PROGRAM FOR STRUGGLING HOMEOWNERS JUST TO A PLOY TO ENRICH BANKS
Treasury Makes Shocking Admissions |PROGRAM FOR STRUGGLING HOMEOWNERS JUST TO A PLOY TO ENRICH BANKS
Treasury Makes Shocking Admissions: PROGRAM FOR STRUGGLING HOMEOWNERS JUST TO A PLOY TO ENRICH BANKS
Today, August 26, 2010, 3 hours ago | Lori Kelly
Alternet
By Zach Carter
August 25, 2010
The Treasury Dept.’s mortgage relief program isn’t just failing, it’s actively funneling money from homeowners to bankers, and Treasury likes it that way.
The Treasury Department’s plan to help struggling homeowners has been failing miserably for months. The program is poorly designed, has been poorly implemented and only a tiny percentage of borrowers eligible for help have actually received any meaningful assistance. The initiative lowers monthly payments for borrowers, but fails to reduce their overall debt burden, often increasing that burden, funneling money to banks that borrowers could have saved by simply renting a different home. But according to recent startling admissions from top Treasury officials, the mortgage plan was actually not really about helping borrowers at all. Instead, it was simply one element of a broader effort to pump money into big banks and shield them from losses on bad loans. That’s right: Treasury openly admitted that its only serious program purporting to help ordinary citizens was actually a cynical move to help Wall Street megabanks.
Treasury Secretary Timothy Geithner has long made it clear his financial repair plan was based on allowing large banks to “earn” their way back to health. By creating conditions where banks could make easy profits, Getithner and top officials at the Federal Reserve hoped to limit the amount of money taxpayers would have to directly inject into the banks. This was never the best strategy for fixing the financial sector, but it wasn’t outright predation, either. But now the Treasury Department is making explicit that it was—and remains—willing to let those so-called “earnings” come directly at the expense of people hit hardest by the recession: struggling borrowers trying to stay in their homes.
This account comes secondhand from a cadre of bloggers who were invited to speak on “deep background” with a handful of Treasury officials—meaning that bloggers would get to speak frankly with top-level folks, but not quote them directly, or attribute views to specific people. But the accounts are all generally distressing, particularly this one from economics whiz Steve Waldman:
The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system,” “the economy,” and “ordinary Americans.”
Mike Konczal confirms Waldman’s observation, and Felix Salmon also says the program has done little more than delay foreclosures, as does Shahien Nasiripour.
Here’s how Geithner’s Home Affordability Modification Program (HAMP) works, or rather, doesn’t work. Troubled borrowers can apply to their banks for relief on monthly mortgage payments. Banks who agree to participate in HAMP also agree to do a bunch of things to reduce the monthly payments for borrowers, from lowering interest rates to extending the term of the loan. This is good for the bank, because they get to keep accepting payments from borrowers without taking a big loss on the loan.
But the deal is not so good for homeowners. Banks don’t actually have to reduce how much borrowers actually owe them—only how much they have to pay out every month. For borrowers who owe tens of thousands of dollars more than their home is worth, the deal just means that they’ll be pissing away their money to the bank more slowly than they were before. If a homeowner spends $3,000 a month on her mortgage, HAMP might help her get that payment down to $2,500. But if she still owes $200,000 on a house that is worth $150,000, the plan hasn’t actually helped her. Even if the borrower gets through HAMP’s three-month trial period, the plan has done nothing but convince her to funnel another $7,500 to a bank that doesn’t deserve it.
Most borrowers go into the program expecting real relief. After the trial period, most realize that it doesn’t actually help them, and end up walking away from the mortgage anyway. These borrowers would have been much better off simply finding a new place to rent without going through the HAMP rigamarole. This example is a good case, one where the bank doesn’t jack up the borrower’s long-term debt burden in exchange for lowering monthly payments
But the benefit to banks goes much deeper. On any given mortgage, it’s almost always in a bank’s best interest to cut a deal with borrowers. Losses from foreclosure are very high, and if a bank agrees to reduce a borrower’s debt burden, it will take an upfront hit, but one much lower than what it would ultimately take from foreclosure.
That logic changes dramatically when millions of loans are defaulting at once. Under those circumstances, bank balance sheets are so fragile they literally cannot afford to absorb lots of losses all at once. But if those foreclosures unravel slowly, over time, the bank can still stay afloat, even if it has to bear greater costs further down the line. As former Deutsche Bank executive Raj Date told me all the way back in July 2009:
If management is only seeking to maximize value for their existing shareholders, it’s possible that maybe they’re doing the right thing. If you’re able to let things bleed out slowly over time but still generate some earnings, if it bleeds slow enough, it doesn’t matter how long it takes, because you never have to issue more stock and dilute your shareholders. You could make an argument from the point of view of any bank management team that not taking a day-one hit is actually a smart idea.
Date, it should be emphasized, does not condone this strategy. He now heads the Cambridge Winter Center for Financial Institutions Policy, and is a staunch advocate of financial reform.
If, say, Wells Fargo had taken a $20 billion hit on its mortgage book in February 2009, it very well could have failed. But losing a few billion dollars here and there over the course of three or four years means that Wells Fargo can stay in business and keep paying out bonuses, even if it ultimately sees losses of $25 or $30 billion on its bad loans.
So HAMP is doing a great job if all you care about is the solvency of Wall Street banks. But if borrowers know from the get-go they’re not going to get a decent deal, they have no incentive to keep paying their mortgage. Instead of tapping out their savings and hitting up relatives for help with monthly payments, borrowers could have saved their money, walked away from the mortgage and found more sensible rental housing. The administration’s plan has effectively helped funnel more money to Wall Street at the expense of homeowners. And now the Treasury Department is going around and telling bloggers this is actually a positive feature of the program, since it meant that big banks didn’t go out of business.
There were always other options for dealing with the banks and preventing foreclosures. Putting big, faltering banks into receivership—also known as “nationalization”—has been a powerful policy tool used by every administration from Franklin Delano Roosevelt to Ronald Reagan. When the government takes over a bank, it forces it to take those big losses upfront, wiping out shareholders in the process. Investors lose a lot of money (and they should, since they made a lousy investment), but the bank is cleaned up quickly and can start lending again. No silly games with borrowers, and no funky accounting gimmicks.
Most of the blame for the refusal to nationalize failing Wall Street titans lies with the Bush administration, although Obama had the opportunity to make a move early in his tenure, and Obama’s Treasury Secretary, Geithner, was a major bailout decision-maker on the Bush team as president of the New York Fed.
But Bush cannot be blamed for the HAMP nightmare, and plenty of other options were available for coping with foreclosure when Obama took office. One of the best solutions was just endorsed by the Cleveland Federal Reserve, in the face of prolonged and fervent opposition from the bank lobby. Unlike every other form of consumer debt, mortgages are immune from renegotiation in bankruptcy. If you file for bankruptcy, a judge literally cannot reduce how much you owe on your mortgage. The only way out of the debt is foreclosure, giving banks tremendous power in negotiations with borrowers.
This exemption is arbitrary and unfair, but the bank lobby contends it keeps mortgage rates lower. It’s just not true, as a new paper by Cleveland Fed economists Thomas J. Fitzpatrick IV and James B. Thomson makes clear. Family farms were exempted from bankruptcy until 1986, and bankers bloviated about the same imminent risk of unaffordable farm loans when Congress considered ending that status to prevent farm foreclosures.
When Congress did repeal the exemption, farm loans didn’t get any more expensive, and bankruptcy filings didn’t even increase very much. Instead, a flood of farmers entered into negotiations with banks to have their debt burden reduced. Banks took losses, but foreclosures were avoided. Society was better off, even if bank investors had to take a hit.
ut instead, Treasury is actively encouraging troubled homeowners to subsidize giant banks. What’s worse, as Mike Konczal notes, they’re hoping to expand the program significantly.
There is a flip-side to the current HAMP nightmare, one that borrowers faced with mortgage problems should attend to closely and discuss with financial planners. In many cases, banks don’t actually want to foreclose quickly, because doing so entails taking losses right away, and most of them would rather drag those losses out over time. The accounting rules are so loose that banks can actually book phantom “income” on monthly payments that borrowers do not actually make. Some borrowers have been able to benefit from this situation by simply refusing to pay their mortgages. Since banks often want to delay repossessing the house in order to benefit from tricky accounting, borrowers can live rent-free in their homes for a year or more before the bank finally has to lower the hatchet. Of course, you won’t hear Treasury encouraging people to stop paying their mortgages. If too many people just stop paying, then banks are out a lot of money fast, sparking big, quick losses for banks — the exact situation HAMP is trying to avoid.
Borrowers who choose not to pay their mortgages don’t even have to feel guilty about it. Refusing to pay is actually modestly good for the economy, since instead of wasting their money on bank payments, borrowers have more cash to spend at other businesses, creating demand and encouraging job growth. By contrast, top-level Treasury officials who have enriched bankers on the backs of troubled borrowers should be looking for other lines of work.
Zach Carter is AlterNet’s economics editor. He is a fellow at Campaign for America’s Future, writes a weekly blog on the economy for the Media Consortium and is a frequent contributor to The Nation magazine.
Fighting A Foreclosure Ponsi Scheme
The Foreclosure Fight on TV. This video from CNBC features April Charney stating the
Truth about Foreclosure and Mortgage Backed Securities. Please excuse the commercial in the beginning
A $35.00 Mistake Can Stop Foreclosure!
A $35.00 Mistake, Its True, This is What A Forensic Loan Audit Can Do! Stop Foreclosure by Finding Lender Mistakes and Violations of the Law! Read more
Loan Modification VS Foreclosure Fight
Daily, in the newspapers, radio, television and the internet, articles are written about the difficulty that borrowers face in getting loan modifications. These reports come not just from reporters, but from loan modification companies and also attorneys who are attempting to do the loan modifications. These reports fly in the face of what the US government is saying about getting loan modifications. (Usually, the government says that lenders are doing loan modifications, and that a homeowner should not pay to have one done.) The question becomes, “what is the truth”?
The problem is that most people, including loan modification companies and attorneys do not understand what they are fighting against. Nor are they helped to understand the fight because of incompetent “audit” companies who do not understand this either. LFI will attempt to shed light on this subject.
The Servicers/lenders of these loans have no vested interest in doing loan modifications. They are simply acting as “collection agencies” most of the time.
The loans were usually sold in the process known as securitization. Loans were “bundled together”, placed into Trusts and then “sliced and diced” into “tranches”, a pretty word for slice. The tranches were then sold to investors and securities dealers who then sliced and diced them again into smaller pieces. This process continued until it reached the point where the actual owners of the loans cannot easily be determined.
Who Controls The Loan?
To control the payment process, the Trust named a Trustee to see that different parties were paid monthly. The Trustees included US Bank, Citibank, Chase, Deutsche Bank, Lasalle Bank, Lehman, and others.
All factors related to the loan process is governed by the Pooling and Servicing Agreements for each trust. This Agreement covers all aspects of the transaction from the origination of the loan, to the final disbursements. This Agreement is where the problem in negotiating loan modifications and principal reductions occur.
The Agreements all have similar language regarding loan modifications. Paraphrased, the Agreements authorize the Master Service to do loan modifications when the default of a particular loan is inevitable or likely. It is this phrase that “prevents” servicers from modifying a loan that the borrower is up to date on payments.
To make matters worse, the Servicer is bound by the Agreement to determine what will be in the best interests of the Trust. If more money can be made by foreclosing and liquidating the property instead of doing a loan modification, then the Servicer must foreclose. The process for doing the calculations to determine what is in the best interest is subjective at best, and each Servicer is likely to approach it differently.
It Only Gets Worse!
To further complicate the issue, when reading the Pooling and Servicing Agreement, there is a section entitled “Advances”. Simply put, this section states that for any homeowner who missed a payment, the Master Servicer must make that payment to the Trust from its own money. The homeowner keeps missing payments, the Master Servicer keeps making the payments to the Trust. This process continues until one of several events can occur:
- The homeowner brings the loan up to date, re-institution, by paying the back-owed money.
- The Master Servicer determines that the chances of repayment are nil, so foreclosure is initiated and accomplished.
- A Loan modification is worked out.
- Swapping out the bad loan by replacing it with a “good loan”.
The problem with these solutions is that the only way that the Master Servicer can be “refunded” the Advannces, is by the loan being brought up to date, or the foreclosure completed.
Now, imagine the number of homeowners behind in payments. The Master Servicer has put money out on each of these loans, and they are now severely strapped for cash. The easiest method for the Master Servicer to get back the Advances is to…………..FORECLOSE.
There, we have thee problem. The Master Servicer has its own interests in mind. By foreclosing, they no longer make the Payment Advances, and the Advanced Money is returned to them.
Where Did The TARP Funds Go?
An aside to this scenario…….it now becomes evident what the TARP funds issued to the banks by the US Government is for. It allows the banks, actually the Master Servicers to have the funds to keep operating. As more foreclosures occur, the TARP funds keep the bank leveraged so that the doors remain open.
Nice how it all fits in, when you know more of the details.
Thank you to Loan Fraud Investigations for this information
www.loanfraudinvestigations.com
An Amazing Case of Loan and Mortgage Fraud
Loan and mortgage fraud is becoming big business across the country and crooks continue to find new ways to take advantage of almost anyone and steal any identity. The reality is…Loan and mortgage fraud is becoming big business across the country and crooks continue to find new ways to take advantage of almost anyone and steal any identity. Read more
How Can I Stop Foreclosure?
Here are some Ideas: American homeowners need to come together and scream out loud, “We’re not gonna take it!” through filing predatory lawsuits alleging fraud and demanding quiet title actions.
While there is quite a self-serving underground movement aimed at suppression, (think Deep, Deep Throat, the sequel), we still have, on our side, a little document called the United States Constitution which assures us that “Citizens of the United States shall not be deprived of life, liberty or property without due process of law.”
This is the biggest question we hear from Loan Audit Clients
So how do you find your own due process?
If you are a victim of the Loan Fraud and part of their conspiracy, follow my ten step war plan of engagement
(Specia lThanks to Iris Martin, Autor of Mortgage Wars For this)
1. Get out those dusty closing documents and peruse them; they actually make for fascinating reading. You will learn all sorts of facts that your mortgage broker and lender did not want you to know, as in how they committed mortgage fraud.
2. Check your credit rating. If you have fallen to the bottom of the class and your loan is fraudulent, there is hell to pay. Your lender has violated the Fair Credit Reporting Act.
3. Compare the current value of your home to the stated appraised value at your closing. If your value has dropped significantly, it may have been fraudulently inflated to increase the loan amount, so your broker and lender could reap higher fees. Again, a major no no.
4. Is your debt to income ratio was over 35%? Oops, they did it again. It is against the law to put borrowers into loans that they cannot pay back.
5. Does your income reported to the IRS match the income on your loan application? If not, check to see if your data was fudged and your signature was forged. This was a common practice which also happens to be a crime.
6. Go online and Google your lender’s 10K and 8K filings for the year that you signed your loan documents. See how your lender has gleefully bragged to its investors about how efficiently it securitized loans such as your own. Most lenders even go as far as to claim that no loans sold into pools were predatory in any way! (Think investor fraud.) And don’t get me started on the accounting firms who certified these blatant lies. Or the credit rating agencies who stepped up to the plate with inflated ratings and outstretched palms.
7. Get a Forensic Loan Audit. It is the first step in building a winning lawsuit. We provide State of the art, comprehensive Forensic Loan Audits
8. Get a qualified attorney to file your “Qualified Written Requests” and your legal complaint. We have access to some of the best ones in the country who will not rip you off. No point in jumping from predatory lending to predatory lawyer.
9. Demand your loan be extinguished or Rescinded. After you have been defrauded, it is your legal right to demand that the predators be held accountable. Toward that end, don’t waste time attempting to modify a securitized loan. Go right for the jugular, just as your lender has.
10. Break out the champagne. You have tamed the wolf. Maybe in time, you can transform him into a lovable canine companion, maybe a Wall Street born-again Marley.
Stand up for yourself. Don’t fall for the media’s pre-emptive attacks on your character. An examination of recent history paints an entirely different picture of a conspiracy of politicians, regulators, investment bankers, mortgage brokers and nominal lenders that would do anything — including bankrupting the country and the globe — to profit from the derivatives explosion.
Get your Loan Audit, Get Informed Know your homeowner legal rights, and Get Help. It’s time for this karmic cycle to reverse and for homeowners to take back their American dream, one lawsuit at a time. It’s time to Stop Illegal Foreclosures
The Fight Mortgage Foreclosure Crisis
Foreclosure Starts Hit One Million So Far This Year
Here is the result of the Obama administration’s anti-foreclosure plan….
The US Housing Market has hit One million new foreclosures which have been filed so far in 2009, according to estimates by the Center for Responsible Lending. This comes on the heels of a new report from the Mortgage Bankers Association, the first quarter 2009 National Delinquency Survey, showing that 12% of all mortgages are now delinquent — the highest level since the MBA started measuring 37 years ago.
The NY Times reports: “Foreclosures are costing neighboring families hundreds of billions of dollars and dragging down the entire economy. Foreclosures started today’s crisis, and foreclosures will keep the crisis going if this epidemic continues.”
The Key issues to this “mortgage crisis” and the “foreclosure fight” I want to point out are:
The Government and is not focusing on (or possibly intentionally hiding) the real truth about the root cause of foreclosures. As we know, many of the foreclosures being filed the Lenders who are not the “Holder in Due Course” These Lenders do not own the note!
On a side note, these lenders count on homeowners not defending themselves and so far they are right as less than 1% of people served with a foreclosure defend themselves, they count on Americans to do what they always do… believe the government and fear the banks!
Not to mention the TILA, RESPA and other violations which are present in over 80% of all loans written between 2002 through 2006, which puts them in Jeopardy of having to pay the homeowners their money back in penalties …OR…being forced by the legal system to give the homeowner a “Free and Clear” title and ownership of the home. A Forensic Loan Audit will find these violations!
You may not know that Wall Street and these lenders intentionally created Mortgage Backed Securities to increase their profits. This is how your mortgage payments keep getting changed to different companies. This has caused a serious problem for them as they cannot prove ownership of the mortgages they are foreclosing!
If you haven’t read the Obama plan, has an unrealistic goal to prevent up to four million foreclosures. The Plan also is scheduled to give up to $75 billion in incentives to lenders to reduce loan payments for troubled borrowers. This past March, according to the US Treasury, Approximately 100,000 homeowners have been offered a modification, there are not many modification offers have been accepted by homeowners because it DOES NOT HELP THEM! We have seen unverified numbers that approach a HUGE total of 75 modifications out of 100,000 applications! You do the math on the percentages
Keep in mind, the Obama Plan has restrictions in the Loan-to Value based on the current market value of the home. I know I would not qualify as my home has dropped in value from $320,000 two years ago to a current value of around $190,000.
The Center for Responsible Lending projects 2.4 million foreclosure starts in 2009, with these foreclosures reducing the property values of some 70 million nearby households a total of $502 billion — about $7,200 per family. Through 2012, those numbers will rise to at least 9 million foreclosures that will cost 92 million neighboring families $1.9 trillion in lost home value. They also report that currently a new foreclosure starts every 13 seconds — nearly 6,500 a day.
Here is the problem as I see it…Obama is counting on and negotiating with lenders and loan servicers, the Same Lenders who manipulated the market and committed intentional Loan Fraud, to work with homeowners in good faith to dramatically increase loan modifications that actually stop foreclosures and keep people in their homes. Obama may as well negotiate with Terrorists, he will probably have better results!
Loan modifications will not succeed for homeowners with shallow fixes, but the Lenders will do them to eliminate the previous mortgage and the potential Liability it carries! Often times the modification will not lower a homeowner’s monthly payments and rolls all of the costs into the new loan!
Let me ask you, do you want to finance your home above the market value, include lender legal fees and be in debt for 40 years allowing the lender to manipulate you and scare you into submission. These lenders are similar to the Borg in Star Trek “You will comply or you will be assimilated” (assimilated meaning foreclosed).
Or will you be the Homeowner who Defends Your Legal Rights, get “mad as hell and not take it anymore” and find the fraud in your mortgage, Have Us perform a thorough Forensic Loan Audit and make the situation with your mortgage bode in your favor, make the lender negotiate with you! Put the odds in your favor, find the Fraud in your loan and avoid and/or stop your home foreclosure
Editorial by Buddy Toth, Axis Financial Consultants, www.how2fightforeclosure.com
Who Owns Your Mortgage |Stop Foreclosure
Here’s what can go wrong when a mortgage lender sells your loan and doesn’t tell you. One hand is moving to foreclose and kick you out, while the other is telling you they want to negotiate a loan modification…
Lender Fraud at is best… The results aren’t pretty.
You need a Forensic Loan Audit Negotiate and Fight Foreclosure. Defend your rights as a Citizen of the United States. If you want to Stop Foreclosure, this is you First Step in your defense
Bad Loans|Predatory Lending|Wall Street Knew!
Bad Loans Were Common on Wall Street
and on Your Street!
I am not surprised by the foreclosure crisis and you shouldn’t be either. I spent over 17 years in the Mortgage and Financial industries watching this mess growing.
It is a known fact that the banks, lenders, wall street often hired quality-control contractors that reviewed sub prime loans for investment banks before they were sold off on Wall Street. Or they had “In House” Q.C. as employees doing the work, or at least trying to do the work. You know, to not have loan fraud (LOL)
It was the QC persons job to dig into the loans and find the problems or “Red Flags”. Believe me between 2002 through 2006, Bad Loans were easy to find. The Financial Industry wanted VOLUME! After all, they were giving the Securities a bogus rating to begin with all in the name of progress! (can you say ponsi scheme?)
There were hotel workers in California claiming that they made,$15,000 a month so that they could qualify for a $500,000 home!
Had I known this I would have become a hotel worker is making $15,000 a month changing sheets at the Days Inn, WHO WOULDN’T want to do it. It just really made no sense. Here is another example: I saw a Lawn Service Owners application in Florida claiming to make $20,000 per month, That is a lot of grass and trees to maintain, I think I will stick with the hotel Job!
The Key Factor For Mortgage Fraud
The key factor for mortgage fraud was that the investors didn’t want the supervisors to have the auditors to do their job. If they would reject, or kick out, a loan, they usually would overrule the auditor and approve it.
I witnessed first hand a QC reviewer, at a “Now Defunct Lender” who reviewed the kicks would say, ‘Well, I thought it had merit.’ I thought to myself What? Their credit score was below 580.
And if it was an income verification, a lot of times they weren’t making the income.What kind of merit could you have determined, how can it get funded? The response would be something like ‘Oh, it’s fine. Don’t worry about it.’ ”
The main issue is: About 75 percent of the time, loans that should have been rejected were still put into the pool and sold!
A Smoking Gun?
All of this suggests that auditors working for Wall Street investment bankers knew how preposterous these loans were, and that could mean Wall Street liability for aiding and abetting fraud. …Any one speak with Bear Stearns About this Lately?
If you ask any loan-auditing firm (if they will speak with you) they will reply that the company has no incentive to give loans a passing review if they fail to meet underwriting criteria and that it uses additional quality-control measures to further check up on loan reviews.
I ask you to consider this their had to be breakdowns in quality control at a lot of companies. How else did millions of people wind up in loans that they can’t pay?
(Can you say Forensic Loan Audit for your mortgage to find the violations??)
Is There Accountability on Wall Street?
You have to understand that the auditors were hired to find the bad apples in the barrel and pull them out: borrowers with payments they couldn’t afford, houses with inflated appraisals, people lying about their income. But the investment banks had such a strong financial incentive that “They put the bad apples back in the barrel because they knew that they could sell the bad apples along with the good apples and, at least in the short term, nobody would know the difference. That’s why they put them back in — because they made more money that way, the age old bundling od credit risk as used in the Auto Sales Business
“There’s a name for this — it’s called ‘passing the trash,’ ” says David Grais of Super Lawyers Fame, an attorney getting ready to sue Wall Street firms on behalf of investors — big pension funds and others — who bought the bad loans.
“These were immensely profitable deals. One study showed that the investment banks were making a 40 percent return on equity every two months on these securitizations, which is an eye-popping number,” he says.
Grais says many people on Wall Street make huge bonuses when their business unit is making big money. So the faster they could package up loans — good, bad or ugly ones — and sell them to investors, the more money that they made, he says.
I know in speaking with a friend who was an outside wholesale representative that the managers got bonuses for how quickly they reviewed loans, not for how many bad loans they caught.
Did The Banks Agree to Limit Loan Rejections?
Other evidence is emerging….. A bankruptcy examiner in the case of the collapsed subprime lender New Century ( oops I said the name) recently released a 500-page report, and buried inside it is a pretty interesting detail. According to the report, some investment banks agreed to reject only 2.5 percent of the loans that New Century sent them to package up and sell to investors.
If that’s true, it would be like saying no matter how many bad apples are in the barrel, only a tiny fraction of them will be rejected. I have also heard that the attorney general in New York and other prosecutors are taking a look at all of this. They, too, want to know whether Wall Street firms were covering up bad loans and selling them to investors.
Think about how amazing it is... if any investment bank agreed to a maximum number of loans they would kick back for defects. That means that they were willing to accept junk. There’s no other way to put it, they got greedy and now they are going to PAY FOR IT!
In your Fight Against Foreclosure and Predatory Lending, protect yourself, get your personal forensic loan audit. Give your attorney something to work with and Stop an Illegal Foreclosure in it’s tracks!
WHERE’S THE NOTE, WHO’S THE HOLDER
WHO HAS YOUR MORTGAGE NOTE?
This Fight Against Home Foreclosure….
Is Constantly Getting more interesting (If I can Use the word “interesting” ) Here is a recent article from our friend in Southern California.
INTRODUCTION
In an era where a very large portion of mortgage obligations have been securitized, by assignment to a trust indenture trustee, with the resulting pool of assets being then sold as mortgage backed securities, foreclosure becomes an interesting exercise, particularly where judicial process is involved. We are all familiar with the securitization process. The steps, if not the process, is simple.
A borrower goes to a mortgage lender. The lender finances the purchase of real estate. The borrower signs a note and mortgage or deed of trust. The original lender sells the note and assigns the mortgage to an entity that securitizes the note by combining the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors.
Unfortunately, unless you represent borrowers, the vast flow of notes into the maw of the securitization industry meant that a lot of mistakes were made. When the borrower defaults, the party seeking to enforce the obligation and foreclose on the underlying collateral sometimes cannot find the note. A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes “securitized” have been lost or destroyed. The cases we are going to look at reflect the stark fact that the unnamed source’s speculation may be well-founded.
UCC SECTION 3-309
If the issue were as simple as a missing note, UCC §3-309 would provide a simple solution. A person entitled to enforce an instrument which has been lost, destroyed or stolen may enforce the instrument. If the court is concerned that some third party may show up and attempt to enforce the instrument against the payee, it may order adequate protection. But, and however, a person seeking to enforce a missing instrument must be a person entitled to enforce the instrument, and that person must prove the instrument’s terms and that person’s right to enforce the instrument. §3-309 (a)(1) & (b).
WHO’S THE HOLDER
Enforcement of a note always requires that the person seeking to collect show that it is the holder. A holder is an entity that has acquired the note either as the original payor or transfer by endorsement of order paper or physical possession of bearer paper. These requirements are set out in Article 3 of the Uniform Commercial Code, which has been adopted in every state, including Louisiana, and in the District of Columbia. Even in bankruptcy proceedings, State substantive law controls the rights of note and lien holders, as the Supreme Court pointed out almost forty (40) years ago in United States v. Butner, 440 U.S. 48, 54-55 (1979).
However, as Judge Bufford has recently illustrated, in one of the cases discussed below, in the bankruptcy and other federal courts, procedure is governed by the Federal Rules of Bankruptcy and Civil Procedure. And, procedure may just have an impact on the issue of “who,” because, if the holder is unknown, pleading and standing issues arise.
BRIEF REVIEW OF UCC PROVISIONS
Article 3 governs negotiable instruments – it defines what a negotiable instrument is and defines how ownership of those pieces of paper is transferred. For the precise definition, see § 3-104(a) (“an unconditional promise or order to pay a fixed amount of money, with or without interest . . . .”) The instrument may be either payable to order or bearer and payable on demand or at a definite time, with or without interest.
Ordinary negotiable instruments include notes and drafts (a check is a draft drawn on a bank). See § 3-104(e).
Negotiable paper is transferred from the original payor by negotiation. §3-301. “Order paper” must be endorsed; bearer paper need only be delivered. §3-305. However, in either case, for the note to be enforced, the person who asserts the status of the holder must be in possession of the instrument. See UCC § 1-201 (20) and comments.
The original and subsequent transferees are referred to as holders. Holders who take with no notice of defect or default are called “holders in due course,” and take free of many defenses. See §§ 3-305(b).
The UCC says that a payment to a party “entitled to enforce the instrument” is sufficient to extinguish the obligation of the person obligated on the instrument. Clearly, then, only a holder – a person in possession of a note endorsed to it or a holder of bearer paper – may seek satisfaction or enforce rights in collateral such as real estate.
NOTE: Those of us who went through the bank and savings and loan collapse of the 1980’s are familiar with these problems. The FDIC/FSLIC/RTC sold millions of notes secured and unsecured, in bulk transactions. Some notes could not be found and enforcement sometimes became a problem. Of course, sometimes we are forced to repeat history. For a recent FDIC case, see Liberty Savings Bank v. Redus, 2009 WL 41857 (Ohio App. 8 Dist.), January 8, 2009.
THE RULES
Judge Bufford addressed the rules issue this past year. See In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008). First, there are the pleading problems that arise when the holder of the note is unknown. Typically, the issue will arise in a motion for relief from stay in a bankruptcy proceeding.
According F.R.Civ. Pro. 17, “[a]n action must be prosecuted in the name of the real party in interest.” This rule is incorporated into the rules governing bankruptcy procedure in several ways. As Judge Bufford has pointed out, for example, in a motion for relief from stay, filed under F.R.Bankr.Pro. 4001 is a contested matter, governed by F. R. Bankr. P. 9014, which makes F.R. Bankr. Pro. 7017 applicable to such motions. F.R. Bankr. P. 7017 is, of course, a restatement of F.R. Civ. P. 17. In re Hwang, 396 B.R. at 766. The real party in interest in a federal action to enforce a note, whether in bankruptcy court or federal district court, is the owner of a note. (In securitization transactions, this would be the trustee for the “certificate holders.”) When the actual holder of the note is unknown, it is impossible – not difficult but impossible – to plead a cause of action in a federal court (unless the movant simply lies about the ownership of the note). Unless the name of the actual note holder can be stated, the very pleadings are defective.
STANDING
Often, the servicing agent for the loan will appear to enforce the note. Assume that the servicing agent states that it is the authorized agent of the note holder, which is “Trust Number 99.” The servicing agent is certainly a party in interest, since a party in interest in a bankruptcy court is a very broad term or concept. See, e.g., Greer v. O’Dell, 305 F.3d 1297, 1302-03 (11th Cir. 2002). However, the servicing agent may not have standing: “Federal Courts have only the power authorized by Article III of the Constitutions and the statutes enacted by Congress pursuant thereto. … [A] plaintiff must have Constitutional standing in order for a federal court to have jurisdiction.” In re Foreclosure Cases, 521 F.Supp. 3d 650, 653 (S.D. Ohio, 2007) (citations omitted).
But, the servicing agent does not have standing, for only a person who is the holder of the note has standing to enforce the note. See, e.g., In re Hwang, 2008 WL 4899273 at 8.
The servicing agent may have standing if acting as an agent for the holder, assuming that the agent can both show agency status and that the principle is the holder. See, e.g., In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) at 520.
A BRIEF ASIDE: WHO IS MERS?
For those of you who are not familiar with the entity known as MERS, a frequent participant in these foreclosure proceedings:
MERS is the “Mortgage Electronic Registration System, Inc. “MERS is a mortgage banking ‘utility’ that registers mortgage loans in a book entry system so that … real estate loans can be bought, sold and securitized, just like Wall Street’s book entry utility for stocks and bonds is the Depository Trust and Clearinghouse.” Bastian, “Foreclosure Forms”, State. Bar of Texas 17th Annual Advanced Real Estate Drafting Course, March 9-10, 2007, Dallas, Texas. MERS is enormous. It originates thousands of loans daily and is the mortgagee of record for at least 40 million mortgages and other security documents. Id.
MERS acts as agent for the owner of the note. Its authority to act should be shown by an agency agreement. Of course, if the owner is unknown, MERS cannot show that it is an authorized agent of the owner.
RULES OF EVIDENCE – A PRACTICAL PROBLEM
This structure also possesses practical evidentiary problems where the party asserting a right to foreclose must be able to show a default. Once again, Judge Bufford has addressed this issue. At In re Vargas, 396 B.R. at 517-19. Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.
FORECLOSURE OR RELIEF FROM STAY
In a foreclosure proceeding in a judicial foreclosure state, or a request for injunctive relief in a non-judicial foreclosure state, or in a motion for relief proceeding in a bankruptcy court, the courts are dealing with and writing about the problems very frequently.
In many if not almost all cases, the party seeking to exercise the rights of the creditor will be a servicing company. Servicing companies will be asserting the rights of their alleged principal, the note holder, which is, again, often going to be a trustee for a securitization package. The mortgage holder or beneficiary under the deed of trust will, again, very often be MERS.
Even before reaching the practical problem of debt and default, mentioned above, the moving party must show that it holds the note or (1) that it is an agent of the holder and that (2) the holder remains the holder. In addition, the owner of the note, if different from the holder, must join in the motion.
Some states, like Texas, have passed statutes that allow servicing companies to act in foreclosure proceedings as a statutorily recognized agent of the noteholder. See, e.g., Tex. Prop. Code §51.0001. However, that statute refers to the servicer as the last entity to whom the debtor has been instructed to make payments. This status is certainly open to challenge. The statute certainly provides nothing more than prima facie evidence of the ability of the servicer to act. If challenged, the servicing agent must show that the last entity to communicate instructions to the debtor is still the holder of the note. See, e.g., HSBC Bank, N.A. v. Valentin, 2l N.Y. Misc. 3d 1123(A), 2008 WL 4764816 (Table) (N.Y. Sup.), Nov. 3, 2008. In addition, such a statute does not control in federal court where Fed. R. Civ. P. 17 and 19 (and Fed. R. Bankr. P. 7017 and 7019) apply.
SOME RECENT CASE LAW
These cases are arranged by state, for no particular reason.
Massachusetts
In re Schwartz, 366 B.R.265 (Bankr. D. Mass. 2007)
Schwartz concerns a Motion for Relief to pursue an eviction. Movant asserted that the property had been foreclosed upon prior to the date of the bankruptcy petition. The pro se debtor asserted that the Movant was required to show that it had authority to conduct the sale. Movant, and “the party which appears to be the current mortgagee…” provided documents for the court to review, but did not ask for an evidentiary hearing. Judge Rosenthal sifted through the documents and found that the Movant and the current mortgagee had failed to prove that the foreclosure was properly conducted.
Specifically, Judge Rosenthal found that there was no evidence of a proper assignment of the mortgage prior to foreclosure. However, at footnote 5, Id. at 268, the Court also finds that there is no evidence that the note itself was assigned and no evidence as to who the current holder might be.
Nosek v. Ameriquest Mortgage Company (In re Nosek), 286 Br. 374 (Bankr D Mass. 2008).
Almost a year to the day after Schwartz was signed, Judge Rosenthal issued a second opinion. This is an opinion on an order to show cause. Judge Rosenthal specifically found that, although the note and mortgage involved in the case had been transferred from the originator to another party within five days of closing, during the five years in which the chapter 13 proceeding was pending, the note and mortgage and associated claims had been prosecuted by Ameriquest which has represented itself to be the holder of the note and the mortgage. Not until September of 2007 did Ameriquest notify the Court that it was merely the servicer. In fact, only after the chapter 13 bankruptcy had been pending for about three years was there even an assignment of the servicing rights. Id. at 378.
Because these misrepresentations were not simple mistakes: as the Court has noted on more than one occasion, those parties who do not hold the note of mortgage do not service the mortgage do not have standing to pursue motions for leave or other actions arising form the mortgage obligation. Id at 380.
As a result, the Court sanctioned the local law firm that had been prosecuting the claim $25,000. It sanctioned a partner at that firm an additional $25,000. Then the Court sanctioned the national law firm involved $100,000 and ultimately sanctioned Wells Fargo $250,000. Id. at 382-386.
In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008).
Like Judge Rosenthal, Judge Feeney has attacked the problem of standing and authority head on. She has also held that standing must be established before either a claim can be allowed or a motion for relief be granted.
Ohio
In re Foreclosure Cases, 521 F.Supp. 2d (S.D. Ohio 2007).
Perhaps the District Court’s orders in the foreclosure cases in Ohio have received the most press of any of these opinions. Relying almost exclusively on standing, the Judge Rose has determined that a foreclosing party must show standing. “[I]n a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time that the complaint was filed.” Id. at 653.
Judge Rose instructed the parties involved that the willful failure of the movants to comply with the general orders of the Court would in the future result in immediate dismissal of foreclosure actions.
Deutsche Bank Nat’l Trust Co. v. Steele, 2008 WL 111227 (S.D. Ohio) January 8, 2008.
In Steele, Judge Abel followed the lead of Judge Rose and found that Deutsche Bank had filed evidence in support of its motion for default judgment indicating that MERS was the mortgage holder. There was not sufficient evidence to support the claim that Deutsche Bank was the owner and holder of the note as of that date. Following In re Foreclosure Cases, 2007 WL 456586, the Court held that summary judgment would be denied “until such time as Deutsche Bank was able to offer evidence showing, by a preponderance of evidence, that it owned the note and mortgage when the complaint was filed.” 2008 WL 111227 at 2. Deutsche Bank was given twenty-one days to comply. Id.
Illinois
U.S. Bank, N.A. v. Cook, 2009 WL 35286 (N.D. Ill. January 6, 2009).
Not all federal district judges are as concerned with the issues surrounding the transfer of notes and mortgages. Cook is a very pro lender case and, in an order granting a motion for summary judgment, the Court found that Cook had shown no “countervailing evidence to create a genuine issue of facts.” Id. at 3. In fact, a review of the evidence submitted by U.S. Bank showed only that it was the alleged trustee of the securitization pool. U.S. Bank relied exclusively on the “pooling and serving agreement” to show that it was the holder of the note. Id.
Under UCC Article 3, the evidence presented in Cook was clearly insufficient.
New York
HSBC Bank USA, N.A. v. Valentin, 21 Misc. 3D 1124(A), 2008 WL 4764816 (Table) (N.Y. Sup.) November 3, 2008. In Valentin, the New York court found that, even though given an opportunity to, HSBC did not show the ownership of debt and mortgage. The complaint was dismissed with prejudice and the “notice of pendency” against the property was cancelled.
Note that the Valentin case does not involve some sort of ambush. The Court gave every HSBC every opportunity to cure the defects the Court perceived in the pleadings.
California
In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008)
and
In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)
These two opinions by Judge Bufford have been discussed above. Judge Bufford carefully explores the related issues of standing and ownership under both federal and California law.
Texas
In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008)
and
In re Gilbreath, 395 B.R. 356 (Bankr. S.D. Tex. 2008)
These two recent opinions by Judge Jeff Bohm are not really on point, but illustrate another thread of cases running through the issues of motions for relief from stay in bankruptcy court and the sloppiness of loan servicing agencies. Both of these cases involve motions for relief that were not based upon fact but upon mistakes by servicing agencies. Both opinions deal with the issue of sanctions and, put simply, both cases illustrate that Judge Bohm (and perhaps other members of the bankruptcy bench in the Southern District of Texas) are going to be very strict about motions for relief in consumer cases.
SUMMARY
The cases cited illustrate enormous problems in the loan servicing industry. These problems arise in the context of securitization and illustrate the difficulty of determining the name of the holder, the assignee of the mortgage, and the parties with both the legal right under Article 3 and the standing under the Constitution to enforce notes, whether in state court or federal court.
Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues. The next round of cases may and should focus upon the title to debt instrument. The person seeking to enforce the note must show that:
(1) It is the holder of this note original by transfer, with all necessary rounds;
(2) It had possession of the note before it was lost;
(3) If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be prepared to post a bond;
(4) If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).
Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.
Thanks,
Mortgage Audits
Thank you Robert, your efforts on the Fight For Homeowners Rights, and The Foreclosure Mess is invaluable, Together we will help Homeowners Get Educated One At A Time!
