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MUST SEE MSNBC Nightly News Fraudclosure Series
No End in Sight to Foreclosure Quagmire
Posted by Foreclosure Fraud on May 11, 2011MSNBC Foreclosure Crisis Reports
You can view/read the main text article for the special report here:
http://www.msnbc.msn.com/id/42881365/ns/business-personal_finance/
Foreclosure Crisis: The Mortgage Loan Modification Trap
http://www.msnbc.msn.com/id/21134540/vp/42938007#42938007
Foreclosure Crisis: The Whistleblowers
http://www.msnbc.msn.com/id/21134540/vp/42938009#42938009
Foreclosure Crisis: Manufactured Loan Documents
http://www.msnbc.msn.com/id/21134540/vp/42938017#42938017
Foreclosure Crisis: The Face of Foreclosure: One Family’s Story
http://www.msnbc.msn.com/id/21134540/vp/42938294#42938294
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State AGs Offer New Settlement Terms to Mortgage Servicers
American Banker | Wednesday, May 11, 2011
By Cheyenne Hopkins
WASHINGTON — After months of stalemate, the state attorneys general have proposed new terms to the top five mortgage servicers that drop some controversial provisions of their first attempt at a settlement, including a push to force banks to reduce principal on thousands of mortgages.
The new offer, which was expected to be discussed at a meeting between the two sides on Tuesday, moves them closer to a final agreement, but does not detail how much state AGs are seeking in penalties for servicing issues uncovered by federal and state regulators.
Banks have privately said that they will not agree to a fine above $10 billion — far below a discredited $20 billion figure floated in the press two months ago — arguing that regulators have not provided evidence that servicing problems led to wrongful foreclosures.
The AGs are considering using whatever money they receive from banks to start a “cash for keys” program to help troubled borrowers move out of their homes and speed the foreclosure process by providing them cash incentives to leave. The funds are also expected to be used to promote mortgage counseling and offer some forebearance to troubled homeowners.
While banks have not agreed to the new terms, they do appear much more beneficial than an offer made in February, which demanded sweeping changes across the servicing industry, including principal reductions. By dropping that requirement, banks have already scored a key victory, observers said.
“It makes sense for principal reduction to be off the table because it creates a tremendous number of legal and logistical obstacles that in the context of a complex settlement are obviously difficult and distracting,” said David Dunn, a partner at Hogan Lovells law firm. “It makes sense for that to come off the table for the parties to reach agreement on issues that are less difficult and controversial.”
But the term sheet would still require the servicers to enact substantial changes to their practices, and could potentially raise issues in new areas.
Under the new terms, according to several sources, servicers would be required to allow borrowers that received a trial Treasury Home Affordable Mortgage Program modification — but which were denied a permanent mod — to reapply for the program.
The state AGs are also continuing to insist that servicers stop pursuing loan modifications and foreclosures at the same time, a process known as dual tracking that has drawn complaints from confused consumers.
The revised term sheet raised some new issues, including a proposed requirement for more documentation concerning the basis of knowledge for a foreclosure and notes and assignments. The state AGs are seeking to require documentation on the appropriate transfer and delivery of endorsed notes and deeds of trust at the formation of a mortgage-backed security. Essentially, servicers would have to document that they not only have positions with the MBS but document that the securitization was formed properly.
The new term sheet would also expand protections provided by the Servicemembers Relief Act to prohibit foreclosures on servicemembers who have been permanently moved to a post in a different state.
The new settlement also includes language that servicers must make borrowers aware of loss mitigation options prior to referral to foreclosure and facilitate loss mitigation applications. But the state AGs have dropped a demand that servicers provide to the Consumer Financial Protection Bureau their formulas for calculating the net present value of a home.
It remains unclear if banks are amenable to the proposed new terms. Also unknown is whether the new requirements would be extended to the rest of the servicing industry.
“I don’t know where the banks are with this because they are working on their federal consent orders,” said Lisa DeLessio, a partner at Hudson Cook LP. “I still think it’s very unclear what this means. If the AGs reach a settlement with the banks, what will this mean for the rest of mortgage servicers? What will happen to them?”
Despite the proposed new terms, many observers were pessimistic the two sides will reach a deal anytime soon. Fed up with the delay in the process, the banking regulators already moved forward in April with a cease and desist action against the top 14 mortgage servicers.
The state AGs, meanwhile, have been beset by doubts on their own side after the initial release of their 27-page term sheet. Several Republican AGs said pursuing principal reductions were a mistake, while GOP members on Capitol Hill criticized the CFPB’s involvement in the settlement process.
Some said the process was liable to continue to drag out.
“I do not believe the prospects of a full resolution in the short term are very high as there remain divergent views among all parties,” said Andy Sandler, co-chair of BuckleySandler LLP.
Others said the AGs will not force a settlement until they can provide more details on what exactly the banks did wrong. While the banking regulators released an 18-page report detailing deficiencies at the servicers, the state AGs have not spelled out what issues they uncovered.
“There has to be some more due diligence and investigation before they have the credibility to enforce a settlement,” said Josh Rosner, managing director of the research firm Graham Fisher & Co. “If they did a credible investigation of origination and servicing and detailed the findings of that investigation it would demonstrate how troubled the situation is and how deep the economic morass is.”
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I-Team: The Secret Truth About Foreclosures
86-year old Collis McDuffie chokes back tears when he thinks about losing the home that he bought back in 1963, to foreclosure.
“When you go through what I’m going through. Lord have mercy,” McDuffie said, as he questioned his future.
“At my age, where am I going to go?”
His daughter Zella is blunt.
“And this is where the banks are making money. They’re making money off of people. It doesn’t matter. Who cares if you’re living on the streets,” said Zella McDuffie-Smith.
Making money off of people? Big banks profiting from foreclosures? That news stunned many South Floridians who responded to questions from the CBS4 I-Team.
“I think it’s wrong,” said one man.
“Well, appalled of course,” was a woman’s reaction.
Another woman told us, “I think it’s disgraceful. That’s what I think.”
This shopper in South Dade was very pointed, “That’s criminal.”
In fact, it just might be criminal.
Fifty state attorneys general are currently investigating the foreclosure fiasco.
Legal Services of Greater Miami’s Jaqueline Ledon is helping Collis McDuffie, fight to keep his home.
“The practical thinking is, why would a bank want to own a property, maintain it, pay the taxes… all that,” said Ledon.
According to some critics, the practical or old way of thinking doesn’t hold up anymore. Why? It’s estimated that 95% of all mortgages are not even owned by the bank that loaned you the money. Most banks have sold them off.
In the most simplistic terms… banks bundled mortgages much like a gift is boxed, wrapped and tied up with a bow.
That way, they looked safe to conservative investors, such as the people who buy long-term investments for pension funds.
But when the housing market unraveled, much like a bow comes untied, it left the investors holding, in essence, a nicely wrapped empty box worth very little.
In many cases… nobody even knows who really owns the mortgages anymore.
“They’re worthless,” said Ledon. “They’re worthless. The mortgage itself is worthless.”
Since the bank that originally made the loan sold it off, foreclosure is not even a risk to them anymore, according to Weston attorney Roy Oppenheim.
“Typically the way the servicers were compensated, they would receive more compensation through a foreclosure than through a modification,” Oppenheim explained.
So what is a servicer? It’s a bank or financial company that handles your mortgage, doing such things as collecting your monthly payment.
As a servicer, they get to collect fees, fines and penalties. Servicers are also the first in line to collect even more money once a property is repossed.
“And therefore, it was in their interest to have the foreclosure go through the process versus a modification,” Oppenheim told CBS4′s Chief Consumer Investigator Al Sunshine.
Basically, you, the borrower are asking for a modification from the very same people who can make more money from your foreclosure, than if they offered you a cheaper, or modified mortgage, in order to keep you in your home.
Isn’t that an inherent conflict of interest?” Al Sunshine asked attorney Oppenheim.
“The whole process is wrought with conflicts of interest. It’s just a rotten bag of apples,” Oppenheim concluded.
Foreclosures Trapped by a Lack of Lawyers
By NICK TIMIRAOS
Moves by banks to ditch law firms snared in the “robo-signing” mess are spreading delays and confusion to borrowers, while angering judges grappling with thousands of foreclosure cases now trapped in limbo.
The trouble began when U.S. banks and government-owned mortgage giants lost confidence in some law firms that handled a huge volume of foreclosures. After controversy erupted last fall over the shoddy review of loan documents known as robo-signing, banks dropped some law firms.
The problems are particularly acute in Florida. Above, a home in Miami.
Finding replacement lawyers who can pick up the slack quickly has been a struggle. While the resulting slowdown means that fewer houses are being seized, late fees are piling up for homeowners seeking a loan modifications. Investors who own bonds backed by those mortgages could face higher costs from the snags.
“It’s causing chaos because nobody knows who’s representing whom,” says Thomas Ice, a foreclosure defense lawyer in Royal Palm Beach, Fla.
The problems are particularly acute in Florida, one of 23 U.S. states where foreclosures must be processed through courts. Last fall, Fannie Mae and Freddie Mac terminated their relationship with the Law Offices of David J. Stern. At its peak, the Plantation, Fla., firm handled nearly 20% of all foreclosures in the state.
In March, the Stern law firm told judges across Florida that it was unable to file the necessary paperwork to withdraw from 100,000 cases. Florida’s attorney general is investigating allegations that the firm routinely forged notarized documents. The firm denies the accusations and is challenging the attorney general’s jurisdiction in court.
“There’s nobody to call to expedite any of these things. My clients are in limbo every day,” says Craig Lynd, a founding partner of KEL Attorneys, an Orlando, Fla., law firm.
Two of his clients, 58-year-old Ruth Diehl and her husband, have been in talks with a J.P. Morgan Chase & Co. unit for more than two years about a loan modification on their home in Ocoee, Fla. The bank agreed to offer different loan terms at a court-ordered mediation session last summer, where it was represented by the Stern law firm.
But the deal wasn’t finished, Mr. Lynd says, and efforts to force compliance with the agreement in court was hampered by the removal of the Stern firm from the case. A different law firm was assigned to the case, and J.P. Morgan asked the new firm to reach out to Mr. Lynd, said a J.P. Morgan spokesman.
Ally Financial Inc., the GMAC Mortgage parent in which the U.S. government owns a 73% stake, transferred to other lawyers its foreclosures previously assigned to the Stern firm.
Lisa Butterfield, who is trying to surrender her Middleburg, Fla., home to GMAC through a “deed-in-lieu” of foreclosure, says she has heard nothing from the new lawyer who was assigned her case. “You finally think, ‘I’m finally going to get this settled,’ and then it’s not,” she says. She moved last year to take care of her parents but still pays the utilities in hopes of reaching a deal with GMAC.
An Ally spokeswoman says the “situation in Florida is challenging, given the large number of borrowers in foreclosure and the number of quality law firms to manage these cases.” She declined to comment on Ms. Butterfield’s situation.
[FORECLOSE]
Mr. Stern has blamed former foreclosure clients for failing “to take into consideration any succession planning” when they terminated his firm, according to a written response to a Florida judge. Jeffrey Tew, a lawyer for Mr. Stern, says banks have withheld millions in legal fees and are to blame for delays.
A Fannie spokeswoman says transfers of foreclosure files from terminated firms to new lawyers have been completed. Fannie has approved 16 law firms to handle its cases in the state, up from nine firms last year. Freddie uses 14 law firms in Florida, up from four.
Peter Blanc, the chief judge in Palm Beach County, Fla., with nearly 9,000 cases from the Stern firm, last month urged Mr. Stern to reconsider his decision to walk away from cases. Another problem: Two law firms that got some of the Stern cases were later dropped by Fannie, Freddie and banks.
“Whatever anyone thinks the cost of David Stern’s implosion is, quadruple it,” says Richard Shuster, a real-estate lawyer in Miami.
On Friday, Judge Blanc will start convening special hearings to reassign hundreds of cases a day until the backlog is cleared. “If nobody shows up” on behalf of the banks, “we will dismiss the cases,” he says. If that happens, banks would have to essentially start over.
In February, Fannie terminated its relationship with Ben-Ezra & Katz after the Fort Lauderdale firm notified Fannie that some paralegals took inappropriate technical shortcuts. Marc Ben-Ezra, a principal at the law firm, says the firm is trying to withdraw from 15,000 cases “cooperatively and responsibly.”
But other firms taking over those foreclosures “tend to be overwhelmed,” while some clients have seized files and told his firm to no longer act on their behalf. “It’s bad for everybody,” Mr. Ben-Ezra says. On Thursday, the law firm said it is suspending its foreclosure practice until further notice.
Write to Nick Timiraos at nick.timiraos@wsj.com
