73 million. The company has reported losses in 17 of the last 18 quarters amid continuing deterioration in housing markets.
Bank of America briefly became Fannie's top client following its acquisition of Countrywide Financial Corp. in 2008. It accounted for 20% of all loans Fannie bought or backed in 2009, but that share had fallen below 10% by the third quarter last year, and below 3% in the fourth quarter, according to Inside Mortgage Finance.
In its federal filing, Fannie reported more than $5.4 billion in outstanding repurchase requests with Bank of America at the end of 2011, accounting for 52% of such requests. Moreover, some 18% of all repurchase requests to Bank of America hadn't been satisfied after 120 days, compared to 2% at J.P. Morgan Chase & Co ., Citigroup Inc. and Wells Fargo & Co .
Bank of America is an "exception," said Ms. McFarland, who joined Fannie as its finance chief last summer from Capital One Financial Corp. "They are the only one that is not honoring their contractual obligations even though the kinds of requests we're making of them are no different from those of our other counterparties."
Bank of America's annual contract with Fannie expired in October, and the two companies had operated under month-to-month agreements through January, according to a Fannie spokesman.
Ms. McFarland said that if BofA didn't honor Fannie's demands, "ultimately the taxpayer pays" because Fannie could be required to increase the amount of money it takes from the Treasury. She said both companies were working to find an "amicable agreement."
Fannie and Freddie don't make loans but instead buy them from banks and other lenders. Contracts governing those sales allow Fannie and Freddie to kick back mortgage loans found to be defective.
Those buybacks were seen as a minor nuisance when the mortgage market was running smoothly, but they have become a big drag on mortgage profitability over the past three years as Fannie and Freddie sift through huge piles of defaulted loans.
Banks have argued that Fannie and Freddie are being overzealous in forcing back loans that default due to reasons unrelated to underwriting, such as when a borrower loses his or her job.
Buybacks have become a major headache for Bank of America, in particular, thanks to its acquisition of Countrywide, whose role as Fannie's top client stretched back many years.
In January 2011, BofA paid $1.3 billion to settle all existing and future buy-back demands with Freddie Mac. It paid $1.3 billion to settle buyback demands with Fannie, but the agreement only covered buyback requests through Sept. 20, 2010.
Bank of America's row stems from policies concerning the treatment of loans that are covered by mortgage insurance, which is typically taken out to cover loans that have less than 20% in down payments. Mortgage insurance companies have rescinded coverage when they find instances of fraud or misrepresentation, and those rescissions may trigger buybacks from Fannie and Freddie.
Last summer, Fannie issued guidelines requiring banks to report insurance rescissions and clarified repurchase policies around those loans. BofA in several filings has said that Fannie changed its policy, but Fannie says that isn't the case.
The quarterly loss reported Wednesday forced Fannie to ask the U.S. Treasury for $4.6 billion, though that includes nearly $2.6 billion that it will pay the government in dividends. The taxpayer cost of Fannie's rescue now stands at more than $96 billion.
Fannie and its sibling, Freddie Mac, were taken over by the government 3½ years ago. The government has promised to inject unlimited sums through the end of this year, and nearly $300 billion after that, to keep them afloat.

Tuesday, February 28, 2012


California AG asks halt to foreclosures in state on GSE mortgages.

The New York Times (2/28, Dewan, Subscription Publication) reports, "California's attorney general, Kamala D. Harris, has ratcheted up the pressure on Fannie Mae and Freddie Mac to allow debt reduction on their home loans by asking the mortgage finance giants to halt foreclosures in the state. In a letter to Edward J. DeMarco, the regulator who controls Fannie and Freddie, Ms. Harris asked that foreclosures be suspended until his agency, the Federal Housing Finance Agency, completes a promised review of its policy forbidding debt reduction for delinquent homeowners who owe more than their home is worth." Harris has already "suggested that Mr. DeMarco should resign because he was not doing enough to help the housing market recover." DeMarco has cited costs to taxpayers in opposing debt reduction.
        The Los Angeles Times (2/28, Lazo) reports, "Harris' request for a foreclosure pause comes on the heels of a multistate mortgage settlement that will require the nation's largest mortgage servicers to reduce principal for certain borrowers."