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.

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.

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.

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."

Rulings keep homeowners' lawsuits on track

Mary Ellen Podmolik The Home Front

July 15, 2011

Federal judges in Chicago and Boston have issued rulings in the past three weeks that keep alive two long-running lawsuits brought by homeowners, including two suburban Chicago residents, who have suffered as a result of the housing crisis.

The rulings do not mean a resolution of either case is near, but the final outcome of both cases could affect hundreds of thousands of homeowners, so they bear watching. That's because the next step in the process is to try to get the cases certified as class-action suits.

The first ruling, handed down by a federal judge in Boston, allows a case to move forward that addresses a major complaint regarding loan servicers' implementation of the federal Home Affordable Modification Program, namely that some homeowners who faithfully make their trial payments were nevertheless denied permanent loan modifications.

According to the Treasury Department's most recent report of the program, of the almost 1.6 million trial modifications begun since HAMP started in April 2009, only 608,615, or 38 percent, have resulted in permanent mortgage modifications.

The U.S. District Court case consolidated 26 individual cases in 19 states that were brought by homeowners who allege that Bank of America broke "a binding contract" tied to the loan modifications.

The lender tried and failed to have the entire case, which includes Oak Lawn homeowner Deborah Brozak as one of the plaintiffs, dismissed, although Bank of America was successful in having some of the claims dismissed.

According to the suit, all 46 homeowner-plaintiffs had their mortgages with Bank of America and started trial HAMP mortgage modification plans with the servicer. The homeowners said despite fulfilling all the provisions that were necessary to have their lowered payments made permanent, Bank of America either failed to grant them permanent modifications or did not provide them with a written response as to why they were being denied.

Brozak, for example, made six trial payments to Bank of America in 2010 until September, when Bank of America stopped accepting her payments, and the servicer a month later initiated foreclosure proceedings against her, according to her suit, filed in October 2010 in Chicago.

The homeowners' suit proposes two classes of plaintiffs: Those who didn't receive temporary modifications and those who were not given permanent HAMP modifications.

The other suit, brought by homeowners against JPMorgan Chase, argues that the lender unfairly froze or reduced customers' home equity lines of credit as the housing crisis sent home values spiraling downward.

The lawsuit, filed in December 2009 by Evanston resident Shannon Hackett and then consolidated in federal court in Chicago with similar lawsuits in other states, challenges the decision by lenders to freeze home equity lines starting in 2008 as the value of homes securing the loans began dropping. National City Bank, now part of PNC Financial, offered some customers $200 cash if they would voluntarily cancel their credit lines.

Hackett had held a $100,000 home equity line for five years with Chase when she received notice in November 2009 that the line had been frozen and she could make no additional draws against it, according to the suit. Chase said her home, valued at $445,000 at the time of the line was taken out, had dropped in value to $358,000 based on "an industry standard method," and that sum no longer supported the full credit line.

She appealed Chase's decision and paid $385 for an appraisal that pegged the value of her home at $400,000. According to her complaint, the decline wasn't significant enough to enable Chase to employ provisions of lending rules that would allow it to suspend the credit line.

JPMorgan Chase sought to have the consolidated case dismissed, saying among other things that federal law and contractual provisions give it the right to cut home equity lines.

U.S. District Judge Rebecca Pallmeyer dismissed certain portions of the case that alleged fraudulent practices. But she also said the homeowners' allegations that Chase "reduced or suspended their (home equity lines) without adequate justification are sufficient to state claims" for breach of contract in some states, and the unfair conduct claims survive under state laws in, among other places, Illinois.

Efforts to reach Brozak and Hackett were unsuccessful.